Avoiding death from oil and trees

Yesterday the Stabroek News reported that President President Bharrat Jagdeo had successfully pitched his proposal that Guyana be compensated for its standing rainforests.

I want to highlight the similarities between this and earning foreign exchange from oil production, or any primary material extracted from public land for that matter.

Both would yield revenue streams directly to the government for activity that is not tied to efforts to produce something. Economic data show that revenue associated with production of goods and services is associated with economic growth whereas revenue derived from natural resource exploitation is associated with slow or even negative economic growth, especially in countries with poor institutions and democratic records.

Natural resource revenue is often derived by not doing much more than allowing a company to drill and getting a cut from it. This causes what has been called, 'the manna-from-heaven' effect. Since production friendly policies and practices are not required in order to gain this revenue, the country's institutions are geared toward dividing the spoils. The private sector of a country in this situation usually languishes not only because the government does not need it to get most of its revenue, but also because the appreciation of the country's currency on the world market makes the country's manufactured exports less competitive on the the world market. This effect is known as 'Dutch disease'.

The whole point of expounding this 'resource curse' in relation to Guyana's solicitation of compensation for maintaining standing forests, is to show that it doesn't matter if it's oil extracted by CGX or carbon credit compensation.

Both generate a stream of revenue directly to the government. This revenue that doesn't come from the tax paying electorate can, and usually is, spent without public oversight. The government in power has incentives to divide this 'manna from heaven' in ways that are politically important to the regime in power.

Oftentimes what's politically important includes spreading the wealth around, only just enough to stay in power. For the political opposition it often ends up as a never-ending dream punctuated only by lost elections. For the powerless public it means the likelihood of greater chances of gaining prosperity by knowing someone in government rather than through honest labour and enterprise.

People lose trust in a system in which windfall natural resource revenue encourages corruption and discourages transparency. Resource states often don't have the incentive to enforce contracts in a predictable manner nor to protect property rights. The government will get paid the same regardless. This is the seedbed out of which talent drains.

Guyana's future carbon credit revenue, while having environmental benefits will have the same basic political and economic effects as oil revenue. It fits nicely into the government's business plan. The government engages in self-interested capitalism when it seeks to sell standing or felled trees, oil, gold, diamonds, etc. on the world market. The more profit it gains from this, the more incentive it has to stay in power and use undemocratic means to do so.

This places it in diametric opposition to the interests of the electorate who demand accountability, transparency, responsiveness and development.

Dr. Martin E. Sandbu at the University of Pennsylvania recommends that a populace check its government and avoid many elements of the resource curse by mandating that all natural wealth revenues be disbursed directly to the electorate via natural wealth accounts (NWA's). Each voting citizen would get a statement in the mail at regular intervals stating how much money was deposited into his or her personal account and how much was taxed by the government. Experience shows that governments funded by taxing their populations are far more accountable and have better institutions. This is because the people feel the pinch of taxation. People don't feel any pinch when resource rents are paid directly to the government because they don't see it as forgone income. Promoting the pinch of taxation usually promotes more vigilance on the part of the electorate.

If all governments fundamentally exist at the consent of the governed, then taxation ties the two together in a more intimate relationship than would exist if the government didn't need to fund itself out of the peoples' pockets. Is it any wonder there is a disconnect between the government and the governed when the government of Guyana gains most of its revenue from a handful of sectors that are composed of a handful of players. When the government can fund itself by keeping a small number of people happy, it has no incentive to be very answerable to the rest.

National Wealth Accounts or NWA's, may also achieve something that would most likely be done in a much less equal and inefficient fashion by the government; ensuring that all citizens benefit from natural resource revenue. Instead of funneling the spoils to those who promise to support the incumbent regime, an NWA system would at least split the revenue evenly amongst all the resident citizens of voting age. This will go a long way toward healing the ethnic and class divisions in Guyanese society. All will be elevated by an equal amount.

This system will not only grow our economy, but also mitigate the effect of having hords of special interest groups descending upon the government wanting their own slice of the manna pie. If the only revenue the government has is tax revenue, there is more responsibility attached to it. Though there will always be special interest groups running after government money, at least they may get to it after the rest of the citizens have handled it first. However, depending on the total amount of evenly distributed revenue, the NWA system may even mitigate the need for special interests groups to form and seek public money.

A Kwesi Sansculotte-Greenidge at Yale University wrote a perceptive letter to the editor at Stabroek News that got published on the 30th of November. A truncated version is as follows:

"Our government - though I think that they have long lost the moral right to be called a government-- has become a haven for gun toting ministers and corrupt officials.

The people to whom we look to protect us, are led in some cases by men more criminally minded than those they are charged with arresting." (...)

"I am beginning to think that the cancer has spread so far that more drastic action may be needed. Guyana needs a vision. We need to feel like our leaders are taking us somewhere.

The government it seems has no long-term vision for Guyana. Like all political parties in Guyana today they seem only interested in power and little else." (...)

"Each one [lost opportunity for development] is a slap in the face of the Guyanese people from an incompetent government, each one a stinging reminder of where this malaise originated. Without vision and direction no nation can achieve its destiny.

It seems that Guyana is unique, in that on more than one occasion, due to poor leadership, we have missed our rendezvous with destiny."

Yours faithfully,

Kwesi Sansculotte-Greenidge


I would put forth to my fellow mourner Kwesi, that all governments are composed of people who are mostly interested in maximizing their own personal benefit and that of those who support them. The only way to change the outcome is to drastically change the incentives they respond to.

The government of Guyana will be far more interested in the thoughts, feelings, desires and aspirations of our people when our people have the money derived from the natural bounty of our country. In this new game, the government will be tasked with raising its funding from the electorate with their consent.

Join me in proclaiming that Guyana's natural exports of gold, diamonds, minerals of all kinds, standing or felled lumber, fossil fuels and (maybe in the future) water exploited from the public domain, all belong to the citizens of Guyana first. The government may partake of the citizens' revenues at the discretion of the same, to be determined by fair and transparent political processes.

Altogether, Guyana has more natural resources on a per capita basis, than just about any other country in the world. Are we going to let them curse us or bless us? On one hand we have a government that grabs the spoils and spends them according it their own incentives. On the other hand we have a system that protects the right of the individual citizen to spend or save his/her share of the revenue according to personal incentives.

Anything less with be a half measure that leaves Guyana fundamentally similar to the one we have today. The Guyana we have today is not the abode of most Guyanese, so I think the votes have been counted in that regard.

Kwesi cites the lack of vision on the part of our leadership. I will put forth idea that the people of Guyana the ones who need to have the vision that leads along the path in which the government is not standing in the way. Their job is to figure out how to tax the fruits of this vision in an accountable manner to fund the institutions that protect our safety, liberty property and one that results in the predictable enforcement of contracts between citizens. Any further governmental responsibilities exist at the discretion and oversight of the people.

My vision of the future is that of a world in which people will feel lucky for having been born or married into the family of Guyana. The blessings we will have will result in the voluntary re-location of educated and skilled Guyanese back home to partake of these blessings. This will result in Guyana having the most varied human skill-set of any country in the region. Due to Guyana's natural endowments, people and opportunities derived from her relative location between two very large economies, Guyana will wield a regional and global influence disproportionate to her size and population. I call this day 'The Golden Age of Guyana'.

JC Bollers