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AS THE DEBATE over the economic woes continues, the issue of privatisation has once again emerged as a possible solution to the fiscal crisis. While the real extent to which this matter will become prominent in the search for practical solutions to get the country out of its present financial quagmire remains unclear, the Government seems to be taking some comfort in the notion that the disposal of state-owned entities can be the economic redeemer going forward.
But, can this strategy really be a game changer for the current administration?
A full examination will be undertaken in this and subsequent columns because privatisation brings the issue of free markets and their implications for economic outcomes into direct focus.
Arguably, one of the most highly debated issues in the history of economic thought has to be the efficacy of free markets and their capabilities in generating “best” possible outcomes in relation to inter alia the prices at which commodities are traded, the levels of output, the maximisation of consumer and producer surpluses, and the enhancement of competition among firms.
Discussions along those lines would more than likely begin with the wisdom of Adam Smith and his hotly mooted concept of the “Invisible Hand”.
Indeed, in his most widely recognised contribution to economic discourse, The Wealth Of Nations, Smith’s philosophical perspective is reflected in the fact that he “was guided by one universal principle; namely, self-interest.
Every individual has the desire to better his own lot. It was on this belief that he regarded the entire economic world as a big workshop created by the division of labour.
Indeed, Smith believed that human conduct was governed by self-love, sympathy, the desire to be free, a sense of propriety, a habit of labour and the propensity to satisfy his wants with the help of others. Each man is the best judge of his own interest. If complete freedom is given, a man would make efforts not only to better his own lot, but also would make efforts to promote the general good. Thus, “an invisible hand is behind all human motives”.
But Smith was only one of several economic thinkers whose contributions are reflected in the classical school. No doubt, classical economists believed sincerely in laissez faire. It is no wonder, therefore, that they have advocated “that Government is best which governs least”.
Further, classical economists are the major champions of market economies in which perfect competition dominates. Hence, critical activities such as production, exchange and distribution are best determined by the forces of demand and supply – market forces.
As we look around the globe from a small, open economy like Barbados to larger ones in Latin America, Africa, Asia, Europe and North America, there are vastly diffused manifestations of market economies and heavy states or governments’ involvements in the management of countries at play.
Yet, the stark reality is that economic outcomes in those countries have not only been mixed over the years, but have also been highly erratic and in many instances lethargic.
What those mixed outcomes have done is continue to ignite the fire over the debate concerning the real workings of free markets and their predictable abilities to generate efficient economic outcomes.
Therefore, can Barbados, with a strategy of privatisation, actually turn its fiscal tides around to the extent that the economy could eventually be placed on a sustained growth and development path?
I will explore this question, conceptually, in next week’s contribution.