Sunday 9th September, 2007

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Signs of the times

We will not avoid another economic collapse—as occurred in the 1980s—unless we get the economics right.

Paradoxically, correct economics requires we first correct “the politics:” not by simply changing parties but the rules of the constitutional game.

The current Patrick Manning and Ken Valley conflict and the Andre Monteil/Home Mortgage Bank (HMB) affairs are, in fact, mere symptoms of a more deep-seated malaise.

The authors of the recent book on Escaping the Resource Curse observe that the lower economic development of countries with large natural resource endowments—such as oil and gas—also is a result of lower performance in terms of “good governance.”

In fact, the absence of “good governance” is central to understanding why plenty (ie windfall oil and gas earnings) is not routinely transformed into a diversified range of productive investments before the end of such booms.

A middle eastern economist, Moma Katouzian, put his finger on the causal pulse when he pointed out that in hydrocarbon economies the domestic economic sectors are highly dependent on the State.

This is as opposed to the “normal” economy where the State relies on a productive private sector on which to lever “bounty” (ie taxes).

Here, Katouzian notes “…this position is reversed; it is the domestic economic sectors, including the private sector that are dependent upon the state for direct and indirect welfare gains through the latter’s disbursement of the oil revenues.”

What then determines the relative access to such State largesse? Katouzian goes on:

“..the most clear cause of social stratification between various classes is neither their relative earnings, nor their common relation with the means of production.

“On the contrary, it is the common relations with the state—the chief supplier of the means of consumption—that determines the relative welfare position and status of different socio-economic groups.”

To put Katouzian’s point bluntly, directly, and concretely, Mr Andre Monteil would not have been able to put his hands on $100 million worth of shares in the Home Mortgage Bank if he was not a PNM insider.

We need to be careful about simply focusing on Monteil. He is one example and symptom of any number of similar instances of privileged access to State largesse by those close to whichever is the ruling party predominantly on the basis of making financial contributions to all parties.

The rest of us in the society will only be able to redress this imbalance of access—including investing for future generations—when the constitution is changed in two major ways.

First, by creation of party finance regulations requiring mandatory public disclosure of party funding sources; reinforced by independent annual audit of their books and restrictions on the ability of big ticket contributors to hold public office and/or benefit from state projects.

The second major requirement is for genuine representation of the people in Parliament with power to investigate questionable decisions such as the Monteil/HMB case, which stinks to the heavens. Here’s why. It is not simply the $100 million share transfer that is at issue since, ultimately, Monteil actually paid for them. The more frightening aspect is the two amendments to the HMB Act by Parliament.

A July, 2005 amendment took away prior restrictions on the ownership and transfer of shares simultaneously giving directors the power to dispose of shares “on such terms and conditions as the directors shall think fit.” The second amendment of February of this year makes directors immune from liability “for acts done in relation to the exercise of their functions.”

It is these two amendments that, I suspect, led the Central Bank to reluctantly conclude that the transfer of $100 million shares to Monteil’s company was legal although going against the spirit of broad based ownership of the HMB.

How did these two amendments fast track the legal drafting traffic jam while many bills of substantial national importance languish at the traffic lights of legal drafting and parliamentary tabling?

Was there a conspiracy of influence peddling across a spectrum of legal drafting and parliamentary bill tabling corridors? I can only speculate.

A genuine parliament, as in the case of the US Congress, would demand answers by immediately setting up an investigatory committee.

The question of MP Valley’s representation of his constituents, therefore, needs to be located within this context. To this I will return next week.

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