SHOULD GOVERNMENT simply be the facilitator of commerce and allow the private sector to take the lead in providing jobs and championing economic activity? Or should the state be a more active participant in the economy, showing the business community the way to success?
These related questions are often posed whenever discussions about economic growth and development take place. In the case of Barbados, it is no different.
Over the years, and especially in recent years as the economy became stagnant, there have been calls for Government to divest assets to the private sector since corporate Barbados would do a better job of managing them.
Government has been told that it simply has to set the relevant policies and ensure no red tape exists and let the private sector get on with the job of generating economic activity, and providing jobs for the country.
However, there has been some resistance from the authorities. One view is that the access to key services, including transportation, garbage disposal, health care, and education would be become difficult for some people in society, especially the poor, because businesses are more likely to be concerned about the bottom line.
The European Commission’s view on the issue was: “The private sector can be an engine of inclusive growth by generating decent jobs, contributing public revenue and providing affordable goods and services.
“If it invests in suitable innovation and business models, it can also improve poor people’s lives by boosting their productive activities.”
It added: “As public resources for development assistance are scarce, the private sector is increasingly looked at as an important additional source of external finance and domestic resource mobilisation.”
Closer to home, Jamaica chartered accountant Dennis Chung commented on the issue in 2013. He said private sector led growth is central to development.
“The reason why government spending is not sustainable without private sector growth is that government spending depends significantly on private sector income, through taxes,” he said.
“So the income taxes, customs duties, corporate tax, and consumption tax depends on activity in the private sector. Therefore, if the private sector is stagnant, or declining, then it is logical that there can be no increase in government spending.
“Thus, in the final analysis, GDP growth at every level depends on private sector activity. Therefore, the logical conclusion is that if we want to see robust growth in the economy, then we need to have robust private sector growth.”
In a report on Barbados released in 2014, the United Nations Economic Commission for Latin America and the Caribbean suggested that a private sector led growth strategy would succeed or fail depending on circumstances.
“Barbados has continued to pursue a private sector-driven growth and development strategy focused on export-led expansion, instituting regulatory reforms geared towards enhancing business facilitation,” it said.
“Nevertheless, this has yet to revive economic activity, which remained flat during the first three quarters of 2014. This outcome was due to continued underperformance in key segments of the economy, such as the tourism, rum and other beverages, food, sugar, other agriculture and construction sectors.”
It also pointed out that private sector led growth could be challenged by government actions. In Barbados’ case, it said “fiscal consolidation initiatives have served to dampen aggregate domestic demand, and this, coupled with declining international commodity prices, particularly for food and oil, has led to a cooling of price inflation”.
In its Barbados country programme evaluation for the period 2005 to 2009, the Inter-American Development Bank (IDB) urged Government to “strengthen the environment for private sector-led growth”.
The country strategy “stressed the importance of strengthening the economy’s ‘export orientation and performance, and the environment for private sector-led growth’”.
It said Barbados should build on the bank’s body of analytical work and ongoing dialogue between the IDB, private sector and Government to prepare a “Private Sector Development Strategy”.
Addressing the Barbados Chamber of Commerce & Industry’s January 2016 business luncheon at the Lloyd Erskine Sandiford Centre, Prime Minister Freundel Stuart said his administration was all for private sector-led growth.
“We believe in private sector-led growth and you cannot have private sector-led growth if you have failing companies. When companies fail, jobs are affected and every government has a vested interest in job creation.
“When companies fail, the goods and services that they provide have to be pulled back and the persons who rely on those goods and services are correspondingly affected and disappointed . . . . If businesses in commerce and industry are failing, then the suppliers of these businesses are necessarily affected, and we don’t want that.
He added: “And when businesses . . . are not making profits, there is nothing for government to tax. So government is disappointed because if Government does not get taxation, it cannot minister to the requirements of the population in the way in which it wants to do.”
