As the IMF troops gather at the gate, the people of Barbados have little time to reflect on how a once proud nation has found itself in this economic mess. But, as night follows day, it had to come; it is a modern-day example of Sodom and Gomorrah, of a people living so much beyond their means, partying and fornicating, that they forgot how hard work and good ethical behaviour has its rewards. For the national decline is not just economic, only that this time it is manifesting itself in an economic meltdown, but it goes right across the range of our social and cultural values. Although we can blame the 14 years of the Arthur administration for sowing the seeds of this predictable car crash, and rightly so, after nearly six years in government the DLP government can no longer use that excuse. The failure to manage the economy is theirs and theirs alone, first with the Thompson regime being caught off guard when it won the general election, and the political ignorance of Freundel Stuart to impose his mark on the post-Thompson government. But we are where we are and it is no good crying over lost opportunities. However, to kick off this period of tighter fiscal controls, government should impose a Bds$50m windfall tax on the commercial banks and use that money to fund a post Office bank; also encourage the credit unions to establish a joint credit union bank, both operating on balance sheet principles.
Part of the DLP’s policy inertia has been its lack of vision, a mainly professional middle class and cadre of policymakers who do not read outside a very narrow self-confirming set of publications and, even if they travel overseas, they wear cultural and policy blinkers. The result is a very narrow vision of what is politically possible, and the absence of any intellectual curiosity to drive them towards looking for new answers. You can see these people in London and New York, Toronto and Paris, straight from Grantley Adams Airport doing the familiar things they do at home: black pudding and souse, dominoes, watching cricket, drinking too much. Sometimes one is left to wonder how people could visit some of the great cultural capitals in the world and have not the slightest curiosity about visiting the theatre, or a top restaurant, or museum, or even good bookshops. This is the root of the problem, of the failure of policy, since they depend on a small self-justifying group of people for their ideas, people they have known since entering the infant school system until they emerged from university. The net result is a cultural and intellectual deficit which expresses itself in the lack of innovative policies back home.
The same thing for the economy: failure to analyse closely how other governments are dealing with the problems faced by their economies since the global crisis means that the DLP government is left with a number of patch-work, juvenile economic programmes. They have failed to understand that the ultimate tool to combat a recession is to restore demand and this can only be done through the mechanisms of private sector investments, consumer demand or government spending. It is clear that the artificial demand driven by cheap money, such as the scandalous so-called Car Extravaganza offered by RBC, is a return to the boom years of pre-2007/8 which saw sub-prime lending getting out of control. It is true, the private sector is having problems of its own, especially the small hotel sector, but these are cash flow problems that could be resolved with innovative financialisation. Attempts by the government to drive the economy through a massive amount of unsustainable loans is quite obviously not the answer. The latest proposal to resolve the problem, widespread public sector sackings, smacks of desperation, but it has serious repercussions for the wider economy. It will reduce overall demand and put more households in serious debt while at the same time cutting the tax take.
Keynes has shown that a deficit is not the end of the world; governments, like households, must spend carefully, prudently, and borrowing or printing money to pay salaries is carelessness. Governments however must also invest for the future, so that generations to come can reap the benefits. This government has no such vision. One explanation for the policy failure which is now crippling the economy is that it has taken this government nearly six years to realise that the global banking crisis and the following recession was an opportunity to restructure the entire economy. Instead, it chose to focus on inter-party rhetorical rivalry, not realising that the party in power had all the levers to impose its own policies. And, when necessary, it milked the national insurance scheme as if it was the government’s piggy bank.
Any government that wants to promote prosperity and redistribute national wealth should look first at housing. Since the Second World War, it is residential housing that has been the driver of household wealth in every western democracy. And this government had a black piece of paper on which to draft its housing policy – from clearing up the awful slums populate the city to many of the old traditional towns and villages.
Further, in an island of nearly 300000 people and only just over 100000 acres of land, density is important therefore comprehensive planning is of central importance. We cannot spread out, build swimming pools and golf courses, create recreational spaces, allocate agricultural land, an extensive road-building programme along with enough space for houses, offices, churches and other civic buildings. Something has got to give, and I suggest it is family housing that will have to give. This generation of politicians does not fully understand the transformative effect of home ownership, especially in the socially conservative environment that envelopes Barbados like a cloud.
Other Policy Failures:
Within the first 100 days of the Thompson government the DLP should have decoupled the Bajan from the Greenback, fix it against a basket of commodities and currencies, which would have provided a hedge against the need for a massive foreign reserve fund. Government should also outlaw the US dollar being used as legitimate currency for over-the-counter business in order to retain control over its money supply and reduce opportunities for small business people to carry out tax fraud by hoarding cash. It should raise the statutory school leaving age to 18; reform the school system with selection at age 14 to decide who would be best suited in an academic stream, a technical stream and a administrative stream. The next four years of their education will be focused on those streams as part of a wider policy on education and training. Government should also invite in new manufacturing and service industries, diversifying the economy away from an over-reliance on tourism. It should develop a sophisticate leisure sector, principally for Barbadians, but also of use to the tourism sector – a dry ski slope in the Scotland district, a permanent funfair in the Ragged Point/Culpepper Island area, develop the Seawell are as a commercial mall complete with restaurants, cafes, a three-star hotel, and a mono-rail running in the first phase to Codrington College.
When Barbados became constitutionally independent, we had a 15-strong trawler going up the Gulf fishing for shrimp. Why have we lost that industry? What has replaced it? We also had a very good, if small, dry dock, which we can also put back in operation servicing small yachts and boats.
Government must act immediately to draw up a list of non-core assets which must be sold off in a strategic way. It has the biggest land bank in the country and should be compelled to come up with development ideas on how best to use that land, deciding what is for agriculture, what for recreational space and what for housing and commerce.
Government had an open goal with the under-performing Transport Board, its dilapidated vehicles and a prime development site. Combine all these with the need for financial innovation, in this case the need for a balance sheet retail bank, and the DLP administration would be in a position to claim, rightly, that it had done more for the economy of Barbados than 14-years of BLP rule under Owen Arthur.
First, St John is the safest DLP seat in the country and the nation’s poorest parish, so it was a no brainer to re-locate the Transport Board to St John. Then government should separate the business of public transport from that of vehicle repairs and maintenance and establish them as separate businesses. It should then replace the existing vehicles with a working fleet of buses and a professional management team, which it should then privatise, offering 51 per cent of the shares to existing and retired staff, unions and ordinary non-institutional investors. The other 49 per cent should be offered to local and Caricom institutional investors with a mandate to return a profit of at least two per cent above the base rate.
The current staff mechanics and managers should be formed to a limited liability team and offered the repair and maintenance contract for an initial three years after which it would have to compete in open competition with other service providers for the contract. The Roebuck Street site should then be developed in to homes, offices and shops for mainly young professional people, with at least 200 per cent of the units used for social housing. With properly architecturally designed homes and office and shop provisions for a doctor’s surgery, offices, a grocery, a membership gym, a swimming pool, and, including the Weymouth playing field, other amenities such as tennis, a leisure centre with an ice rink, badminton, squash, basketball and netball courts. The apartments could be offered to young professional men and women – through 100 per cent interest-only mortgages if necessary – and to non-Barbadians looking to buy holiday homes. With a deadline of three years to build the apartments and with off-plan sales, guaranteed by an independent NHC (which ideally would be part of an umbrella Sovereign Wealth Fund), the development would be self-financing within five to ten years.
Analysis and Conclusion:
As the dark clouds close in, there are two dominant issues that have led what passes for policy in Barbados down a cul-de-sac: first, the obsession with foreign reserves is out of date in contemporary macro-economic terms, as has been suggested on a number of occasions. The examples set by the big developed economies: the US, eurozone, Japan and UK – in printing money to refuel their economies then steadily withdraw those funds, what Ben Bernanke has called tapering, have proved very productive. The US saved the motor industry and until this week to pumped US$85bn a month in to the economy; it has now reduced that to US$75bn. In the UK, the Bank of England spent £375bn purchasing gilts back from institutional investors, mainly the banks and the European Central Bank has written a black cheque (whatever it takes). Instead of obsessing over foreign reserves for an exogenous shock that may never come, a reasonable proportion of those reserves could have been used to fund small and medium enterprise and create jobs for young men and women. Government missed that opportunity. Most of all, the government has failed to develop a youth policy which should go beyond just finding jobs, however, unproductive, to embrace education, training, recreational activities, and the criminal justice system.
Instead of dipping in to the NIS, government should have used the crisis as an opportunity to put in place a long-term saving vehicle and the creation of a sovereign wealth fund with a remit to return a minimum of two per cent above the rate of inflation annually. And with a Barbadian being one of the leading sovereign wealth fund analyst s in the world, we would have been starting from a pole position.
Sacking people at any time is devastating for the individual, but doing so in the middle of a recession (which the government and central bank governor still refuse to admit) could have long-term effects, as Steve David, of the University of Chicago, and Til von Wachter, of Columbia University, have pointed out (see: Recession and the cost of job lost).
Finally, we must look seriously at our growing population and the ill-thought out policy on the CSME free movement of people. It was bad when it was first introduced and it is even worse now in a serious economic crisis. All that is left to say is to wish you a most enjoyable Christmas and a most prosperous and traditional New Year.