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The BU household is pleased that some of our academics et al feel comfortable submitting articles on matters of interest to Barbadians. We encourage others to follow suit. The more ideas and perspectives which can be introduced to a public space for scrutiny, the end result of the process should be beneficial to Barbados and even beyond. The following paper was authored by Dr. George Reid, a former Director of Finance in Barbados. His experience earned during the turbulent period of the 70s oil crisis may provide a fertile resource for the young academics like Dr. Justin Robinson, Dr. Andrew Downes, Dr. Don Marshall et al. What Barbados needs is to be able to leverage the comparative advantage derived from our much touted educational system, now more than ever.
David
If the title of my presentation seems to strike a familiar chord, it may be through my allusion to 1066 and All That: A Memorable History of England, comprising all the parts you can remember, including 103 Good Things, 5 Bad Kings and 2 Genuine Dates, a tongue-in-cheek reworking of the history of England. That book was written by W. C. Sellar and R. J. Yeatman. It was illustrated by John Reynolds, appearing first, serially in Punch magazine, and was published in book form by Methuen & Co. Ltd. in 1930.
The book is a parody of the Whiggish style of history teaching in English schools at the time, in particular of England’s “Island Story”, and purported to contain “all the history you can remember”, and, in fifty two chapters, covers the history of England from Roman times through 1066 “and all that”, up to the end of World War I. In short 1066 and all that is based on the idea that history is what you can remember and is full of examples of half remembered facts. [Let me at this point acknowledge my debt to Wikipedia from which I have copied the references to 1066 and all that].
Some of you may wonder why I chose a title for my address that suggests that I am going to approach the events of 1991 and beyond as a somewhat satirical history of a particular period in the life of the Democratic Labour Party. No, I do not have a death wish! However, those of you who went to school (isn’t that all of us?) and studied the classics, may have read Horace’s Satires and may agree that sometimes, events are better understood, if viewed ironically, and spoken of satirically. Indeed, members and supporters of our great party should be neither surprised nor dismayed when the behaviour of some of our leaders is recorded disparagingly, and high-profile individuals are lampooned! After all, adversarial politics is the meat and gravy of life in our insular ministate, and participants in the political process should quickly learn to give twits their twat. I have no doubt that anyone who bothers to record the half-remembered facts of the history of 1991 and all that, will present an account rather different from mine. But that is life! In any event 1066 and all that was a best seller (no pun intended) so why should the story of “Little England” be told in a different way?
Why am I linking 1991 with back to the future? Is it because, like Walter De La Mere, I remember an inn, Miranda, and I remember the outs, too – all 3,000 of them! Those of us who have seen the movie Back to the Future will recall that the story line is about time travel where the hero travels back in time to correct errors that were made, in another past and by so doing tries to make paradise perfect. Is there a lesson here, and should our current leaders polish up their Delorean time machine?
1991 was a forward-backward year! The previous FB year was 1881, one hundred and ten years before. It was the year of my grandmother’s birth, but that is all I know about it. 1991 would be followed eleven years later by 2002, another forward-backward year, but that is another story. Anyone who studies human events can tell you that the phenomenon of forward-backwardness is endemic in very small vulnerable open economies like those of Barbados and its counterparts in the Eastern Caribbean. In those circumstances, the approach in policy-making can be best described in the words of the Calypsonian Serenader: One step forward, and two steps backward, hold belly and tremble…
In the political argot, 1991 began with a general election in which the Erskine Sandiford administration was returned to power with its own mandate, after serving for four years in the shadow of the mandate of the late great Errol Walton Barrow. I will not speculate on what knowledge and capability was transferred with that mandate. Suffice it to say that the challenges created by the implementation of the promise of the income tax cut that was made in the General Election of 1986 were compounded in 1990/91 by a loosening of fiscal and monetary policies in the run-up to the January 1991 General Election.1 Other commentators use more stringent terms for the slippage in fiscal tightness that had generally characterised government policy, but the main issue is that this policy stance was adopted against the background of worsening productive sector performance.2
Why was the loosening of fiscal and monetary policies a critical factor in the events that required the major corrective measures that had to be implemented during the period 1991 to 1994? The answer lies in the peculiar economic and social dynamics of very small economies (VSEs).
The typical VSE – some stylised facts
As more and more countries with very small populations, many of which have less than 250,000 inhabitants, have acceded to formal political statehood, and have joined the multilateral financial agencies, those agencies have been moved to examine whether these minuscule entities exhibit peculiar features that limit their development options. Owen Arthur, a former Prime Minister of Barbados, played a critical role in getting a joint Commonwealth Secretariat/World Bank team to undertake an examination in the late 1990s, into the special problems of very small states. The unremarkable conclusion of these efforts was that while some VSEs do exhibit unique difficulties, the critical variable in the straight and narrow road out of their discontents is the quality of policy-formulation and execution.3
More recent studies, using a new fiscal dataset for small states, have analysed the link between country size, government size, debt, and economic performance. It has been found that on average very small states have larger governments and higher public debt. Although there are intrinsic factors that explain why governments are bigger in very small states, those with smaller governments and lower public debt tend to grow faster and are less vulnerable. Large fiscal adjustments, primarily through expenditure restraint, can underpin growth, although sometimes other elements can also impact. Since better governance is associated with lower debt, fiscal adjustment should be supported by governance improvements.4 In other words, fiscal deficits do matter!
What happened in 1991?
Many of you will think you know what happened in 1991, and would prefer not to be reminded, while others, like Patsy Straker (who provides us with food for our bellies – at a fair price – while I try to provide food for thought – free of charge ) who put this question to the modern-day Gamaliel of our Party, but unlike Pilate, who sought to discover: What is truth, are still waiting for an answer. I wonder whether I should not chose the escape route of the preacher who, in a similar situation advised those who knew the answer to a particular question to tell the others, and leave him out of controversy.
However, ambition should be made of sterno stuff, as Patsy would say, though some of our leaders have had a patent difficulty in dealing with canned heat, when buffeted by an unforgiving electorate. The truth, dear friends, is not in our stars, but in ourselves, and to be frank (not Da Silva) we must accept that a high wind passed close to our little privy in 1991. When the cover came off, and things were smelling to high hell, we had to embark on a major salvage job, that Owen Arthur interrupted in September 1994. Conscious that circumstance alter facts, I believe that I would be well advised to stick to the record provided by the impartial and imperial MFIs, like the IMF on what happened, rather than attempting to give my own version, particularly since I bear all the biases of a participant observer.
What needed to be done?
The emergency economic stabilization agenda of 1991- involving voluntary wages freeze, tax rebates and financial support, temporary reversal of trade liberalization programmes, and a general tinkering with the mechanisms of economic production required a managerial approach to governing rather than the egocentric process of governing by whim that is the hallmark of recognisably bad administrations. For the proposed programme to succeed, the Government needed the kind of national support that is normally achieved only by transformational strategies.
Many people consider that the action taken to reduce the fiscal deficit was dramatically severe, though successful, since this aggregate was brought down through a sizable fiscal adjustment, beginning in the second half of 1991 from a deficit of 7.5 per cent of GDP in 190/91 to a surplus of 1.4 per cent of GDP in 1992/935. The measures included major increases in taxes and charges for public sector goods and services and a major cutback in public expenditure that was occasioned in large measure by the release of 11 per cent of the public sector work force and a reduction in transfers and capital spending. Sadly, the DLP administration did not remain in office to benefit from these adjustment measures, but it cannot be denied that the rebound in the economy that occurred after 1993 can be directly attributed to them. While the DLP’s detractors have been loud in their condemnation of the layoffs and the pay cut, (and they are still crazy after all these years) those measures provided the stimulus for the growth in self-employment that has been the major contributor to the continuing decline in open unemployment recorded in the official statistics. The challenge now is to develop a class of graduates of tertiary educational institutions who can exploit opportunities for employment through entrepreneurship that exist in the economies of Barbados and the other members of the CSM(E).
In the monetary sector, credit policies were tightened sharply in the second half of 1991/92. The Central Bank introduced a raft of measures that included increases in the discount and minimum savings rates; increases in the penalty rate on reserve deficiencies; and the introduction of indicative monthly credit limits for each commercial bank, These measures were accompanied by a structural reform agenda that aimed at increasing efficiency and improving the environment for private sector investment and operations.6
These include changes in the functioning of the labour market through modifications to social security contributions, and in the severance pay scheme. An attempt was made to respond to the recognition that in the final analysis countries compete on the balance of their productivities. The National Productivity Council was created through a tripartite effort, to provide the institutional support for the effort to raise the general level of productivity in the Barbadian economy, and in specific sectors. The NPC has been playing role in sensitising Barbadians to the importance of productivity issues, and undertaking necessary benchmark studies.7
In the immediate post-1991 period, the major real sector change attempted involved the rehabilitation of the sugar industry. The objective of the attendant reforms was to arrest the erosion in the profitability of an industry that had once been the mainstay of the economy of Barbados, through institutional change, debt workout, to remove the serious debt overhang that threatened the continuing existence of the Barbados National Bank, and the reduction in production costs through the amalgamation of smaller units into larger productive entities under centralised management. The present situation of the sugar industry casts considerable doubt on whether the play was worth the candle, but for me, the real justification for the rescue effort has been, and will continue to be environmental. Policy needs now to be directed at how to restate the costs of this effort in a manner that rewards the sugar industry for this environmental contribution.
Financing for the mitigation of the transitional costs of these measures was provided by the IMF, through a Stand-by Arrangement, the Caribbean Development Bank, by way of a loan for the restructuring of the sugar industry, and the Inter-American Development Bank, which provided an Investment Sector Reform Programme loan (although the approval for this operation was not obtained until the Owen Arthur administration took up office), as well as by bilateral donors. However, the World Bank which had been a major source of development finance to Barbados, in the 1980s, but whose relations with Barbados had been impaired by difficulties experienced with project implementation made heavy weather with its offer to finance a trade reform programme, and in the final event provided no financial support.
Perhaps the signal achievement of the adjustment programme was the retention of the long-standing nominal anchor of the Barbados dollar. However, there is room for considerable argument on whether the totality of actions that were implemented did not have the effect of changing relative prices in a manner similar to that which would have been achieved by a real devaluation. If this is so, does it not follow that Barbadians are beguiled by a money illusion?
It has been argued by some commentators that structural adjustment is a process that has the effect of bringing the development process virtually to a halt.8 Clearly one cannot deny that severe welfare losses can occur. Theodore argues, cogently, that cuts in recurrent expenditure may be preferable to reduction in capital expenditure, especially where the latter comprises essential programmes for boosting growth.9 However, the progress of developing countries depends on the existence of a supporting external environment and this includes the provision of generous financial support. This is particularly so for very small, vulnerable states. When this support is not available there is no alternative to domestic effort. The real issue in dispute is what should be the proper balance between domestic effort and external support but this is a complex issue involving ideologies, historical relations between donors and recipients, and the general outlook of the citizens of the country in question.
The shape of the future
All right-thinking Barbadians would like to live on an island that is dramatically healthier, safer, and more prosperous. Many of our political leaders profess to share this vision, but their challenge is to demonstrate a patent capacity to take the tottering steps on the way forward. Governments need to adopt a performance-focused managerial style of leadership. This is probably the essential precursor to a transformational style of leadership, that will enable all aspects of government to work together to realize the vision of the good society in Barbados.
Managerial politics takes the system as it is and attempts to operate it so that results are marginally better, while the system itself remains the same. Transformational politics, by contrast, assumes that a well-managed system is not necessarily adequate and that people need to change or transform an inadequate system. Examples of past transformational changes include reforms of the educational system, balancing the budget through the implementation of norms of fiscal prudence, and the continuation of the system of tax reforms that were introduced in 1992.
The movers and shakers in the current administration need to brainstorm and try to envision what the world might be like in 2025-what will be the likely impact of science and technology and how that should shape their responses as leaders of a small Island, struggling to earn its way in an increasingly competitive World. I would recommend for their consideration two books published in the second half of the 1990s. These are: The Age of Transition: Trajectory of the World System 1945-2025, edited by Terrence K. Hopkins and Immanuel Wallerstein, Zed Books, 1998, and Chaos and Governance in the Modern World System, edited by Giovanni Arrighi and Beverly Silver, University of Minnesota Press, 1998. These books conclude that more change will take place in the next twenty-five years than has occurred in all of the twentieth century, partly because the global economy is on the edge of an extraordinary revolution in scientific knowledge.
Adapting to Technological Change
The scientific and business communities in Barbados act in the realisation that we are on the verge of an explosion of new solutions that will dramatically improve our lives, our communities, and the delivery of social and governmental goods and services. Currently there is a diabetes epidemic, which is the result of life-style changes that is currently afflicting older Barbadians, at the same time that HIV/AIDS is ravaging persons in the 15-45 year old age group. We need to quickly get up to speed to find solutions for these afflictions. Failing that we are only hurting those already inflicted with these diseases.
Transforming the way we administer health care will do far more to improve people’s lives than will a micromanagement of the current system. This should be the first order of business for the new Minister of Health, who must be applauded for his effort to reform the Board of Management of the Queen Elizabeth Hospital and to improve its functioning. Such transformation should be applied, also, to other aspects of human life, particularly education. Ultimately, by embracing new technologies and new sciences, individuals will receive better services at lower costs.
Two very different waves of change drive this opportunity to improve our lives. The first change is implementing in our government all of the technological advances that are currently available to the private sector. For instance, many bank customers now use automated teller machines, but long queues of clients waiting at the kiosks of individual tellers still unnecessarily waste productive time, and ratchet up the costs of banking services. The technology behind those machines presents the Government with new opportunities to provide to its constituents information and services beyond those that already exist. The second wave of change may be a combination of advances of huge scale in science and technology, quantum behavior, and biology, that is taking place in the world outside our Island. The changes occurring in all those areas will help to create many new and better ways of doing things.
The waves of change in science and technology that have occurred over the past 300 years have had a consistent and learnable pattern to their impact on society and their adoption. Leaders who have chosen to embrace and be knowledgeable of such changes have prospered; however, those countries that lagged behind, rejecting change, have been exposed to failure. How can Barbados avoid that fate and adapt to future technological changes?
Public leaders, governmental leaders, politicians, and the political news media must learn about the two waves of science and technology. All leaders need to be thinking about how they are going to learn about these changes and how they are going to get involved in what is coming. Transforming our current system requires us to ask new questions in addition to creating new systems, attitudes, and habits. Getting our political leaders and the persons who populate the Civil Service to start asking questions aimed at improving their performance, are key elements in building transformation. In particular, the civil service needs retooling to bring it up to scratch with the requirements of a public that is seeking speedy responses to issues that are presented for official adjudication.
Transformation requires a new model of governance that is entrepreneurial, capital intensive, and focused on science and technology; one that pools incentives, honors success, and rewards growing small businesses. Transformation requires a willingness to coach those seeking to learn, a willingness to prosecute for illegality only those people with clearly illegal intent, decentralization, sensitivity to local cooperation, and eagerness to be flexible in achieving local success.
Some of the measures implemented by the DLP administration turned out rather well, and were used by the successor BLP administration to its advantage. Thus, the establishment of the Tripartite forum of the Social Partners, which through mutual agreement has created successive protocols, that focused initially on hammering out an incomes and prices policy, but have now been widened to embrace a raft of socio-economic issues . It is to be noted that Errol Barrow was not enamoured of the process of trying to solve economic and social problems by “jawboning” them, but it cannot be denied that the process of “open consultation” has proven to be a salutary recognition of the development of participatory democracy in Barbados. However, it cannot be said that all participants are entirely happy with the manner in which the process has worked, or, indeed, what has been achieved.
The process of adaptation to date
It cannot be said that in the past, Barbados has been entirely successful in adapting to change. If it had we would not have experienced the outcry and despair with which we seem to have approached the forces of globalisation. Even where we have had some success we cannot assume that such beneficial outcomes will be permanent, because change brings new risks. If other countries make the breakthroughs faster than we do, we could experience severe slippage in our standard of living in a decade.
To sum up, an appropriate approach to managing our economy over the five-year period to 2013 should involve the following elements:
- an action programme that identifies where “quick wins” can be made;
- an emphasis on improving our data sources in the interest of better economic and social programming, forecasting, budgeting, and goal setting;
- effective arrangements for consultation, participation, and achieving consensus in policy-formulation and project and programme implementation;
- consistent effort to alleviate poverty in the interest of improving social cohesion;
- continuing improvement in public service (civil service) capability to analyse policy options, and to prepare and implement consequential operations; and
- consistent effort to keep the public informed on the who, what, why, how, when, and where of policy choices and actions.
Let us ensure that our instincts are in the right direction; that we challenge our leaders to do better; and that we hold them to account when they do not.
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