Introduction:
On May 29, minister of finance Chris Sinckler gave a keynote address to the Barbados Chamber of Commerce setting out the government’s latest thinking on monetary policy to a distinguished audience, including the governor of the central bank. We are invited to consider the minister’s speech as the government’s latest roadmap out of the chaotic economic circumstances in which the nation’s economy is gridlocked, a definitive analysis of the situation and a cure for the financial anxieties of households and corporates.
It is a claim he made himself. After reminding us of his pride to be a Barbadian, in case he had forgotten, he went on to say: “I am mindful, Mr President, that when I speak to this chamber, I not only speak to the people immediately before me, but because of modern communications technology, I am addressing a wider Barbadian audience and even an international audience.” So, this message is for the wider world. After boldly accepting that the buck stops with him, he goes on to tell a half-truth by claiming the bulk of the problems with which he is now dealing predated the DLP administration.
To a large extent this is true in that the previous BLP government wasted most of its 14-year rule, but after five years in government the DLP is disingenuous in trying to pass off any of the blame for the sorry state of the economy on the previous government. But that is in passing. He talks about the political economy of managing a small state; he could also have mentioned the politics of economics and the economics of politics. Having reminded his audience that Barbados had a current account deficit of 7.8 per cent, he later stated: “…government, private sector, labour movement and general population ..must stand up to the task of ensuring that that which is out of balance is brought into equilibrium. That which is performing below optimal level is restructured….to bring it to a higher level of efficiency and output and we must fix what is broken in a resolute way.”
Again the minister is being economical with the actualite. It is clear that government revenue and spending are out of sync and are badly in need of rebalancing; what is the government doing about its debt, which is now in reality about 90 per cent of GDP, and even higher, if we were to take in to consideration official tampering with the numbers. He also mentioned “..that which is performing below optimal levels..” does he include the overall civil service in this assessment, over-manned and under-performing? Is this part of the urgent need for restructuring that he talks about? If so, this government prides itself on preserving public sector jobs at any cost. But the structural problems with the public sector in Barbados have been there since the 1950s, and made progressively worse every new government. Further, this is clearly a new awareness by the DLP administration since it does not take five years to tackle structural problems.
Global Growth:
The minister also talks about a ‘prolonged’ global economic weakness without any apparent realisation that what we are witnessing is a fundamental shift in global economic power from the north to the south. So, while Anglo-Saxon economies are struggling, emerging economies are driving global growth. The minister does not seem to be aware of this. According to one major study, between 1980 and 2007, global financial assets (equity markets, corporate and sovereign bonds and loans grew from US$12 trillion to US$206 trillion; by 2012, the latest available figures, it had grown to $225 trillion, admittedly a slow down, but not a halt. When measured against global GDP, the figure grew from 120 per cent to 355 per cent, before falling back to 43 percentage points by the end of 2012. The minister also reminded his audience that the Barbados economy had grown annually by 2.5 per cent between 2002 and 2009, before stalling in 2008.
Admittedly this was mainly under the other regime, but the crude reality is that the Barbados economy underperformed the regional and global economies. Global growth between 1990 and 2007 was a spectacular 7.9 per cent, although it has now dropped to a measly 1.9 per cent. But that figure in itself can be deceptive. Between 1982 and 1987, OECD economies accounted for 69 per cent of global growth, while the emerging markets accounted for 31 per cent; between 1992 and 1997, OECD members accounted for 54 per cent, compared with 46 per cent by emerging nations. Between 2002 and 2007, the years of the great global boom, advanced nations accounted for 33 per cent of global trade and emerging nations 67 per cent. And, according to the Financial Times, between 2012 and 2017, developed nations will account for 26 per cent of world growth, compared with 74 per cent by emerging economies. These figures become even more stark when we look at the performance of individual economies.
Between 1982 and 87, the US grew by 29.8 per cent, the UK by 4.2 percent, Japan by 10.3 per cent and China by 9.9 per cent. In the five years to 1997, the US grew by 29.8 per cent, the UK by 3.8 per cent, Japan by 3.8 per cent, and China by 18.9 per cent. Between 2002 and 2007, the US grew by 12.6 per cent, the UK by 2.2 per cent, Japan by 2.6 per cent and China by 23.6 per cent. And it is predicted that by 2017, the US will grow by 13.9 per cent, the UK will be out of the ten top economies, Japan will grow by 1.4 per cent and China by 33.6 per cent.
And the Financial Times concludes: “The future of world growth is increasingly dominated by China, soon to be the world’s largest economy.
“Only the US and India provide any rivalry and, so weak is prospective European growth, that the EU accounts for less than six per cent of the global total. Only Latin America and India are increasing their share.” No where is there any recognition of this new reality in the minister’s speech. However, this is the irreversible drift of the global economic growth, certainly in the first half of the 21st century. However, the second half of the 21st century belongs to Africa, it is theirs to lose. One brilliant young Barbadian, Donna St Hill, is doing world-class work on Africa and the minister could do worse than inviting her in for a discussion. For reasons best known to Barbadian politicians, policymakers, academic economists and public intellectuals, this reality is not even recognised.
The minister also indulged in a bit of navel gazing when talking about the importance of tourism to the national economy and its decline since the global banking crisis. There is no analysis of the causes of the fall off in new tourist numbers, the need for new revenue streams, no proposal for diversification, nor, more importantly, no suggestion of the development of a tourism infrastructure. It is clear, from the minister’s address, that he – like the rest of the government and the tourism sector – is caught like a rabbit in oncoming traffic lights. Somehow they are not aware that tourists need more than sunshine, relatively lovely beaches and over-priced hotels masquerading as world-class. Even the simple question: what do tourists do when not in the sea, eating in ordinary hotel restaurants or driving through the Barbadian countryside?
Not since 1961, the birth of the Barbadian tourism industry by the Englishman Ronald Tree, have there been any real interest in creating an infrastructure that will encourage tourists to spend even more money on the island. Then he admitted: “The government sought to finance these (revenue – HA) shortfalls externally, through multilateral and bi-lateral borrowing, and domestically, by you, the private sector, the NIS and the central bank. “We were very conscious of the importance of balancing these financing options and sought to do so in a way that would increase the relative risks of our external exposure nor put unnecessary pressure on the available funds in the domestic market.”
In this poorly phrased section of his speech the minister explained everything that is seriously wrong with government fiscal policy. Having been excluded from the prohibitively high interest rates on the global markets due to its poor credit rating, the government retreated to borrowing from local financial institutions at relatively very high rates, from the NIS, totally ignoring the long-term nature of a national pension fund, and intruding in to central bank independence, even though he did not spell out the ways in which this was done. Noticeably absent from this explanation was any attempt to reduce public expenditure generally, and what the public sector calls annual management expenditure, which is traditionally considered to be untouchable. He goes on: “As a government, we are faced with two simultaneous challenges: the imperative to reign in (sic) the growing fiscal imbalances and a duty to provide a cushion for the most vulnerable during the circumstances. “We committed ourselves to maintaining employment in the civil service, while at the same time systematically adjusting our tax structure in a way that would not place undue burden on any one group.”
In fact, the policy of job preservation in the public sector made civil servants chosen people in the midst of an historic economic storm. But this is the core of the very restructuring that he has mentioned. In fact, government should have used the opportunity when it first came in to introduce a policy of labour market flexibility, weaken the bullying and unproductive trade unions and reform the sector by removing a culture of entitlement by time-servers and introducing a meritocratic system of employing the brightest and best of graduates and fast-tracking them to the top of the civil service. Government did not do this because it found itself a prisoner to administrative dinosaurs and a union mafia. He told the meeting that structural reforms would have to be made over the short, medium and long-term. But, after five years in power there is no sign yet of these reforms, beyond rhetoric. He told his audience “….a lot of the deficit spending you see in this economy is structural and locked deeply into the heart of this economy. It is not just about salaries and wages in the public service though much of this growth has not been matched by productivity gains and that in itself is a problem.” This public confession may be good for the political soul, but not for taxpayers’ pockets.
It is also flattering to see the minister has finally come round to my position, one bitterly criticised by a former governor of the central bank, that the fundamental macro-economic problems in Barbados are not cyclical, which could be passed off on the global crisis and decline in tourist numbers, but are deeply structural and no matter how the global, regional and national economies perform those crippling inefficiencies will remain. For a senior minister in a government to admit that generous salary increases are not matched by productivity gains is to confess his, and the government’s, managerial incompetence. The high labour unit cost in Barbados, which is scandalous, is a direct result of the bullying nature of the overpowering public sector unions and the unwillingness of senior civil servants and politicians to take them on. This failure cannot be placed at the door of the previous regime, the global banking crisis, or the reluctance of the rest of the world to understand the Bajan way of doing things. At some point Sinckler and his colleagues must put their hands up and plead guilty as charged.
Analysis and Conclusion:
The minister’s use of the ideology of foreign reserves as a crutch to explain the over-surplus of reserves is inexcusable and totally irrelevant in the post-2008 global economic landscape. Even in simple housekeeping terms it is a nonsense: why should a householder stockpile a massive amount of cash in a bank account, for example, while continuing to build up high-interest debt on a credit card to purchase household durables?
A better strategy would be to put aside some of that money for a rainy day and use the other savings for important purchases, such as home repairs, or the children’s education. The same with the national economy: government could use Bds$500m of the $1bn it has in reserves to fund a growth programme, including a balance sheet retail bank, public sector technological improvements and job creation for youth and young people – all of which would have delivered enormous productivity efficiencies, thus economic growth.
However, by now it is clear that the government has no economic credibility; it is at sea without a paddle: no vision of the kind of society it will like to see; no intellectual or historical understanding of the post-2007/8 global economic crisis; and no programme for change. It is as if they are all burying their heads in the sand and hoping this is all a dream.
The over-emphasis on public sector job security is a straw man since very few people are talking about large-scale redundancies, if any, in the public sector.
What the minister and his advisers are not talking about is the much-needed structural reform of the civil service, rather than just tweaks, such as the introduction of service-wide technology, retraining those in job to use the modern technology has made redundant, such as stenographers, and as a short-term measure, making all entry-level jobs job-shares for 16-24 year olds, that important age group that poses a long-term threat to the nation’s prosperity.
By structural reform we are talking about labour market flexibility, improvements in efficiency such as the collection of outstanding taxes and, just as important, constitutional reforms in the structure of parliament and the courts. Why, for example, should it take more than five working days to register a new company in Barbados? Part of these reforms must be a better and more informed public debate, not just rhetoric and personal abuse.
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