The concept of Government granting assistance to an industry is not a new phenomenon, despite the notoriety it has achieved recently.
Since Independence, Barbados has opted for a mixed economy, allowing for the co-existence of private and public enterprise.
The democratic process has allowed successive Governments to move the mixed economy beyond the concept of mere co-existence and use public funds to boost economic development while preserving the tenets of private enterprise. Â
As a result, Barbadians, whatever their political persuasion, not only acquiesce to Government involvement in the economy but have come to depend on it.
Therefore successive Governments have used direct grants, fiscal incentives and tax concessions to entice businesses to grow, with the consequent job gains and positive impact on economic growth.
However, the principal concern is in the perceived direction Government intervention is taking the economy – towards a Government-subsidized, technologically driven private business enterprise structure, or a demand-driven balance development path.
The question of whether the Government should spend more on indigenous manufacturing centres on the response to the above. Given the nature of the Barbados economy today and the state of the global financial and banking institutions, it seems prudent that Government opt for a development path that emphasizes domestic value-added and deters expenditure of foreign exchange.
This would entail a total transformation of Government’s approach to providing funds for capital costs to indigenous manufacturing. In countries where this is done most effectively, China and Singapore, the state has put mechanisms in place to regulate the market, especially for foreign exchange; thereafter, the market is allowed to guide enterprise.
Businesses are mindful that they should consume foreign capital commensurate with the amount that they earn.
The practice of continually looking for and finding creative incentives to reduce capital costs as an encouragement to invest in new capital, while commendable and maybe even essential, has two effects that have to be carefully monitored.
First, to the extent that investment capital is imported, local funds are diverted to pay the bill.
Second, it raises the bar for local businesses, which suffer the consequences of economic bias built into the system due to not being able to meet the conditions required to access capital-cost allowances.
That the current business module has done us proud cannot be questioned. As a small island economy with very limited resources, Barbadians must be proud when they see what they have accomplished.
However, as we struggle to cope with problems emanating from the financial meltdown, we are observing the structural weaknesses in our business module.
Static inequality between established and fledging businesses – resulting in two virtual business sectors built and regulated by personnel with different, sometimes conflicting objectives – does result in sub-optimal allocation of resources.
Government must emphasize the importance of building more integrated businesses, with manufacturing given a boost.
