In last week’s column, I asked this simple question: who makes the choices in allocating and distributing our scarce resources? In a simple response, it was suggested that the choices are made by three major agencies, which include households, businesses and government.
While the first two of these carry the economy, the latter’s role in setting the agenda is extremely critical. Fundamental errors in policy prescription have the potential to destabilize not only the economy but the society. Unfortunately, Barbados has become a victim in the last four years, but attempts have been made to cast it in the international economic environment. A major error!
Whether or not an economy is stable is ultimately reflected in the relative condition of the three agencies. The statistics on foreign reserves, real GDP and the fiscal deficit are critical measures, but ultimately the judgement comes in the well-being of the people as reflected in the households, businesses and government.
According to every statistic, Barbados and Barbadians are worse off since 2008. The economy is smaller. More Barbadians are unemployed. Barbadians have saved much less. In fact, they have withdrawn more money from financial institutions than they have saved.
Ironically, Government is the only sector that has grown over the last four years. Why? How?
The Democratic Labour Party (DLP) administration’s new economic philosophy is that a Government job is better than a private sector job. It is therefore stable to lose over 16 000 jobs in the private sector and create 2 000 jobs in the public sector. How was this done?
The answer is through increasing taxation in a declining economy. This is a new form of stability that informs the political slogan No Job Lost In Government. This becomes the Government’s measure of stability, and so the instability comes in suggesting that the Opposition will send home 10 000 public sector workers.
History will not be kind to the DLP if it attempts to frame the next general election in terms that bring the record of its last two terms in office into play. On each occasion, poor public policy is the point.
Since self-governance in the 1960s and 1970s, all Caribbean economies have had to cope with international recessions. So why have some economies coped better? The answer is the policymakers. Those who ran into the most difficulties chose to overextend the economic role of the government.
The resources of the Government could not match the rhetoric. Unfortunately, in the last four years, Barbados has found itself in this predicament. It is the most recent example of poor public policy in the region.
Typically, the region has grown accustomed to looking to Barbados for economic leadership. This has not been forthcoming in the recent recession as the Government abandoned conventional wisdom, becoming the employer of first resort. This came at a tremendous price to households and businesses.
The abandonment of such wisdom is tantamount to a widely misguided principle that “the best form of defence is attack”. It is a principle that surrenders all reasoning in the face of adversity; it is self-defeatist and is inspired by failure not success.
The way out is not austerity but growth. Since economic growth is not sustainable if driven by the Government sector alone, it is imperative that households and businesses be allowed to fully participate in the recovery. This is a challenge that ought to be guided by a more reasoned principle of a selective simultaneous strategy of defence and attack.
Such an approach requires the capacity to pick winners and losers and act strategically. In terms of the economy, it calls for creating a framework in which losers in one sector are incentivized to become winners in another sector. The better use of our scarce resources creates an environment for opportunity that leads to growth.
The greatest challenge therefore is to understand the role of government in building a new economy. By the way, contrary to what is being recommended, Barbados’ national debt has to be strategically increased to assist in the process of building a new development path. This is why it is heartening to learn that the Government’s debt to the National Insurance Scheme has been reclassified to provide “elbow room”.
If the reclassification is true, then the main premise upon which Government’s Medium Term Fiscal Strategy is designed is flawed and in need of a rethink. To be continued!
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email clydemascoll@gmail.com.