The Economy: Supply side economic policies in the context of GuySuCo’s debacle

– the broader macroeconomic implications


As was alluded to in last week’s “The Economy” column, in which the author indicated that a separate article shall be dedicated to advance in much greater depth – the far-reaching economic implications of the largest retrenchment in Guyana’s economic history, that is, the 9,000 or 10,000 plus, now, unemployed sugar workers; this article seeks to address this issue in a scholarly manner. In doing so, it is worthwhile to examine the theoretical underpinning of economic policies being pursued, in the most simplified manner possible or in ‘layman’ terms, especially those that are particularly designed to address – in a postmortem way – the unemployed sugar workers – within a pragmatic framework.

Economic policies generally constitute two dimensions, that is, demand-side policies which are policies aimed at stimulating demand for goods and services in an economy and supply-side policies which are aimed at increasing the supply of goods and services produced by firms operating in an economy. It is important to note, at this point of this discussion – that demand and supply are the very basic, fundamental principles of economics. In the broad economics profession, there are some economists who tend to subscribe to Keynesian economics, a world-renowned economist who firmly believed in demand-side policies being more effective to fuel economic growth, and there are also some economists who are firm believers in supply-side policies. Thus, logically one may ask, which approach is more effective and in this case, more sensible? Nonetheless, the answer to this question warrants extensive academic debates and/or discussions which are naturally beyond the scope of this article.

Having said that, in the budget 2018 presentation, a few measures were provided therein for the divestment or restructuring of GuySuCo – designed with the intent to cushion the effects of the retrenched workers. To this end, citing the Budget speech (2018, pg.52): “In order to ensure the continued livelihoods, a skills re-training programme is anticipated to be offered for those who choose to pursue new opportunities. Those who wish to continue with a livelihood in agriculture may see an opportunity to own their own farmland”.In addition, there was an outreach programme held by a few key Ministers of Government with the sugar workers sometime in January of this year. In that meeting, one Minister stated that a range of foreign companies are interested in Guyana and the sugar industry, suggesting that there are going to be opportunities as opposed to the general ideology that there are no or limited opportunities to absorb the sacked sugar workers. Another suggestion put forward by the Minister is that there are many opportunities for alternative employment – referring to a shortage of plantains for fast-food chain Pollo Tropical and to the market available for soursop and other fruits.

These policies are supply-side policies of course, and without getting into too much technicalities with regards to the underlying economic theories – is it really sensible to convey a message of hope to thousands of people to wait for companies to come invest in Guyana? A mere expression of interest by foreign companies does not mean that they actually manifest into reality. Hypothetically, even if one of those companies decide to invest in Guyana – with the series of protocols and bureaucracies that would have to be undertaken, it would take months, possibly a year or two or even more before they reach to the operationalization phase and employment phase.

For example, since in 2013 and even long before, investors were being sought after to invest in Manganese in Matthews Ridge, in the North West District. And only now, in 2018, four years after and possibly longer (if it was indeed long before 2013 when yours truly became aware of this development), that the Chinese are now seeking to invest in Manganese. So there will now be a Manganese company in North West but that will take some time again before the company is fully operationalized. Hence, while waiting for foreign investors to come, how long should these thousands of people sit and wait to earn? How will they pay their monthly bills and put food on the table? How long will the severance pay last to meet their daily needs to survive?

On the other suggestion put forward, having to do with farming, opportunities exist in the supply of fruits etc., indeed these are good initiatives but as far as this author is aware (and I stand corrected), no lands were transferred to the ownership of these workers as was promised to them – to get into farming of other crops. Notwithstanding, while the idea sounds ambitious– in practice there are some completely different peculiarities altogether. Again, hypothetically, if a few thousands of these people do get into farming, who will they sell to? The process to convert cane lands into alternative agricultural lands would attract a financial cost which sugar workers and farmers would certainly not be able to bear. Consideration must be given to what other crops will be planted. There is excessive production of the common provisions and cash crops, and lack of export market for these produce is another concern. In addition, without value-added mechanisms in place, excessive production would ultimately lead to wastage and depressed pricing.

There is also the other initiative of training with new skills such as carpentry, plumbing and so on – as the sacked workers themselves said – speaking to the press not too long ago – how much work will they get as carpenters and how often? Most of the homes already have plumbing. Ironically too, the administration of the day has squashed the housing drive that was pioneered under the previous administration that saw thousands of home being built and the development of huge housing schemes and other such like developments across the country – a time during which there was virtually a housing or construction boom. So it is very ironic that there is no substantive policy to fuel a construction boom in which carpenters and so forth could have a steady flow of work and ultimately income to support their livelihoods.

In the most basic sense; demand side policies versus supply side policies in the context of GuySuCo’s fiasco is such that; in order for there to be sustained and increasing demand for goods and services in an economy, the consumers need to have the spending power – having more disposable income drives demand which in turn propels economic growth. On the supply side of things, if people don’t have the spending power, then how will businesses get sales? Sales will fall which could also lead to unemployment. If someone decides to invest $500,000 into a business, selling clothing or any other commodity or venture, if people don’t have money to spend and support that business/investment, then it will simply fail.

That being said, advising the sacked sugar workers to take their severance and invest in a business is totally nonsensical. Who will buy? Who has the power to buy? This author also understands that they were advised to invest in stocks – meaning shares in companies – on the local stock exchange. Again this is hilarious; if one were to invest one million dollars in shares, first of all, companies are not necessarily obligated to pay dividends – depending on the financial state and strategic plans of the company – and return on that would be very minimal or insignificant, bearing in mind that dividends are only paid once or twice a year. People only invest in those kinds of investments when they have excess cash or liquidity. This means that they have a steady flow of monthly income to maintain their normal lifestyle, pay their bills, travel, go on a vacation, party, have properties and vehicles, enjoying a good quality of life, could afford to send their children to school and university, and still have excess cash which would more or less be in a savings bank account. It is that savings referred to as excess cash – that is usually invested in company shares and other financial instruments in the financial markets.

And last but not least, this retrenchment will cost the economy approximately $10 billion in income distribution annually, which in turn are utilised for consumer spending; consumer spending fuels economic growth, it sustains the livelihoods of businesses such as retailers, the fisher man, the taxi driver, hire car drivers, minibus operators, the vendors on the streets, the village shops, and the wider retail and distribution sector in addition to spending in their own village economies and the list goes on and this is how approximately 40,000 plus dependents are affected adversely that will have far-reaching implications on the economy, unemployment will increase, poverty will be on the rise, and social and economic hardships will be activated for a wide cross section of the Guyanese people and by extension, the economy.

(Next week the author shall examine a different dimension of this issue).

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