Income gap grows

SHAWN CUMBERBATCH, shawncumberbatch@nationnews.com

Added 18 May 2017

colin-constantine-051517

Collin Constantine (Internet image)

INCOME INEQUALITY IN Barbados is heading in the wrong direction. That’s the conclusion of new research by a Guyanese economist, who linked the trend to increasing wealth generated through the international business and financial services sector.

Collin Constantine is a development economist who is a PhD student in economics at Kingston University London.

Last month, he released the working paper A Community Divided: Top Incomes In CARICOM Member States and found that “Barbados is clearly the best performer is terms of rising inequality”.

Constantine’s research covered the period 1960 to 2015. He noted that traditionally the region’s relatively high inequality countries were Belize, Suriname, Guyana, Jamaica and Haiti. Barbados has usually been among the relatively low inequality countries that include Trinidad and Tobago, The Bahamas and St Lucia.

However, the economist found that “in the Barbados case, top incomes have steadily increased since the 1970s”. Put differently, he explained, “the middle class in Barbados has been shrinking”. Despite this, Barbados still had the lowest level of income inequality among CARICOM member states during the 1980s.

Constantine said this had changed and Barbados was “rapidly converging to its high inequality peers”.

He concluded that “the principal explanation for this is the growth in its offshore financial assets and the monopolisation of its financial rents by a small group”.

Elaborating, he said: “Since 1970 its top ten per cent had appropriated a growing share of income, until it stabilised in 2010 at 37 per cent. Thus, in modern Barbados, the average income of its top ten per cent is about 3.7 times larger than the average income of its entire population.

“This depicts a remarkable rise of income inequality during these four decades, notwithstanding periods of growth and stagnation in Barbados. Moreover, within the low-income inequality group, Barbados is the only country that is converging towards its high-income inequality peers. In Barbados, it appears that the top ten per cent was successful at increasing their holding power.”

The economist also said that “a simple back of the envelope calculation shows that the average annual economic growth for Barbados over the period under consideration stood at 1.92 per cent, while the average growth of income share for its top one per cent and five per cent were 12 per cent and five per cent, respectively”.

“Such drastic increases of income share each year suggests a hollowing out of its middle class and a complete decimation of its poor in terms of income share. This is the epitome of extractive growth, where most of the gains from income growth go to top incomes,” he noted.

Examining what was likely responsible for Barbados’ shift towards higher income equality, Constantine pointed to various pieces of research which showed that offshore financial centres were “important sources of rising income and wealth inequality in both developed and developing countries”.

“Barbados’ Offshore Banking Act was enacted in 1979 and in 1977 there was an important amendment to its International Business Companies (IBC) Act. The amended act noted that an IBC need only be a resident – a resident company is one managed and controlled in Barbados,” he said.

His contention was that “this particular amendment facilitates the growth of resident top incomes. Further, these reforms were undertaken during the period that top income shares started to accelerate in Barbados”.

He added: “Crucially, the period through which top income share accelerated in Barbados (1970-2008) is consistent with the growth of global finance, tax havens and offshore financial centres, a housing bubble in the [United States] and financial rent seeking in all industrialised countries. Collectively, these can explain the growth of top incomes in rich countries and, as the evidence suggests, Barbados too.”

Constantine’s research used data constructed from the Global Consumption and Income Project. The project provides data on the evolution of world consumption and income annually for more than 160 countries, covering the period 1960 to 2015. (SC)

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