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Economic model no longer sustainable


Economic model no longer sustainable

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MY ATTENTION WAS DRAWN to a long letter in your DAILY NATION of August 22, 2017 written by Michael Ray under the caption: Countering The Professor. His submission, which raises old and well-known economic issues, came as a total surprise to me.

Michael Ray’s economics differs fundamentally from mine, as it relates to the subject of public finance and the behaviour and activities of trade unions. However, I agree with him that public servants have not received negotiated wage increases for a long time. We all know that the reason for this is that the economy experienced negative or low economic growth for many years, and the Government’s fiscal deficit also widened significantly.

His view is that the public servants have suffered for a long time, and need an increase in salaries now. Although this is true, the Government’s budget is presently also in a very serious fiscal deficit. He may not be aware that because of the negative impact of increased Government spending on the country’s balance of payments, the Government cannot afford to pay increased wages or “coping fees” to public servants now, as demanded vehemently by trade unions.

Further, it is well known that the Central Bank has been forced to print large sums of money to finance the large public sector wage bill, which is the most important factor explaining the decline in our foreign reserves. Mr Ray ignores this negative impact of printing money, which can ultimately lead to a balance of payments crisis and a devaluation of the Barbados dollar.

Also, let’s look at the components of Government spending. Michael Ray is perhaps comatose if he is not aware that the Government’s social spending comprises large outlays of money on the Cave Hill campus, Queen Elizabeth Hospital, Transport Board, Sanitation and other entities, including 67 statutory bodies. Given this bloated level of social spending, how can the trade unions and Mr Ray irresponsibly argue for an immediate increase in public sector salaries?

Michael Ray goes [on] about accusations against public servants who are considered by some people to be an “army of occupation”. I certainly do not agree with this categorisation. Public servants provide essential economic and social services, which facilitate private sector activity as well as overall economic development. The more relevant point which ought to have been made by Mr Ray, is that the efficiency of the Barbadian public sector ought to be be vastly improved.

He says that one cannot “speak about the NSRL [National Social Responsibility Levy] and layoffs in the same breath”. If we were living in a Peter Pan world, most Barbadians would agree with him. In the real world, however, the NSRL could reduce private sector jobs when sales decline. The NSRL is not an efficient or equitable tax. Its only purpose is to raise revenue to help pay public servants and keep them employed. Thus my “same breath” argument is valid.

More specifically, judging from the public statements of Minister of Finance Chris Sinckler, Government adopted this painful levy rather than send home thousands of public servants, or go to the International Monetary Fund as I had first requested in 2013, in order to reduce the public sector’s heavy wage bill.

In my view, the negative social and economic impact of sending home thousands of people in Barbados would be far greater than increased prices as a result of the NSRL. I therefore said that the NSRL, regardless of its inefficiency and burden, was a “blessing” for the public servants in allowing them to keep their jobs.

Mr Ray introduced readers to an erudite discourse on the meaning of the term “inferiority complex”. In my article I had warned unions against unwittingly projecting their negative self-concept in the public domain. Their recent unholy and hasty alliance with the Barbadian private sector sadly revealed this negative view of themselves. Trade union leaders also believe they are not “respected”. But “respect” has to be earned. They have to learn when to fight the right battles, and when to retreat, in order to mobilise the support of Barbadian workers.

Finally, Michael Ray says that “we can no longer exist on handouts, largesse and pork-barrel politics”. I endorse this view. However, let me remind him that the Barbadian model of social welfare, sometimes known as the Nordic model or Scandinavian model, is a heavily tax-dependent model introduced by former Prime Minister Errol Barrow.

This model is no longer financially sustainable by taxation alone. This is so because our tax system has internal administrative and economic problems, and cannot automatically yield the level of optimum taxation required to deliver these social services. I rest my case.