Experience from the last major recession, 20 years ago, has provided Barbados with a helpful framework for negotiating solutions for survival and future success.
The average citizen may be feeling the pinch and there is still much concern about the state of the economy, but Barbados is managing, in every sense of the word, to survive the current recession.
Although there has been modest growth in tourism, visitor spending is down. The newly elected chairman of the Barbados Private Sector Association (BPSA), John Williams, admits that the level of economic activity is depressed “but not horrifically so”. He expresses confidence that, while all businesses are feeling the pinch, most will survive.
How does a tiny resource-poor island, highly vulnerable to external pressures, manage not to crumble under a global crisis of such a magnitude? The answer lies in Barbados’ social partnership, which is a tripartite association of government, business (represented by the BPSA) and the trade union movement (represented by the Congress of Trade Unions and Staff Associations of Barbados – CTUSAB).
The partnership grew out of the near-catastrophic experience Barbados had during the 1991-93 recession, when the country faced its worst crisis since it gained independence in 1966. Inflation and unemployment soared, foreign exchange earnings dropped as a result of a decline in tourism, and the fiscal deficit shot up from 1 percent of GDP in 1989 to 7.5 percent in 1991.
Barbados entered into a structural adjustment programme with the IMF and the World Bank that provoked widespread but peaceful social protests. Only after taking a series of painful measures, including an 8 percent cut in public sector wages, did the government manage to stabilise the economy and prevent a devaluation.
Tourism has to be taken to a quantitively higher level and the range of exportable high-tech services must be expanded.
There were political consequences, however: the Democratic Labour Party (DLP) government lost the support of its parliamentary backbench, while the opposition Barbados Labour Party (BLP) went on to win the 1994 and two subsequent general elections.
But in the darkness of those times there was a glimmer of light. Barbadians, although angry at the government, rallied around the country, and the majority of civil servants formally agreed to the wage cut in order to avoid the devaluation of the currency. The trade union movement and the business community persuaded a reluctant government to engage in continuous consultation to redress the deteriorating economic situation. Bridges of trust were built, creating a favourable environment for cooperation between the three parties.
Since the social partnership was created in 1993, there have been six tripartite agreements governing matters such as prices and incomes policies, maintaining a fixed exchange rate for the Barbados dollar, increasing national productivity, ensuring a stable industrial relations climate, and promoting wider employee share ownership.
The latest of these agreements, reached in May this year, pays special attention to issues that are relevant to the current economic recession and sets the extraordinary goal of ‘making Barbados the No 1 entrepreneurial hub in the world by 2020′. This is the brainchild of the recently formed Barbados Enterprise Foundation, a non-profit group of local and international entrepreneurs. Their aim is to build on Barbados’ strengths – the strong infrastructure, excellent education, first class institutions, an extensive tax treaty network, and the relative competitiveness of its economy (second only to Chile in the Central and South American region). Furthermore, they want to remove inefficiencies in the regulatory framework, and encourage innovation to make Barbados a global services player.
Without the social partnership Barbados would be in dire straits today. When new storm clouds appeared in 2008, the partners acted to protect the national interest. Instead of laying off workers, businesses put staff on a shorter working week. In some cases, management took a temporary pay cut. The Barbados Workers’ Union, led by the veteran trade unionist Sir Roy Trotman, recognised that it would be foolhardy and counterproductive in a recession to increase the direct costs to business, and so it agreed to a moratorium on wage increases in return for businesses not laying off staff except as a last resort. The government also ensured that, amid the necessary cutbacks, the most vulnerable would be protected.
The social partnership is indicative of the real saving grace of Barbados: a high level of social trust, which, on the face of it, is improbable in the light of the country’s history of slavery, racial oppression and social polarisation.
“The real concern is the state of public finances,” says BPSA chairman Williams, who is also CEO of the major business group Cave Shepherd & Co. “The level of debt is now 103 percent of GDP. We are adding debt faster than we can pay it down.” He wants the government to put a brake on its spending and to increase efficiency and output with the same level of resources. Businesses are managing to survive, but there’s very little new investment and, from Williams’s perspective, the main problem is the uncertain economic framework both at home and abroad: “We need a sound and fiscally prudent economic environment in which to operate.”
Union leader Trotman also sees the lack of new investment as the critical factor hampering the economic recovery. “The biggest problem is building enough confidence in the recovery to induce investment,” he says. Accordingly, he is looking to big businesses to lead confidence-boosting measures and has called for a series of meetings of government and leaders of all sectors of the economy, including small and micro-businesses, to come up with specific steps for the reconstruction of the economy.
Barbados’ recovery from the recession can build on the spirit of cooperation, but it’s time to take the partnership to a whole new level. It has proved to be indispensable in crises, but it now needs to get into more strategic management of the economy. Both labour and business are agreed on that. Planning for a post-recession economy would be a good start.
The government needs to engage, in conjunction with its partners, in a complete overhaul of the public sector to improve its efficiency and reduce its size and cost. Tourism has to be taken to a qualitatively higher level, and the range of exportable creative, knowledge and hi-tech services must be expanded. Only then will Barbados stand a good chance of attracting new investment and innovation and of truly becoming a world-class entrepreneurial hub by 2020.