Last week on a popular radio show in Barbados, two leading economists and a former head of a large company in Barbados discussed and took calls from the public on the Barbados economic recovery. I found the discussion extremely interesting and I commend all of the panelists for their insights. At the same time, however, I found myself wondering if the discussion was framed correctly.
I believe that you only get answers to the questions you ask. So, for example, if I asked you if you thought that an umbrella would help reduce the heat from the sun, we could have a long discussion on the usefulness of umbrellas, their design, the materials they are made out of, when they are most effective, etc. We may not discuss if the temperature was actually high enough that day to warrant a solution in the first place. We may not discuss if there were other solutions to reducing the impact of the sun’s heat. We may not discuss the benefits of exposing oneself to the sun’s rays. We would focus our discussion on answering the question asked: would an umbrella work.
So, when we ask panelists whether Barbados is in a crisis, they respond with their opinions on what defines a crisis and therefore whether they believe we are in one. When we ask them if the government or the private sector should be the one to get us out, they debate the effectiveness of each option as a means to solving the current problems. When we ask them for specific examples of what we should do to get out of the current crisis, they list suggestions from strengthening tourism, cutting government expenditure, and retraining the labour force.
These are all valid points. Very few people would have any major disagreements. Furthermore, all of their suggestions could work. Unfortunately, this leaves us with no clear idea of what to do next and what I consider to be the ‘too much choice’ dilemma: when faced with too many options we opt to choose none.
We need to frame our discussion around solving our long-term or structural problems first before we can identify the best short-term actions. Policy decisions, probably more than most other types of decision-making, is about long-term planning because timing is the most critical factor in macroeconomic policy. The ‘right’ policy implemented at the wrong time will not work just like the ‘wrong’ policy implemented at the right time will not work. The only combination that works is the ‘right’ policy at the right time.
We created our structural problems by answering the wrong questions before. When government needed more revenue, it added the Value Added Tax (VAT), which did not address the underlying problem of insufficient production in the economy. When the VAT was raised, it did not address the underlying problem of declining production and consumption. When unions demanded pay increases, it did not address the challenge of falling corporate revenue and labour productivity. When companies cut marketing budgets and raised prices, they ignored the fact that consumer demand was falling. All of these solutions were aimed at fixing some short-term challenge. But in the end, they deepened structural weaknesses and contributed to yet another round of problems.
Solving our structural challenges requires us to ask the right questions. What if instead we had asked the panelists for their view of the ‘ideal’ economy of Barbados before we asked any other question? Maybe they would say that it was less dependent on tourism; the government was smaller; the labour force was more flexible; the exports were more diversified; the infrastructure and institutions were stronger; or some other goal or combination of goals. Whatever the goal, we can then debate how we achieve it.
All other questions, and their answers, should be framed with our long-term goals in mind. Suppose we determine that a smaller government was critical to our vision of the ‘ideal’ Barbados economy. Maybe we would be much more supportive of cutting the size of the civil service, embracing technology for standardised government services and divesting of government-owned companies.
The same thinking applies to becoming less dependent on tourism, for example. With this as our goal, maybe we would be hesitant to grant additional subsidies and more financial resources to the hoteliers. Maybe we would revisit our legislation for our international financial services sector to encourage growth in this industry. Maybe we would embrace science and technology more in our agricultural sector to compensate for the physical challenges the industry faces.
As highlighted with these two very different goals, the solutions presented not only shift the economy closer to becoming our ‘ideal’ economy, but they could also help solve the current problems. By having the goal in mind, we also have removed some options from the discussion because they do not help us to achieve our goal.
I believe that asking the right questions is key to solving Barbados’ structural problems so let’s start the discussion. What is your vision for the ‘ideal’ economy of Barbados?