Growth in an economy is fundamentally about increasing workers’ compensation and businesses’ operating surplus.Put more philosophically, it is about rewarding labour and capital.
The clamour to increase productivity is an absolute must,but it must also be appreciated thatit is as much a managerial process,that brings together the two resources,as it is a worker’s initiative.
The owners of both labour and capital have suffered badly at the hands of the current administration over the last five years. Unfortunately, this is best demonstrated in the loss of over 16 000 jobs in the private sector. To counter this unfortunate outcome,the Government has persistently argued that not one job was lost in the public sector. An argument that was politically difficult to counter!
Now that the fiscal crisis has been fully owned by the Government and a $400 million solution has been identified, the argument will be fully tested. This is why the language of Minister of Finance Chris Sinckler has changed: “I can’t say from this distance we are looking to lay people off.”
His morning and evening words don’t match!
The uncertainty in his language is informed by the facts that he does not want to share with the public.It is impossible to cut $400 million from Government spending without affecting jobs in the public sector itself or the private sector. For the lastfiscal year ending March 2013, current expenditure was $2 895.3 million. Of this amount, only approximately $767.5 million is available for cutting. The rest of Government current expenditure goes to wages andsalaries and interest payments.
It is not widely known that as much as 65 per cent of the Government’s transfers and subsidies go to the payment of workers. Therefore,a $400 million cut in expenditure must effectively come from the $767.5 million identified above. If successfully done, Government workers would be going to work but without the resources to get the job done.
It must be repeated ad nauseam that the only way out of the present predominantly self-inflicted economic mess is through growth. Therefore the upcoming Budget is going to be magical in its rhetoric but notits contents. Why do I make this comment?
Given the different ways to measure economic growth, it iseasier to see the economy’s growth prospects in terms of employees’ compensation and businesses’operating surpluses. The stated intent of the Government is to cut Government expenditure. This has to reduce public sector workers’ compensation, which is a negative for economic growth. In addition, all businesses that currently have contracts will be negatively impacted.
The Government has little latitude to offer relief to businesses. For example, the ten-point plan outlined for the tourism sector is welcome news, but $20 million cannot truly impact a sector that uses inputs in excess of a billion dollars. However, individual entities would be grateful for any ounce of relief.
It is quite evident that in the prevailing environment, permanent Government employees would not be seeing an increase in wages and salaries any time soon. In the circumstances, private sector employees cannot be too optimistic about any significant increases.
In the absence of any major reliefon the costs of inputs, the private sector is still going to be facing a business environment that is not conducive to realizing better operating surpluses.The only saviour is for businesses’ revenue to be boosted by an increase in demand from foreign consumers.This puts the onus on the tourism sector to be turned around in the shortest possible time. The lack of leadership comes in not recognizing that the sector must be treated like the leader that it is.
There is another paradox. Even if the Government succeeds in cutting current expenditure, it has to spendmore on capital programmes. Since the Government’s finances are in crisis it is obvious that it has to incur more debt to be able to finance capital projects. Therefore, Government debt will continue to rise in the immediatefuture, which is bad news for its international credit rating.
Failing to pursue a growth strategy in the last five years and now finally recognizing the wisdom in doing so is going to require not a magic bullet buta magical economic strategy. The suggestion made at least four years ago that the Government had to engage in expenditure switching to deal with its current account crisis, while still spending on the capital side, was ignored.
Man, Government is between a rock and a very hard place!
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email clydemascoll@gmail.com.
