Pressing The ‘Reset’ Button

Second in a three-part series of an address by Terrence W. Farrell, Economist. to a tripartite meeting of the Barbados Social Partnership, the Barbados Private Sector Association last weekend.

OUR governments, reflecting a deep-rooted ambivalence, have tended to embrace “largeness”, big projects, grand designs which boost political egos and impress naive electorates. We have had what in Trinidad we call “Champagne taste and mauby pocket”. Because Trinidad and Tobago has had the most money, the syndrome is most evident there. We have built tall buildings in Port of Spain which have remained incomplete and unoccupied now for five years while the current administration has busied itself building the most expensive highway in the Americas out of recurrent revenues, a highway which starts close to the unfinished Tarouba stadium, originally supposed to accommodate the Cricket World Cup in 2007! Wasted resources, wasted taxpayers’ money! And with the focus on “largeness”, small initiatives are given token support or short shrift.

Another characteristic of our weak performance is that we have substituted acronyms for action. Acronyms abound. Glossy documents are produced announcing new programmes with new acronyms. Again Trinidad and Tobago probably takes the prize! We have programmes like HYPE, MUST, YTEPP, CEPEP, URP, and many others, in some cases targeting the same or similar objectives.

In the public sector the Plan is the performance! Every ministry or department is now doing ‘strategic plans’ replete with SWOTs, and PESTs, and Balanced Scorecards, produced at offsite retreats with little hard thinking and studious avoidance of the real problems confronting the public sector. I work as a strategy consultant and I would have to say that the private sector organizations which perform best do not engage in those kinds of textbook planning exercises.

Another problem we have endured is poor Economics. This is my foundation discipline which is predicated on the idea that production requires the use of resources and that resources are scarce and require effort and time to be used in production! I think there are two aspects to the problem. First, basic economic principles are forgotten or neglected in decision-making in the public sector.

Economists always say: “There is no free lunch”, which arises from the fact of resource scarcity. Politicians sometimes behave as if there are free lunches and encourage people to believe that. You can, for example, provide free health care, that is the client does not pay, but that does not mean it is free. Somebody somewhere or at some time has to pay the cost. When costs are hidden or postponed, it may seem that the cost is one thing, but the real cost catches up with us sooner or later. The neglect of the maintenance of public buildings is a case of hidden costs which are paid with interest later on. And some costs we are passing on to future generations when we encourage consumption paid for by borrowing.

The second aspect of the problem is that the Economics profession across the region has become weaker, fewer in numbers, less well trained at the best schools, and less strong in their advocacy of sound economic thinking. Politicians now take their own counsel on economic policy matters and the consequences have been appalling!

Finally, the over-reaching of government in the region has had several unintended consequences. Rather than alleviating and reducing poverty, it has fostered dependency, a poor work ethic and rampant corruption, especially in Trinidad and Tobago where the rents from the energy sector have prompted a feeding frenzy, the so-called “eat ah food” syndrome. We have acquiesced in the overreaching of our governments in part because of a distrust of the private sector for historical reasons having to do with issues of class, ethnicity, historical exploitation of the working class and a questioning of the real loyalties of the business class. We are living beyond our means, that is, beyond the resources available to us. But economic growth is all about expanding means, expanding the resources available to the society. So we need to put growth back at the centre of the national and regional agendas.
Resetting the Growth Agenda and Stepping Out

It may be paradoxical but the first step in resetting the agenda around growth would be to ensure that the adjustment process is completed. Prolonged adjustment is unhelpful. People lose confidence, and confidence is a sine qua non for economic growth. I strongly advocate quick decisive adjustment for that reason.

The second point is that “small is beautiful”. Large things have small beginnings. Your compatriot, Dr Basil Springer, often talks about business start ups having ‘the DNA of an elephant’. That is the model of Google and Facebook, whose success has been founded on collecting pennies which add up to millions and then billions, supported by continual innovation for effectiveness.

The third point is that the growth equation is simple. Growth happens when investment takes place and the investment results in the creation of value. The more difficult questions are ‘Who invests?’ and ‘What should they invest in?’ The answers which Arthur Lewis provided over 50 years ago were: Foreign capitalists will invest, and they should invest in labour intensive manufactured goods for export to markets which the foreign capitalists knew. The objective was to employ surplus labour generated by fast growing populations. Those answers are inappropriate and unworkable today. I think the answers today are: local capitalists/businessmen who invest in selling high value products and services derived from specialized knowledge and talents to global markets, including and especially the diaspora and emerging markets in Africa, India and Brazil. The funny thing is that we are already doing this, but governments and large sections of the business community remain focused on traditional tourism and manufacturing, and these initiatives are largely invisible and unsupported. What are some of the features of these investments?

• They may be delivered locally or globally, but local delivery need not precede or provide a base for global delivery. One can go straight to the global market, or simultaneously to local and global markets.

• They are delivered by small and medium sized businesses, not the large conglomerates which are still locked in the traditional distribution sector. These businesses may have multiple domiciles, operating from Toronto and Bridgetown, Port of Spain and Accra, or Kingston and London.

• They are based on particular knowledge or talent or skill; the half life of such businesses may be short, but the business model may be repeated several times over. The business is focused on value creation.

• For manufactured items, production runs may be short, but the markets are niche and the value created is high.

The range of industries over which these kinds of investments can be made are wide. But it is possible to identify: local herbs and spices for medicinal and culinary uses, entertainment, the creative industries, sports and athletics-related businesses including specialty clothing and equipment, and in the context of Trinidad and Tobago, energy services.

We must of course continue to invest in improving our tourism and related industries in the various territories including taking a stake in the explosion in tourism in Cuba which is sure to come, investing in agriculture and regional food security in Guyana and Suriname, and in Trinidad and Tobago investing in businesses further downstream of the natural gas value chain.

What then might be the roles of labour, government and the private sector?

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