Despite words to the contrary, it is clear to even the most casual observer that the cupboard of economic ideas accessed by the government and its advisers, is now running bare.
After nearly five years of a global banking crisis and a following recession, the excuse of the lean and heavily leveraged economy inherited from the BLP government has now run its course. What programme the DLP government has for lifting the nation out of these terrible economic doldrums are so secret that it does not want to share them with the rest of us, or filled with such self-doubt that they fear revealing them may expose their intellectual vacuity.
By now the government should have embarked on a course of recovery, not based on extravagant austerity, but rather on a far-reaching reform of the public sector, taxation, in particular property tax, and stimulating the economy. If it has any of these ideas in mind, then it is not only keeping them to itself, but irresponsible proposals such as funding the Four Seasons white elephant on the dubious grounds that Barbados badly needs a high-quality brand name to attract premium class visitors, does not deserve the respect of serious discussion. It is a bogus argument.
For a society which prides itself on the quality of its education and its creative and innovative talents, that Barbados should allow itself to be held to ransom by foreign-owned banks – Trinidadian, Bermudan and Canadian mainly – is a crying shame. Despite suggestions from people who ought to know better that Canadian banks are ‘good’ for the nation, ignoring the unintended regulatory and business problems this will bring with it, the reality is that basic financial economic theory tells us that money goes from the sough to the north, from the developing nation to the well developed, from the poor to the wealthy. In other words, if someone on a modest salary, not matter how solid his business plan, goes to some of these banks, they will be lucky to get through the door. However, if some European or North American, with equally good ideas but no business background sought a loan, the same bank will be more willing to set that person up in business than the traditional Barbadian. Then the policy becomes self-justifying: if Asians, Lebanese, whites, Irish-Canadians, Norwegians, etc. are seen as prominent and successful business people, then the popular perception becomes that they are culturally fit to be businesspeople.
However, if well qualified traditional Barbadians (or Caribbean people) prefer to seek a salaried job with a pensions at the end of service, then the perception becomes that we prefer to be white collar workers and not get our hands dirty. (I will give a personal example since it illustrates the point. I have no real regrets in life, I am in reasonably good health, am in the dawn of a successful professional career, and have wonderful and supportive friends and family. However, the one major regret I have is not learning a trade. I will gladly swap some of the wasted years in higher education and journalism to learn plumbing or hand-crafted shoemaking). And this is our intellectual blind spot. When the first Barrow administration came to power, Barbados had the Barbados and Central Foundries, 15 shrimp trawlers, a dry dock, the Caterpillar workshop in Tweedside Road, Acme, about half a mile in Roebuck Street, Texas Instruments, putting us at the cutting edge of the new technology, and a number of other research and industrial companies.
The 1961 DLP government had inherited from Grantley Adams – still the most progressive post-war leader we have had despite the political illiteracy of some loudmouths – who had turned the five leading bus companies in to the Transport Board and located them at the Old Combermere building in Roebuck Street. It was a time when Barbados was dynamic and thriving and genuinely punching above out weight. Now we have a post-independence generation of leaders, lacking in new ideas, who grasp at straws and are prepared to sell the soul of the nation for thirty pieces of silver. They want to drive the economy to depend almost wholly on so-called services, meaning being an offshore tax haven, yet when they are criticised they then talk of being bullied by developed nations; they offer the good name of the nation as a flag of convenience for dodgy shipping companies who run all kinds of freight up and down the Seven Seas, risking the reputation of the nation. Yet, in a funny way, the one world-class product we have, rum, we allow to drift because it is monopolise by a few white families, who understandably do not want to share their industry with anyone, and government does not know what to do about it.
This is one reason why apprenticeships and training features so low down the list of education and vocational priorities for this government. They would rather spend taxpayers’ money on educating more lawyers (we have more practising lawyers per capita than even New York: about one per 300 residents, and that does not include those who are qualified but not practising. The number goes up every year.) Anyone who has ever visited Hong Kong will tell you one of the joys is booking in to your hotel in the evening, getting measured for a suit, having a meal, going to bed and getting up 8in the morning to be fitted for the suit. Why cannot we offer a similar service for shirts, suits, dresses and hand-made shoes? One problem apart from government’s reluctance to treat trades as the equal of the so-called professions, is the virtual blackballing of local tradespeople by these foreign banks.
The way to bypass this discrimination, as I have said in this loop before, is to create balance sheet retail banks controlled by Barbadians. All government has to do is reform existing credit union legislation to allow them to from a simple savings and loans bank; the other even better opportunity to turn the 18 existing post offices in to post office banks. Once this is done, all patriotic Barbadians should then close their current and investment accounts with these commercial Trojan horses and bank with a local institution. The situation is particularly bad when it is considered that in most developed economies the bulk of citizens’ wealth is tied up in the equities in their family homes – even if tired and conservative economists will say that a family home is not an investment, but a home. Ignore them.
Even so, the vast majority of Barbadians have now abandoned any aspiration of homeownership, principally because the foreign-owned banks, which some senior people seem to think are not a problem, have effectively withdrawn mortgage lending from ordinary people through the simple device of imposing numerable restrictions on their lending policy.
The old fashioned banking model was simple and transparent. Depositors lent money to the banks (that is what saving is), who then decided how much to invest in the bond and equities markets, how much to keep in liquid or near-liquid form and how much to lend in mortgages and to small businesses.
In that model, managers loaned money to people who saved with the bank and who they knew, while would-be borrowers saved up a deposit before attempting to borrow a mortgage. Them post-1980s, with de-regulation, pioneered by Ronald and Margaret Thatcher, banks started dealing in the money markets, borrowing huge amounts of money to lend as mortgages, going for market share, and bundling and selling their mortgage books in such complex ways that often the originators (the banks) did not know what products they were investing in. We can reverse this dysfunctional trend.
I have long called for a programme of quantitative easing by the government and, as I told the Independence Debate here in London sponsored by the high commission, at first I was for the printing of half a billion dollars by the central bank to fund this stimulus package, but I am now convinced that a full print run of $1bn will sustain such a programme.
There only real fear of this is inflationary, caused by am over-supply of money, but the one thing we have learned from the Great Moderation is how to manage inflation.
The other threat, which is more theoretical than real, is the banks creating too much money. The one thing the foreign-owned banks in Barbados do not do is create (lend) money, so that is no real danger. Commercial banks, unlike any other financial institution, can ‘create’ money, even though other institutions can loan and deal in other transactions. What is meant by that is that a bank’s core business is aggregating savings and lending on that money. Over and above that, the process of lending money also involves ‘creating’ money in the sense that a businessperson or mortgage borrower goes to a bank to ask for a loan. The manager agrees and a loan to the required amount is agreed and the borrower given permission to drawdown a loan to the agreed amount.
But Barbados already has a problem with money supply, which I plan to deal with in future, in that the near US$1trn dollars in circulation can in theory be spent in Barbados since, like Ecuador and Panama, the US Greenback is de facto legal currency in the country. Why this and previous governments have not moved to prevent this by forcing the exchange of US bills only in regulated banks and other money exchange businesses is astonishing. It is almost certain that many of the New Barbadians have a huge part of their wealth stockpiled in gold and US currency – away from the tax man.
As I have already pointed out, globally most people’s wealth is tied up in property and this is one asset that government could encourage Barbadians, from all backgrounds, but especially our young professionals, to invest in. Again an example best illustrates the idea, rather than some housing economic analysis.
Government is at present wasting money with unnecessary guarantees, keeping unproductive people in jobs, nationalising department and statutory bodies that should rightly be sold off, and, worst of all, providing Four Seasons with a Bds$190m party, and a further $50m to do up the Warrens roundabout. Now if government had used that £230m to improve Nelson Street and its environs, by repaving the streets, refurbishing some of the shops with their great colonial architecture, and demolishing some of the slum dwellings and replacing them with high rise (six storeys is reasonable) apartments, with offices and shops on the ground floor. A well planned development, allowing for a thriving night economy, would also have planned in nightclubs, restaurants, cafes, bars, and public space in the form of a garden or mini-park.
Such a development, from the Bus Stand, taking in the market and the rest of River Road, moving to the Old Hospital and Wellington Street and that area, would bring the heart of Bridgetown alive. Instead, as it is, with drug users, pimps and prostitutes, even the police fear going through the area. Well planned and designed, would-be buyers of the apartments would be allowed to buy off plan, giving those who have lost homes first refusal, with a gradual development programme based on the sales of the properties. In fact, since we are obsessed with tourism and foreign earnings, we could build enough homes to allow for visitors who want to buy holiday homes.
Two important economic things such a programme would do. First, by creating jobs, the workers would go out and spend, buying food, furniture and doing up their homes; the business people would invest because they would see their businesses doing well; and, government would increased its tax revenue from VAT, corporate taxation and income tax. The same could be done with Weymouth, the Transport Board site in Roebuck, moving it to St John, which is said to be the poorest parish in the island and other run-down areas. Afterall, the same Grantley Adams, now criticised by intellectual buffoons, built the Pine and Grazettes as part of slim clearance, including Nelson Street and the adjoining area, in the early years after the Second World War.
The other policy government should introduce, which I am sure it is terrified of, is attaching conditionality to the big West and East Coast tourist developments. By introducing a policy of mixed housing, not only would the repulsive gated communities not spread, but by having a formal 20 per cent social housing policy attached to such programmes ( I have said 20 per cent because Ken Livingstone as London Mayor and in major US cities, one-fifth is acceptable by the developers) then the big developers would be given a choice of allocating 20 per cent of Royal Westmoreland and other places to the homeless (just imagine what the cash-rich hedge fund managers would think having a car mechanic living next to them) or spending the market value of that allocation to building and improving homes elsewhere. Another condition for smaller developers could be the building of community and leisure centres as a condition of getting planning permission.
Analysis and Conclusion:
The business sector, innovative individuals and government have all been held to ransom by foreign-owned banks who see Barbados simply as a source of cheap money for their favoured markets. Given this, the institutions and policymakers who the society would normally expect to step in and devise ways and means of bypassing the restrictive banks, have, instead, turned to tax payers to provide the funding that in more normal circumstances would have been provided by the commercial banks.
Apart from the pressing urgency for regulatory intervention, it appears as if highly influential people and institutions, such as the central bank, find this a convenience and see no need to put pressure on these banks – and insurance companies – to increase their lending to householders, mortgage borrowers and small and medium enterprises. The brutal reality is that our post-independence leaders have lost their grip on the national consciousness in terms of industrial diversification and national progress. In the build up to independence, Barrow was fully aware of the need to base the nation’s development on a portfolio of industries and services, rather than rely on tourism.
As I have pointed out, whatever happened 15-strong fleet of shrimp trawlers, people are still eating shrimps, even more than they did then? Why did we not get any technology transfer from Texas Instruments so that when they exhausted the generous tax privileges a Barbadian could have stepped in and run a similar firm? Barrow also talked at the time of negotiating to establish a glass-making plant using sand, and he was in talks with Cubans to build a plywood plant, using bagasse as the primary product. Whatever happened to that idea? We are a poorer nation now because of the poverty of our so-called leaders’ ideas.