Pull Quote: ‘The argument that drives the ‘too-big-to-fail’ theory reposes in a belief that some business institutions are so large that their failure would impact significantly on the broader national economy in a manner that goes beyond their own substantive disappearance’
IN 1984, United States Congressman, Stewart McKinney sought to put into perspective the controversial government infusion of US$4.5 billion into the Continental Illinois Bank Trust Company by characterizing the ailing financial institution as “too big to fail.” The Senator effectively mainstreamed a turn-of-phrase which, more than a quarter of a century later, was to become commonplace in America as the Obama administration moved to provide huge financial bailouts to selected private-sector institutions that had buckled under the pressure of the global economic and financial crisis.
The argument that drives the ‘too-big-to-fail’ theory reposes in a belief that some business institutions are so large that their failure would impact significantly on the broader national economy in a manner that goes beyond their own substantive disappearance.
Accordingly, adherents of the theory embrace State intervention with financial and other concessions to prevent them from going under. It is, in a sense, a kind of lesser-of-two-evils line of argument.
On the other hand, critics of the theory contend that where failure is the result of underperformance that derives from clear evidence of management and operational deficiencies, the hapless institutions do not deserve to survive.
Here in Guyana, the government has responded to the travails of the country’s oldest and largest industry, sugar, by providing significant financial bailouts and other concessions, giving rise to public discourse as to whether GUYSUCO may in fact already have been deemed as being ‘too big to fail’.
If it has been suggested in some quarters that the underperformance of the sugar industry has been, in considerable measure, a function of avoidable management and operational shortcomings, and that it is therefore undeserving of being classified as ‘too big to bail’, key functionaries within GUYSUCO, during recent interviews with this newspaper, have advanced arguments to the contrary.
GUYSUCO’s case for being classified as ‘too big to fail’ hinges on what management contends is its enduring importance to the economic and social wellbeing of Guyana, its current difficult circumstances notwithstanding.
The industry, it was pointed out, remains the single largest employer of labour in Guyana, currently having 20,000 people on its payroll. That makes it, arguably, the single largest employer of labour in the English-speaking Caribbean.
If sugar now finds itself the victim of declining fortunes, GUYSUCO’s management points out that it still accounts for around 12 per cent of the country’s Gross Domestic Product, and more than 20 per cent of export earnings. In other words, even if the sugar industry is not in what one might call ‘pristine shape’, its performance cannot be wiped from the economic radar without significant consequences.
GUYSUCO’s Chief Executive Officer, Paul Bhim — who favours the term too important to fail — makes a case for sugar, which he says transcends the substance performance on the industry. Bhim points, for example, to the company’s annual expenditure of around $6 billion on goods and services locally, linking that to GUYSUCO’s role in keeping other sectors of the economy buoyant and providing jobs in the private sector.
He extends his discourse on GUYSUCO’s importance to the company’s role in supporting the national electrification programme through its Skeldon co-generation plant, and its maintenance of huge swathes of coastal drainage and irrigation infrastructures, health centres, community centres and recreation facilities in areas of coastal Guyana.
Cumulatively, the views of the GUYSUCO management point to the characterization of the sugar industry as a national social and economic institution, the importance of which extends beyond is relevance as a producer and exporter of sugar.
The failure of the industry, the company’s management argues, is not an option. Arguments for privatization are responded to by official enquiry as to whether investors are likely to sustain those subsidies which GUYSUCO provides through its contribution to key areas of national infrastructure, including drainage and irrigation and electricity.
That apart, proponents of seeing sugar through what GUYSUCO’s management considers a period of temporary difficulty arising out of circumstances, some of which, like weather and fuel costs,  are outside the industry’s control, contend the privatization is probably not the preferred option, since to surrender an entity that has become so critical to the overall national good would, in effect, be to leave the fate of the industry vulnerable to the vagaries of what can sometimes be an idiosyncratic liberal corporate environment. The argument here is that where the national interest is at stake, there can be no such thing as unbridled, unregulated private enterprise.
The preferred option, GUYSUCO contends, would be to strike a balance in the industry that allows a greater role for private farmers in cane cultivation, while, of course, having the company retain control of the major share of that production in order to protect the industry against what one official described as “intimidation by any conglomerate of private interests.”
GUYSUCO, meanwhile, would retain key aspects of the industry, including research, value-added initiatives like its Project Gold, aggressive export marketing pressing ahead with reforms designed to enhance the efficiency and profitability of the industry.
Perhaps to its credit, what we have found is that GUYSUCO now appears much more prepared to strike a posture of openness and transparency in addressing both the condition and the future of the industry. Both the Chief Executive Officer and Board Chairman, Dr. Nanda Gopaul, were forthright in their concern that the company’s sometimes quixotic industrial relations culture sometimes undermines efforts to improve the operating efficiency of the industry. GUYSUCO also now appears prepared to concede that inefficient management has also been a problem.
Nor, it seems, is GUYSUCO under any illusions that the road ahead may not be strewn with obstacles. While its 2011 production target of close to 300,000 tonnes promises to better its performance over the past five years, it is under no illusion that re-entry into previously established markets, lost on account of underproduction, will be anything but difficult.
If the posture of the company’s management suggests that they do not regard these challenges as insurmountable, the onus remains squarely on the management of GUYSUCO to walk the talk.  If, as management sees it, sugar is ‘too big to fail’, then it also has to be said that the industry is also too big – “too important,” as Paul Bhim puts it – to live in an ivory tower.