Dr. Ramesh Gampat describes Guyana’s economy from 1977 to 1990 as the “Great Economic Downsizing” (GED) because the economy slumped by more than a third of its size from 1977 to 1990. He says that “perhaps longest economic contraction in Guyana occurred during the regime of the PNC” (December 1964 to October1992), first by Forbes Burnham (thru August 1985 and Desmond Hoyte thru 1992).
Why did he call the period from 1977 to 1990 the GED? “Great”because the economic catastrophe lasted for long 14 years. “Economic” because the economic contracted -2.7 percent annually for the 14 years. “Downswing” because the contraction was not a recession, which is a macroeconomic term that refers to a significant decline in general economic activity for 2 consecutive quarters. In the case of Guyana, there were 40 quarters of decline. A recession lasts 3-4 years, while Guyana’s economy was in a freefall, a downward spiral, for 14 years. Hence, the term “Downswing.” Interestingly, the Great Downswing was preceded by a long upswing (14 years during which growth averaged 4 percent annually) and followed by 7 years of very high growth (average of7.1 percent annually).
Some idea of the magnitude of the downsizing: • Real GDP was smaller (30.5 percent) when the GED ended in 1990 than when it began in 1977, contracting from US$ 1.6 to US$1.1 billion or smaller by US$0.5 billion• Per capita income was 28.7 percent smaller at the end of GED than at its beginning, falling from US$ US$2,100 per person to US$1,100. Per capita income would have been even sampler were it not for massive out-migration of around 200,000 during the period of the GED (1977-1990)
The author says there were two sets of causes for the GED: internal Causes and external causes. As background to the former, Guyana was becoming a burden to Britain, which wanted to rid itself of the troublesome, mosquito-infested mudflat by the 1950s. There was, however, a huge problem: America did not want an independent Guyana led by Dr. Cheddi Jagan. Consequently, the CIA conducted covert operations to prevent Jagan from winning the election Jagan still won 1964 but not allowed to form government, which was formed by an inconvenient coalition of PNC (Burnham) and UF (D’Aguiar). These men had nothing in common except that they did not Jagan to lead an independent Guyana. In fact, they could not stand each other and D’Aguiar almost resigned but the coalition was saved by the intervention of the US.
Burnham massively rigged 1968 election, which got rid of the inconvenient coalition. Burnham now unhinged, no longer tied to the US, and on 23 February 1970, he declared Guyana a “Co-operative Republic,” which severed all ties with the British monarchy. He said: “Our republic will be called a Co-operative Republic …” The goal of the Co-operative Republic was a strange creature named Co-operative Socialism, which was a disguise for authoritarianism and entrenching himself in power for life. In turn, the goal of Co-operative Socialism was twofold: (1) to make the small man the real man, and (2) to transform the dual sectoral economy into a tri-sectional economy by adding the co-operative sector to the private and public sectors. The co-operative sector was tasked with the responsibility of making the small man the real man, while the private sector would be squeezed and marginalized so that the public sector could become fat, bloated, inefficient and but good at extracting economic rent from the private sector and the sugar industry.
Several strategies were used to achieve Co-operative Socialism. The most important was the Principle of Party Paramountcy, which made the ruling PNC party is supreme over all other political parties, institutions, and state agencies. In effect, the PNC was above the state; the state was secondary to the party Since Burnham was the head of the PNC, he was the supreme authority in the land. Burnham was now the Kabaka, King of Guyana. The Monarchy was gone since 1970 when Guyana severed ties with Great Britain and Burnham invented his own kingdom. He shows how “via the Principle of Party Paramountcy, the PNC became superior to the state,” which was merely “one of its executive arms.” The state was thus brought under the control of the PNC and Burnham was the Executive President for life. More than half of the 28 years of the PNC regime were years of authoritarianism punctuated by periodsof ethnic violence. Other internal causes of the GED included “a planned economy, nationalization of foreign companies, creation of new state entities, nationalization of education and re-education of the people, a radical foreign policy, expansion of the security forces and populating them with mostly Africans, capture of the judiciary, and instilling fear into the population especially its Indian component”.
Burnham was now the Maximum Leader of Guyana. No one or no entity was higher than him, note even the law of the land. He was above the constitution. By the end of the 1970s, Guyana became an authoritarian state, impoverished and presided over by this new king. That was in fact Forbes Burnham’s dream with Co-operative Socialism as the instrument for its realization.
In addition to internal causes, there were two major external causes of GED: (i) unfavorable terms of trade, and (ii) cessation of financial support by the west. The terms of trade have always played an important a role in the economy, which dances to the tune of commodity prices magnified by its heavy dependence upon import, both for consumption and production. Guyana’s terms of trade dropped by an average of 2.5 percent annually between 1972 and 1979. Translated: a unit of export was buying less and less of imports. The country’s import affordability was falling, meaning that it was increasingly unable to afford its import bill
What evidence is there for the GED? The evidence includes but is not limited to
1. A shrinking economy, which got smaller by 2.7 percent annually
2. A bloated and inefficient public sector with the government owning and controlling 80 percent of the economy by the early 1980s. Among others, one indicator of the fat public sector is that is share of fixed investment increased from 79 percent in 1977 to 89 percent in 1990. Consequently, the share of the private sector fell from 21 percent t 10 percent, which is an indication of the extent to which the private sector was marginalized
3. A large underground economy that ranged from 26 to 99 percent of the formal economy
4. Steep devaluation of the Guyana dollar. In 1977, the price of one US dollar was G$2.55 but this rose to G$111.80 in 1990. Considerably more Guyana dollar was required to buy one US dollar do the Guyana dollar became vastly cheaper
5. Soaring inflation that rose from 11.1 percent in 1977 to 81.8 percent in 1990. In June 1990, a gallon of brown rice sold for $50 but its price rose to $166.33 in May 1991, while a pint of dal increased from $21.60 to $45.80 during the same period
6. The productive apparatus of rice, sugar and bauxite crumbled. The production of rice contracted by 45.3 percent from 1977 to 1990; that of sugar by 26.4 percent; that of calcined bauxite by 55.4 percent, while alumina produced was reduced to zero in 1981.
7. Ballooning deficit, which rose from 15.6 percent of GDP in 1977 to almost the size of GDP in 1990
8. The external debt stock soared, rising from little more than half a billion US dollar in 1977 to two billion in 1990
9. The external debt stock was 117 percent of GDP in 1977 to rose to 500 percent in 1990
10. Guyana was increasingly unable to service its external debt stock for export earning was required. Debt services increased from two times total export earning to 8 times
11. Sad state of education, which was reduced from one of the best in the Caribbean to one of the worst
12. The smallest increase in lifespan. During the 14 years of GED, life expectancy increased by 1 year compared to 1.5 years and 4 years for the fourteen before and after the economic tsunami. Among 26 Latin American countries
13. Based on an econometric model, he calculates that the PNC government wiped off life 1.16 years of 423 days from the life expectancy of the average during its 28 years of misrule
14. Labor was the only factor that contributed positively to growth during the GED. Capital exerted a negative effect while drag effect of total factor productivity was vast and stifling
15. The extraordinary deterioration of infrastructure
16. Pillage of rice industry with the implicit tax exceeding 40 percent
In the end, the small man got smaller and the economy had to be rescued by foreign assistance. Burnham and the PNC did not succeed in grafting a cooperative sector onto the economy or achieving socialism. Instead, they whipped up ethnic bitterness and transformed ethnicity into tribalism.
Dr. Gampat concludes with three important lessons. These are: bad politics leads to bad economics; growth suffers if Indians are marginalized and discriminated against because it is Indians whoIndians drive the economy; compared to the PNC, the PPP is better for growth. He also notes that economic growth by itself is not the solution to Guyana’s dilemma. Rather, peace and stability, justice and fairness, good policies, and control of corruption. These totalfactor productivity ingredients seem to impact growth much more than labor and capital. They also scream out for further research.