Introduction:
Europe is in serious crisis. Greece, a culture that has abandoned hard work and resents paying taxes, goes to the polls in the middle of next month to vote for its economic future. The decision voters in that southern European nation – the home of democracy – have to decide is if they remain in the 17-member Eurozone, or get out. Damned they do, damned if they don’t. The truth is that an economy which makes up only two per cent of the Eurozone could not, in normal times, be such a destructive threat to the single currency area, farless the global economy, but these are not normal times. Remember how a single wholesale bank, Lehman Brothers, disrupted the system? Banks in the other southern European economies – Italy, Spain, Portugal – and Ireland are also under enormous pressure, and the massive exposure of French and UK banks to the area also make them vulnerable.
But it is the German hugely successful economy that is in real danger, since, like the history of capitalism, German prosperity is build on exports – mainly to southern Europe. While this drama is being played out in Brussels and Frankfurt, most Barbadians would rightly ask what has all this to do with them. Well, the answer is far more than at first meets the eye. First, while global leaders, from China to the US, hold their breath, it should be remembered that the Greek tentacles stretch throughout Europe and across the Atlantic to the US, through the hidden workings of the global banking system. Also, unlike 2007/8, when China rescued the world, the world’s second strongest economy is also itself in trouble.
More important, Britain, our main tourism market, although it is outside the Eurozone, the 17-member economic union is its main trading bloc, with massive banking exposure to the markets. Already there is enormous capital flight from Athens, first corporates and the wealthy moved lots of cash out of the jurisdiction, corporates to bank elsewhere and rich individuals to buy property in Britain and other ‘safe’ havens.
To complicate matters further, Europe is also the biggest market for the US, even though Obama has been trying to shift this towards Asia-Pacific and previous presidents, notably Bill Clinton, have structured the Free Trade Area to rebalance this dependency.
Restructuring:
In the meantime, the DLP government is silent on what it is doing to shore up the Barbadian economy, even though in December a group of its economic wise men came up with a master plan to rescue the domestic economy. Whether it finds the group’s proposals attractive is not publicly known, since in the silent world of Barbadian policymaking information is restricted to a few insiders.
What we do know, is that its cheerleader in chief, the governor of the central bank, is often making the most preposterous statements, which in a small blog it is not fair to inflict an extended analysis on readers. One recent outburst stands out, and it typifies most of the voodoo economics financial statements he tries to mesmerise people with.
In his recent address to the Barbados Association of Insurance and Financial Advisers, he described the Barbados economy as “stable” and said the engines of growth would be foreign exchange earnings and savings sectors of tourism, international business and financial services, agriculture and agro-industry, and newer alternative energy industry.” It is not practical to go in to detail to untangle this economic mumbo jumbo, but I will look at a few of the points he made.
Foreign exchange earnings are part of the litany of received wisdoms that Barbadian policymakers indulge in, but like most things economic, there is a half truth. Foreign exchange earnings are important for growth, but how are we going to get these earnings? The tourism sector has collapsed, and if we continue to wish for the return of British tourists then we will be waiting for another five years or so; what international business is he talking about, companies like AIG? Read former AIG chairman Hank Greenberg’s statement to the New York attorney general; it is there on the internet.
What agriculture is he on about? Barbados is just over 100000 acres, about the equal of a medium sized sugar plantation in Brazil or Australia. In any case, most of our most arable land is now used for middle class housing. As for agro-industry, who are our agricultural scientists? What work are they doing on our flora and fauna? Are they doing any research on the pending food crisis? What is the genome of common Barbadian fruits and plants?
We can ignore the nonsense about new alternative energy since this government – and previous ones – would not know an energy policy is the sun crashed in Broad Street.
Then you have an inactive prime minister claiming that the debate has moved beyond the green economy to the blue economy, this in a country that has over fished so much that even the flying fish have run off to Tobago, when we no longer have enough sea eggs for a decent party, when young people no longer know what is a conch and the Animal Flower Cave, one of our few genuine sites of scientific importance, is dying because of over-use and the dumping of debris.
The basic solution is staring policymakers and politicians right in the face: Barbados imports more than it exports, most of it in foodstuff, the reason for the current account deficit.
The other example of short-sightedness is its ignoring of the historic shift in global financial power, which coincided with the banking crisis and following recession and crowed it of serious discussion.
Africa:
The neglect of Africa is diabolical given the worsening global food crisis and the need to provide reasonably priced essentials for this and future generations of Barbadians. What, for example, prevents this government from entering the futures markets and buying a basket of essential goods to secure our basic food needs? Why, having taken due diligence, cannot the government – or national insurance scheme –invest in future rice supplies from Sierra Leone, for example, or even preferably from Guyana and/or Haiti?
Why cannot the government do, as the Arabs and Chinese are doing, take out a long lease on arable land in Africa to supply our food needs and, in addition, sugar cane to produce the molasses for our rum? This is the stabilisation that the macro-economy badly needs, followed by jobs for the all important 16 to 24-year-olds, and which the government is trapped like a rabbit in oncoming headlights when it comes to creating a sustainable policy to resolve this crisis of job creation.
In fact, apart from borrowing like a teenager maxing out on a credit card, the government and its key advisers do not have a clue as to what to do. They are hoping, praying, that something magical comes along, like some foreigner bearing the gift of a massive investment.
One way out for the government, apart from convincing other Caricom members to establish a single currency (I like the name Caribe), is to decouple the Barbadian dollar from the greenback, fix against a basket of commodities and currencies, including the Trinidadian, Guyanese, Eastern Caribbean and Jamaican dollars, and devalue against the euro and pound sterling.
In this way, we will stabilise prices with our key Caricom trading nations, drive up luxury imports from the US, and reduce the cost of a holiday from the UK, which in the short term is the driver of the economy.
One other consequence of devaluation is that it effectively drives down labour costs, which is a major problem. At the same time, government should cut back drastically on its own spending, zero-rate a basket of goods for VAT and raise sales tax on luxury items, including new vehicles, even those used commercially, and gasoline.
I would also like to see a hypothecated taxation system so that taxpayers know what they are paying for, rather than the present system of feeding the Consolidated Fund like an alcoholic on a night out, so politicians could use it as a piggy bank.
In the meantime, government should stop the greenback from being legal tender in Barbados, giving a limited time for all those stockpiling the currency under their mattresses to exchange them for the Barbadian dollar. After that, any hording of the US dollar above a set amount (say US$5000) should be deemed a criminal offence punishable by a time in prison and for non-Caricom naturalised citizens and those with a right of residence, loss of citizenship and deportation.
Analysis and Conclusion:
One unmentioned consequence of the financial and economic mess in the Eurozone is the rise of neo-fascism. In Greece, the extreme rightwing has won parliamentary seats for the first time since the second world war, and in the first round of the French presidential elections Marie Le Pen won over six per cent of the popular vote.
But there is also a more direct threat to the Barbados tourism UK market is that if Greece were to leave the Eurozone and return to the drachma, the subsequent devaluation would make Greece a much more attractive, and nearer, holiday destination, than the punitive long-haul trip to the Caribbean.
All this brings us back to the cosy consensual rhetoric of Barbadian economic debate, in particular the fiction that there is growth in the economy, yet the chief propagandist for this view, the governor of the central bank, provides little evidence to substantiate his views. Understandably, one of his jobs is to reassure the nation that everything is all right, but there is a difference in reassuring and, to my mind, misleading.
The crude reality is that the Barbados economy is in recession and has consistently been since the 2007/8 banking crisis because of the uncompetitive labour market (one of the reasons, though not the only one, for so many hotels going out of business or having cash flow problems), an artificially high standard of living expectation, and uncontrollable government spending.
In the final analysis, Barbadian monetary and fiscal policies are so chaotic that even re-reading the Central Bank Act does not make it clear what the remit of the Bank is: is it monetary policy, managing inflation, economic stability, or all three?
Further, and an irritating feature of the local financial environment, is that often official prices and other figures are given in US dollars, such as loans from international and regional bodies, which marginalises the local currency. This is cardinal sin that is often repeated by local retailers – pricing in US dollars in a bogus belief that the tourists will understand, even though the majority of tourists come from the UK. It sends the wrong message.
Another problem is that labour costs in Barbados are far too high, fuelled by the silly belief that Barbados has a ‘first world’ standard of living. In basic economics, there is a trade off between wage inflation and unemployment and the real social crisis facing Barbados is youth unemployment. So far, government does not seem to remember this.
The problems in the euro area should be used as a catalyst for fundamental change.
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