The heart of the matter: corruption, organised crime, and the shadow economy Guyana and the Wider World
By Dr Clive Thomas Stabroek News
August 10, 2003

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In last week’s article I began to pull together the various strands of analysis, which I have been addressing over the past five months, as I elaborated on the phenomenon of ‘the state as a criminal enterprise.’ I had indicated in that article that I would proceed by way of identifying the important ‘theses’ I have put forward in that analysis, offering very brief reference where required, to the material and places where these have been substantiated in the previous articles. To set the stage, last week’s article also briefly reminded readers of the context in which this current series of articles had originated and listed the five main ‘building blocks’ or areas of analysis on which the main argument has been constructed.

Thesis (1) on method
Proceeding to the heart of the matter, perhaps the most critical thesis on method that I have put forward is that the state as a criminal enterprise is not determined either solely, or even principally, by its methods of rule or the forms of governance, which it practises. If one relied on these to make this determination, we would be in effect characterising the nature of the state without reference to the particular historical context in which it has evolved. In other words neither its social and economic origins, nor the state form that preceded it, nor for that matter the international environment in which it functions, would be vital ingredients for determining its essential nature. This thesis, I have further argued, is not peculiar to the present analysis, but holds true for the study of all forms of state.
The practical relevance of this thesis is very important for my argument and its usefulness readily observed if one considered the various states around the world. In several of these criminal activity is prevalent, and other forms of governance identified in Guyana are also commonplace. Indeed, in the CARICOM region alone countries like Jamaica and Trinidad and Tobago, face a major onslaught of kidnappings, violence, drugs, and organised crime. The key difference between these countries and Guyana, however, is the way in which they confront these challenges. Thus while we would observe that some arms of the state in these other countries may be infected by these criminal deformations, for example the police services, in Guyana the legacy of the previous authoritarian state of the 1980s, along with the domestic, economic and social collapse we have experienced for more than a decade has permitted a far deeper penetration of these deformations into shaping the form of the state. There is to my mind a big difference to be found between a developing democracy struggling to contain crime and corruption, and a post-authoritarian state overrun by these situations.

Thesis (2) on corruption
A second thesis, which has been advanced, is that extensive corruption fosters the growth of the state as a criminal enterprise. In the series it was pointed out and supported by quotations from ‘authoritative sources’ such as the World Bank that corruption ‘supersedes the rule of law’; promotes distortions in the implementation of laws, rules and regulations; provides advantages to non-state actors; and, offers illicit provisions of private gains to public officials. Where corruption is rife there is a systemic tendency to undermine legality. As a result of this situation the international community has recently come to the view that corruption is the single biggest hindrance and obstacle to development, and a major contributor to the persistence of poverty in developing countries.
For an economy like Guyana, where poverty is extensive (35 per cent of the population at the last estimate) and where economic growth has been limited (averaging less than 0.3 per cent per annum over the period 1998-2002, not to mention the immiserizing growth of the 1980s) this relation between corruption, poverty, and lack of development is a major cause for concern.

Thesis (3) on the shadow economy
A third thesis which was advanced is that the structure, nature, and size of the shadow economy is a useful proxy indicator for the roles corruption and organised crime play in Guyana. It was pointed out that although it is an intrinsically difficult task to undertake, given the illegal character of this economy, the first attempt to formally measure the shadow economy in Guyana was completed for the period 1982-86 by myself several years ago. Using five different measures this effort yielded an average size for the shadow economy of 35-69 per cent of the official GDP. On this basis it was further estimated that the ‘black market’ for foreign exchange ranged from US$40 million to US$100 million.
As regards the nature of the shadow economy in this period I cited the IMF, which came to the conclusion that, “excessive interference by the state in the economy, poorly designed regulations, and an overvalued currency in the official foreign exchange market led to favourable conditions for the rapid growth of rent seeking activities and the institutionalisation of the underground economy.”
As I observed (April 13), with the rapid liberalisation of the economy after 1989 and the introduction of the ERP, the original rationale for the shadow economy changed. Although some restrictions remained and opportunities for rent-seeking and incentives for tax evasion persist, the bulk of the present shadow economy is now primarily made up of organised criminal activity. By ‘organised’ I meant ‘well-developed, systematic, and making full use of all the opportunities, which globalisation has provided for it to thrive.’
The IMF has recently estimated the shadow economy as averaging forty-seven (47) per cent of the official economy in the 1990s. On this basis I then estimated the annual size of the organised criminal sector to range from US$100 million to US$240 million.
For an economy as poor and small as Guyana, this represents a substantial fraction of the country’s income and wealth. By any standards it constitutes a major factor in the provision of livelihoods for the broad mass of the population. Indeed I argued that it was large enough to shape (distort) the incentive and reward system for most economic activity. Because of its illegal, criminal nature its impact on society was far-reaching and fundamental. In other words organised crime has become a major engine of growth, and contributor to national well-being. In no society is this a sustainable path for development. Guyana is no exception.

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