Notes From a Native Son – Independence Speech: London November 29, 2011
Mr Deputy High Commissioner, distinguished guests, fellow Barbadians, friends, ladies and gentlemen. Happy Independence to all of you.
Our country is in a dire state, make no bones about it. We are on the precipice of an historic decline the like of which we have never experienced in our history. This warning is not just sabre rattling, or shouting fire in a crowded cinema. This is real. We have failed, since independence, to develop a long-term economic anchor, choosing to depend – in fact over-depending – on the tourism industry, developed by the late Ronald Tree and his friend on the West Coast in the early 1960s. We have also failed to develop a binding collective operational objective, one that crosses generations and social boundaries, a national mission statement, if you like, by which we as Barbadians can define ourselves.I know a number of distinguished Barbadians are already aware of this and many of them are doing some outstanding work.
At the risk of embarrassing people, apart from my colleagues at this table, there are people, many of them bright young lawyers, scientists, economists and social scientists, even world experts in their fields. There are others such as Jeffrey Emtage, the inventor who discovered an internet search engine before Google, and who had no support from a government which talks about enterprise and innovation. Others are working in biomedicine, in Canada and the United States, and I am sure there must be one or two here in London.
My contribution to this discussion is meant to be on the framing of an investment framework for Barbados with which the Diaspora can make a healthy contribution. It is very limited, almost manipulative since it appears to restrict us from discussing the chaos in the management of the Barbados economy overall, but nevertheless there is a very positive contribution that could be made by the Diaspora – I dislike the term since I consider myself to be a Barbadian, born and bred in the Ivy, and whose imagination has been shared by that early experience of playing my cricket on Blenheim and the very positive experience in the classrooms of Belmont, St Giles and Combermere.
For the purposes of this discussion I want to ignore much that is made of the UN Human Index report which claims that Barbadosis now a ‘developed’ nation. Nothing massages a person’s ego like great praise and if, compared with those perceived to be the high ups and better offs and one comes off top, or near the top, then one’s ego grown proportionately. In any case, most of the nonsensical self-praise is buffoonery. Much is made of the claim of Barbados’ development status; but we need to keep our feet firmly planted on the ground if self-satisfaction is not going to keep us bound to the place we are.
It is my view, and I am trying to pull together the evidence, that our entire post-independence economic development has been based on debt – deep government borrowing which has only been made worse over the years. It is also my case that the 14 years of BLP rule have been wasted years. Let me give you some figures, although I do not intend to blind you with statistics:
Until the 2007/8 banking crisis, which led to the global recession, which has led to the sovereign crisis, which has now created a crisis in the Eurozone, pushing it to the precipice of a meltdown – the world had seen unprecedented economic growth, very little of which impacted on Barbados. Yet, we know, the island was awash with new housing developments, people had big four wheel drives, they were shopping in Miami and New York and Puerto Rico.
But, it is my case, Mr Chairman, they were nearly all doing it on the never, never. They were piling up debt. Let me give you an example of what I mean, bearing in mind the rhetoric of Barbados being a global financial centre.
Mr Chairman, let us go back in time.
Until the banking crisis, it was plain sailing for the global economy. It was only in 2009, following the economic tsunami, that global GDP fell for the first time in generations. Credit stopped, as banks began to distrust each other, and what credit there was had become hugely expensive. Cross border trade, the lifeblood of the global economy, suddenly slowed to a trickle.
All this took place in an environment of historically low interest rates, low tax revenues, and continuing strong consumer demand for goods and services. But the crisis was preceded by enormous global imbalances, especially in theUSwhich was feasting on Chinese and other Asian and Latin American central banks’ hunger for the dollar in the form of US treasuries.
This made borrowing cheap for households, and US consumers went on a spending binge, with household spending outstripping savings and production for years. As household debt rose in the US, and Europe, it was matched by personal savings in Asia, mainly China. To give you an example, in 2002, worldwide debt stood at US$84 trillion; it is now in the region of $195 trillion.
Mr Chairman, more than that, if, for example, we set global GDP growth at 100 per cent in 2000, the turn of the century, in 2010, it would have grown by 112 per cent in the Eurozone, despite its current troubles, by 118 per cent in the US, 143 per cent for Brazil and 271 per cent for China.
In 2006, on the eve of the global economic collapse, global financial assets stood at US$167 trillion, an increase of 17 per cent or $25 trillion from the previous year and double the eight per cent growth from 1995 to 2005. About $5.6 trillion of that money alone was due to the 20 per cent depreciation of the US dollar.
Mr Chairman, let me put it another way. Growth in value of $5.6 trillion in 2006 – get your head round those numbers – was due in part to the depreciation of the Barbados dollar. You may ask why? I will tell you: because the economically reckless continuation of pegging the Barbados dollar to the Greenback, that is why.
By global financial assets I mean the value of bank deposits, government and corporate debt securities and equity securities. This was the natural outcome of the previous 25 years when global wealth had grown spectacularly, almost in a fairy tale way.
Mr Chairman, this is important, if the Barbados economy had grown by four per cent over that period, compounded, to my mind we would be enjoying the lifestyle of the Nordic countries.
Studies have shown that financial markets have grown faster than global GDP – the measure of a nation’s wealth. In 1990, only 33 nations out of nearly 200 had financial assets whose value was far in excess of GDP. By 2006, the year before the global banking meltdown, that had doubled to 72.
In 1990, only two nations had a financial depth equal to 300 per cent of GDP – the US and Japan. In 2006 26 did. That year global financial assets were valued at 3.5 times global GDP – and by the end of that year, the year that the world was gearing up for the greatest meltdown since the rise of capitalism, cross border investments had reached $74.5 trillion – developments never before seen in history.
I am going through these figures to give a broad picture of the spectacular growth in the global economy since the beginning of the 1980s. The value of privately traded derivatives globally rose by 18 per cent in the first half of this year, 2011, to US$700 trillion. Those are mind-boggling figures. And, Mr Chairman, apart from the self-praising rhetoric I cannot see any evidence of this prosperity trickling down in to Barbados.
Yet, only this year, we had our prime minister and a party of senior politicians and civil servants trooping off to Beijing begging the Chinese for Bds$6m to build a cultural centre. How embarrassing. How developed are we?
As Michael Lewis points out in his book, Boomerang: The Meltdown Tour: “Leverage buys you a glimpse of a prosperity you haven’t really earned.” This sums up the so-called post-independence prosperity which Barbados now celebrates as part of its “development”.
Mr Chairman, Barbadian politicians and policymakers talk about economic growth and attribute this to two drivers – tourism and construction.
Let me deal with tourism first. At the height of our tourist season, during the good years, when European and North Americans were maxing out on their credit cards, Barbados got about half million long-stay tourists over the year – that is averaging over 52 weeks – or just under 10000 a week. Divide that by about 100 hotels, that works out at about one hundred each.
Let us assume that over that week the average tourist spent £2000, or $6000 Barbadian dollars. Over the year that would work out at about $3billion. I am being generous.
How about construction? The bulk of construction in Barbados is divided in to the top end constructions on the West Coast, in which some apartments go for US$15m and above, well out of the reach of even the wealthiest local people; and the middle market, professional Barbadian, but mainly returnee market, which is funded not by local banks and non-bank institutions, but by the sale of family homes in Britain, savings over a lifetime of working for London Transport and the national health, and the 25 per cent cash free payout from occupational pensions.
Mr Chairman, now let’s look at the present economic performance of the Barbados economy, to get a proper measure of how developed we are, as I want to end on a positive note.
If our economists – and this is a bit of homework for central bank economists or the boys and girls at Cave Hill – were to calculate our public sector borrowing debt, the interest rates as a measure of the cost of that debt, the guarantees given and the implicit guarantees, the debt to GDP ratio of the Barbados economy would be one of the highest in the Western hemisphere.
Yet, in the face of this mountainous debt, we have failed to develop a social enterprise or social philanthropic network. I know one very bright Barbadian woman who is working in this field. She has a lot to contribute.
But nothing I am saying is new. Professor Ron Burt, a sociologist in the University of Chicago Business School, in his excellent book, Neighbour Networks, reminds us that social networks create competitive advantage.
Social networks are exactly what we are doing now, meeting in a friendly spirit of cooperation and respect. It is out of such networks, an environment that engenders trust and cooperation, from which competitive advantage grows. In popular language, it is described positively as who you know, not what you know, not negatively as a way of avoiding waiting your turn ore undermining a meritocracy. As a community we suffer from that enormously.
When we first arrived in this country we had social support networks such as meetings, partners, sou sous, called them what you may. Although it might not have seemed to be based on sophisticated financial theory, in fact it was.
That is what in insurance finance is called smoothing, when actuaries do their complex and highly sophisticated mathematics to work out the underlying risk in with profit policies.
What we did, simply, was to contribute a weekly sum, let us call it our policy contribution, to a key person, let us call that person the insurance company. Every week the contributions would go to a particular individual, let us call that person the matured policyholder or beneficiary.
But, in some cases, an emergency crops up and the insurer pleads with the person whose turn it was to give Mrs Smith the money that week as her husband had just died. That is the smoothing mechanism in operation, at its very best.
We have lost that social togetherness. That element of social trust has gone. Just look at other ethnic and religious groups to see this element of social trust being played out: banks, corner shops, mosques, temples, churches, tradesmen and women, schools – most minority groups have learned to depend on themselves. We, as Barbadians, as Caribbean people, have not.
We still over indulge in consumerism. In simple terms, if a man earns £10 a week and spends £11, he is in financial trouble; if he spends £10, he is balancing his budget; but if he spends £9, he is building up savings for a rainy day. That is the place we want to be as a community.
Mr Chairman, I am a rainy day person – at least in theory. We must postpone instant gratification in order to cope with the unexpected. That is what as a nation we have failed to do.
Just as ordinary people on modest wages want to go shopping in New York and Miami and Puerto Rico, or in Milan or Paris, on their credit unions loans and credit cards the temptation of over-spending is very appealing.
Programme for Change:
Mr Chairman it does not always have to be that way, nor is it too late to change. The late Errol Barrow, when prime minister, once visited Singapore, and returned to Barbados singing the praises of that Asian bulldog nation with a promise to introduce its basic principles to Barbados. He did not. But there is nothing special about Singapore that could not be replicated in Barbados.
There were a number of key drivers of Singaporean development: the compulsory central provident fund; the willingness of ordinary Singaporean to work hard and invest in their own medium and long-term futures; and the dynamism, if tinged with authoritarianism, of Lee Kuan Yew, the Cambridge-educated lawyer and founder of the People’s Action Party.
I suggest it is not too late for Barbados, and I suggest four economic drivers:
a) a national wealth fund;
b) a compulsory long-term savings plan;
c) a national higher education funding plan;
d) A Heritage Fund..
Let me explain the role of each these proposed institutions.
A national wealth fund, or sovereign wealth fund, can be made up by rolling nearly all the existing statutory financial bodies, most government assets, including the massive land bank, debt, government equities in commercial corporations, such as LIAT and the Barbados National Bank, the Transport Board, under an independent board, reporting annually to parliament.
It would exclude any ministerial interference in its day-to-day management and investment policies and members could be appointed or removed only by a vote in both chambers of parliament.
It would have an investment committee, reporting to the board, and its policies and decision would be made fully public. Its asset allocation would be determined by parliament, but its stock picking would be done by professional stock pickers. It would be a passive fund.
A Compulsory Long-term Saving Plan:
A long-term saving plan would impose a ten per cent payroll saving on every working man, woman and child. This should raise an approximate £800m a year at present salaries. It should have a traditional investment framework – equities, gilts, property and cash – invested nationally, regionally and internationally.
The broad investment strategy should be along the lines of: 50 per cent international, 25 per cent local (Barbados) and 25 per cent regional (Caricom).
This should then be broken down in to broad assets classes, for example, 60 per cent equities, 25 per cent bonds, 10 per cent property and five per cent cash – with the international stock picking outsourced to a passive manager based in a major financial centre and the local and regional stock picking left to local fund managers.
A National Educational Funding Plan:
This would set a target of investing 12 per cent of GDP over a five year horizon, increasing incrementally from the present seven percent or so. It would focus on nursery and the statutory school age – five to sixteen. The aim would be to raised the standard of basic education to an internationally acceptable level over a ten-year period, judged by an approved index.
This can be done by making teaching a post-graduate profession, raising its status; giving heads full responsibility for their institutions, answerable to a board made up of teachers, non-teaching staff, parents, children above the age of 15 and local communities. Teaching would become the new sought after profession.
With further and higher education different funding criteria would apply with different achievement benchmarks.
The Heritage Development Fund:
Mr Chairman, this is the fund that we as Barbadians based outside our beloved country, could consider our gift to our native land. This would be a Bds$500m development fund geared to fund SMEs and small manufacturing.
It would be funded by a closed-ended fund, made up of 50000 Barbadians (or friends of Barbados) investing $10000 each (about £3000), locked in for five years.
This again would be totally independent of government and would be based on conventional market principles.
Government should set a two-year time horizon to close all public sector final salary schemes and launch a compulsory hybrid national defined contribution scheme with a 20 per cent withdrawal facility for home purchase and family emergencies.
The Rihanna Dividend:
A national cultural development fund to fund a series of state of the art recording, film and video recording and editing studios, cashing in on the local talent pool for music, singing and acting, but also making Barbados a creative destination for those looking to finish films, videos or record.
Mr Chairman, let me end by reminding those who bask in the glory that Barbados is now a so-called developed nation that a cockroach shares 83 per cent of a human’s DNA.
In short, the difference between us and a cockroach is 17 per cent that does not mean a cockroach is a human, although some humans do behave like cockroaches.
So, there is development and there is development.
Fundamentally, the success of Barbados as a nation, and the contribution that those Barbadians who live outside that tiny island – the so-called Diaspora – will be determined by the talent pool; by the level of education we provide for our young people, and by this I do not just mean formal academic education, but an awareness, a sensitivity, a cultural and emotional literacy, which reminds us of our obligations to each other and to the country of our birth.
But first we must agree to a roadmap to the future, we must be on the same course if not we will all be front seat drivers.
In Barbados we have a sorry situation in which top public sector departments cannot even agree on the rate of unemployment.
We have lots of lessons to learn, such as the difference between a service industry and a product-producing industry.
Tourism is a service and we have to get that right, from the moment the tourist arrives at the immigration desk, to the moment he or she arrives at the reception desk at the hotel and everything in between.
But tourism should be the economic gravy, the icing on the cake, call it what you like, but it should not be the main meal.
We should not, and cannot, depend on tourism as the main source of our income in the short and medium term. We must diversify.
In any case, it is easy to launch a new product, to open an expensive hotel, but it is more difficult to offer a top-quality service – a tourism experience.
I think that any Diaspora development fund, the proposed Heritage Fund, must be clear of the government and the clawing hands of power-crazed ministers.
It should be framed under Trust Law, with a board of trustees comprising people chosen by the three dominant Diaspora communities –Britain, the US and Canada– and with representatives from the business and trade unions sectors.
Let me end by drawing to your attention the fact that Barbados already has a global manufacturing competitor which neither the government nor the industry has shown any ability to manage – and that product is rum. We are letting it slip out of our hands.
Mr Chairman, We can either continue to live in a world of make-believe, or admit that Barbados, as a manufacturing and service hub, is uncompetitive and inefficient. We survive because governments of all colours are prepared to flatter us by telling us how good we are and how much we punch above our weight, while every month they continue to borrow money to pay the bloated public sector.
This also works well for the private sector who sit back while these ‘workers’ spend their money buying over-priced second hand cars and other consumer durables and run up further dept.
But, at some point, the bottom is going to drop out of their tiny world and their will realise they are living in a pretend world and when the debt collector calls they just cannot hide. There is a huge price to pay for our collective fecklessness.
Thank you for being so attentive.