The Barbados Economy at the Cross Roads

Former Prime Minister (from 1994-2008),The Rt.Hon.Owen S. Arthur,M.P., has made a very timely and important speech to the Young Economist Association of The University Of The West Indies. All Barbadians should take careful note of what he has said.It is rich in content. Its title is ransforming The Barbados Economy in the age of Liberalisation”. […]

By Peter N. Boos

February 27, 2010

Former Prime Minister (from 1994-2008),The Rt.Hon.Owen S. Arthur,M.P., has made a very timely and important speech to the Young Economist Association of The University Of The West Indies. All Barbadians should take careful note of what he has said.It is rich in content.
Its title is ransforming The Barbados Economy in the age of Liberalisation”.

This analysis is both timely and extremely relevant to the current economic debate in Barbados. Ignoring the political aspects, the speech contains much information and thoughtful analysis that anyone interested in the Barbados Economy will find informative.

In summary Mr.Arthur argues that the solutions being proposed in the Government’s Medium Term Fiscal Strategy are too draconian and IMF inspired and will not work and could put the Barbados economy  into a no or low growth trap.

To quote Mr.Arthur:
“My judgement, based on the policies contained in the Strategy document, which will attempt to suppress domestic activity without any serious attempt at positive transformation, is that they will lead Barbados into a growth trap — domestic recession caused by international recession, is likely to be followed by domestic recession caused by inappropriate fiscal policies.” He goes on to say: “It is common knowledge that an economic policy can have multiple effects. The policy intended to correct a fiscal problem can lead to deeper recession and rising unemployment. It is however possible to accompany policies which are intended to deal with fiscal problems with others that, at little cost to the Treasury, can have positive, transformational effects on the real economy.”

Mr.Arthur goes on to describe the changes in the global trade environment that will create major challenges for Barbados by 2015. These relate to the EPA, WTO rules and Canadian Tax Policy.

The bottom line is that globalisation and free markets are expanding and the need to be strategic and competitive in our policy formulations are essential.

He goes on: “It is therefore quite possible that Barbados, in the absence of creative policies now, will emerge from the present recession as a more vulnerable economy, more dependent than ever on its tourism sector, and shorn of much of its promise to be a major centre for the conduct of international business. At this juncture, our policies should be intended not only to compress activity and output. Resources and elbow room must be allowed to support creative and transformational new programmes to deal with the challenges which lie just over the horizon, even as we deal with the fiscal problems which must be addressed immediately.”

Arthur is of course quite right. The most pressing need is the transformation of the Public Sector from a costly bureaucracy to one of our core strategic value propositions.

He also rightly concludes ” In controlling the fiscal deficit, Government’s contribution to total domestic demand, and hence its capacity to help generate growth in the economy will fall. If Governments’ contribution to domestic demand is designed to fall, then growth in the
economy
can only be generated if the fall in Government’s contribution to domestic activity is compensated for by more than a corresponding  increase in output and investment by the private sector.  If such increase in private sector output and investment cannot be generated by stimuli arising in the local economy, then they must come from an expansion of the ratio of both exports and private capital inflows to GDP. It means, therefore, that if Barbados is to be put back on a sustainable growth path,  there has to be a surge in both exports and private capital inflows, beyond historically recorded levels, to make up the likely shortfalls in domestic public and private economic activity. Changes in our international trade relations however are likely to make this difficult.

Mr. Arthur is spot on target.

But the question we must ask is do we have a sufficiently business friendly environment and the well crafted strategic policies and committed resources and attitudes that will stimulate exports or foreign direct investment ?

For many years (20 or more) this has been on the agenda, yet successive Government’s have failed to address it. Instead they pursued the tax,borrow and spend model and paid insufficient attention to productivity and competitiveness in a global marketplace. It could never last as the economic cycle was always going to catch up with policies that were fiscally irresponsible and led to unsustainable fiscal deficits and heavy debt load. We are close to the economic edge and our next few moves will be very critical. There is little room for error now.

Now Government must pursue the better alternatives because they absolutely have to. Although a highly competent economist and thinker,in three terms in office, the former Prime Minister failed dismally to transform the Government Sector. Public Sector Reform became a slogan but was never treated as a compelling strategy to be relentlessly pursued at all cost to position Barbados for a new world reality. Sir Courtney Blackman laid out clearly his recommendations in this regard in a Strategy Paper in February 2001-he was ignored.We had the opportunity in our years of plenty-the decade up to 2008- to make the needed adjustments in the Public Sector but we took the politically expedient   easy road which has lead us to longer term trouble and the unavoidable painful adjustments ahead.

Barbados cannot afford the current underperformance and cost of Government Services.

Strategic Public Sector transformation must now happen if we want to stand any chance over time (because the transition cannot be immediate), to create wealth for all Barbadians in the real world. Its time for maturity and reality to be at the core of our strategies. Can we ever put political short-termism aside long enough to get it right?

At the end of his excellent analysis Mr.Arthur says :

“In such a context, our policies to assure our competitiveness must immediately be given the highest priority, and must be centred on programmes to make the most of opportunities arising from cost advantages or opportunities emanating from the value of the assets associated with the Barbados Brand. There are only a very few areas in which our ability to compete can be made to rest on cost advantages. Hence, a premium must be placed on optimising the benefits that can be gained from deploying the special economic attributes that make up Barbados Brand. We need those special measures to be deployed now, even as we face the challenge of stabilizing Barbados in the face of the current recession.In so doing we must resolutely determine to make the best and fullest economic use of our most abundant as well as our most scare resources — our people and our land.”

Creating an environment including the appropriate governance models and performance system and supporting technology for our Public Servants is the place to start. The McKinsey 7S Model can be adapted to Sovereign States to create a dynamic Government Organisation. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organisation that need to be aligned if it is to be successful. See http://www.mindtools.com/pages/article/newSTR_91.htm. Four of these elements are so called “soft elements”-shared values, skills, style, staff. Nothing to do with buildings or computers but everything to do with motivating people to perform to their highest potential.

In conclusion Mr.Arthur puts forward some valuable suggestions to tackle the economic crisis we are facing.He calls it the Barbados Model.

To quote him: “I refer to it as the Barbados Model. It is reflected in the certain vital relationships and ideals whose practice has accounted for our growth, stability and development over the years.”

The five features of the Arthur Barbadian Model are:

  1. Sustain investment in the development of our social capital
  2. The pursuit of sound and carefully balanced macro-economic policies.
  3. The pursuit of strategies to create a dynamic enterprise culture.
  4. The existence and functioning of an Entrepreneurial State. For Barbados to succeed, the Government must function like an entrepreneur.
  5. Rely on open rather than closed systems in ordering our economic and social affairs.

I do not think we can argue with this Model.

Our problem is and has been for a long time the ability to execute and operationalise these strategic goals in a transparent,measurable,accountable way and to stay focused. Politics at the end of the day often derails the process hence the failure to date to achieve strategic Public Sector Reform.

In the new global realities countries,Barbados included, will have to compete and find their own “unique selling propositions” that brand them. One that is well within our ability to create is being the World’s most effective Public Service. Creating an Entrepreneurial State will require that to happen.

If we continue to ignore the “massive bull elephant in the room” the consequences will be very painful.

Who will do it ?

Peter N. Boos

Chairman Emeritus Ernst & Young Caribbean (since 2004); Founding partner Business Barbados publication (1999) and the Barbados business web portal BusinessBarbados.com (2009); Co-Founder, Chairman and CEO Substance Abuse Foundation Inc. (1996 to date); Founding Sponsor (2009) and First Chairman (2009-2014) Barbados Entrepreneurship Foundation Inc.; Founder of the Peter Boos Foundation (2004), (supporting youth development, entrepreneurship, education, addiction treatment, environmental protection, arts & culture development, relief of poverty and support of various community and charitable causes); Founder, Patron and first chairman ASPIRE Foundation (Barbados) Inc. - 'helping charities help' to strengthen and expand the Barbados Third Sector (2014 to date).

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