AN ECONOMY is about the interplay between the government, the private sector and households. The latter sell their labour services to the private sector in particular, in return they receive wages and salaries which are used to purchase the goods and services that they helped to produce.
In the meantime, the government imposes taxes on the other two to deliver basic social services that ought to be made accessible in a humane society.
In its simplest form, an economy that does not interact with the rest of the world is said to be closed. Such economies only exist in theory.
At the other end of the spectrum, smaller economies are known to be open, that is very dependent on trade with the rest of the world; Barbados is in this category. Notwithstanding the nature of the economy, it is accepted that consumption is the main component of total spending.
This means that people must have disposable income to sustain an economy and equally critical is the choice between consuming and saving. While the latter is important, the former is the key to increasing economic activity in the real world.
In light of the above observations, it should not surprise anyone that the failure to compensate Barbadian workers for their work effort is at the heart of declining economic activity over the last six years.
Some people still try to argue that the lack of salary increases is a success story. Such an argument would depend on the perspective of the individual with respect to his/her own circumstances in the face of rising prices and no salary increases since 2008.
At the start of the recession, it was also argued that there was no need for a stimulus to inspire economic growth to counter the obvious prospects of decline that had become evident. As a result of such backward thinking the Barbados economy has suffered the indignity of not growing over the six years, ensuring a smaller economy in 2015 than what existed in 2008.
The major consequence of such indignity has been the doubling of the country’s unemployment rate. While the most troubling consequence has been the borrowing of money to pay civil servants on a monthly basis over a seven-year period. In 2010, I wrote that “this was a fatal blow to the fiscal environment of the Government, so fatal that it will take between five to seven years to restore the accounts of Government to a state of normalcy”. The estimated time has obviously to be revised.
In the hope of an improved tourist winter season in 2015, the desire on the part of the Government advisers is that the foreign reserves are shored up, my hope is that there is an increase in the circulation of money among taxi drivers, vendors and businesses in general. It is time for the economic focus to be on households and businesses and not the Government.
It is impossible to rescue the Government by insisting that the other two agents pay more taxes. Increasing Government revenue is only tenable from an economy that is growing. This message has been repeated ad nauseam in this column and will be repeated in the foreseeable future.
In recent weeks, it has been demonstrated that the lack of economic growth has cost the Government millions of dollars in revenue which it sought to raise via increasing tax rates and new taxes. It is a mission impossible that must be abandoned and later in this month it is hoped that the proposed budget does not seek to impose any more taxes on Barbadians.
Unfortunately, while an increase in tourist arrivals may contribute to some economic growth, especially if there is some accompanying increase in length of stay, there is no guarantee that the foreign reserves will improve. This is why the greater hope is for improved arrivals to be felt at the base of the economic ladder, where it is needed most.
The time has come for the Government to truly understand and empathise with the plight of Barbadians of all walks of life. The policies of the Government have taken their toll on a public that was expecting better in the post 2013 period. Several Barbadians are too embarrassed to admit of their economic circumstances and too ashamed to concede of their political innocence.
When such innocence collides with the economic reality among households, the inclination is to identify the sources and seek remedies, especially if there is suspicion of betrayal.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email mascoll_clyde@hotmail.com
