Unity Bar Lecture: INNOVATION AND ECONOMIC PROGRESS: ISSUES FOR BARBADOS (SPEAKING NOTES)

The following are my speaking notes from today's presentation at the Unity Bar lunchtime lecture.

INNOVATION AND ECONOMIC PROGRESS: ISSUES FOR BARBADOS (SPEAKING NOTES)

What is innovation and why is it important?

• In any economy, innovation is part of the process of becoming competitive and keeping the advantages that gives. If you look at definitions (e.g., Websters Dictionary), you get:

1: the introduction of something new;
2: a new idea, method, or device.

• So, newness is key. Note, that innovation is not about science and technology, and it comprises ideas, ways of thinking and doing.

• Economists see many things in terms of value creation and distribution in an economy, and innovation is treated in that way. Economists tend to say, therefore, that new ideas are much lessened if they are not implemented as things that increase wealth (or welfare) of the society. Positive application of an idea is key. [We are not keen on new ways to make people worse off. So, should look unfavourably at certain financial innovations such as involved in the sub-prime mortgage crisis.]

• In the minds of many people, including economists, innovation is often/sometimes seen as an aspect of management, i.e., more related to the micro-economic level of economic activity, rather than as a fundamental basis for economic development, i.e., macroeconomic consideration.

• Thinking within the economics discipline has changed since Joseph Schumpeter developed his ideas in his classic 1942 book 'Capitalism, Socialism and Democracy' and put innovation into the forefront as a macroeconomic considerations.

What do economists think about innovation?

• The economics discipline now has a branch described as 'innovation economics'. It is an economic doctrine that reformulates the traditional model of economic growth so that knowledge, technology, entrepreneurship, and innovation are positioned at the center of the model rather than seen as independent forces that are largely unaffected by policy. Innovation economics is based on two fundamental tenets: that the central goal of economic policy should be to spur higher productivity and greater innovation, and that markets relying on price signals alone will not always be as effective as smart public-private partnerships in spurring higher productivity and greater innovation.

• This is in contrast to the two other conventional economic doctrines, neoclassical economics and Keynesian economics.

• For Schumpeter, institutions, entrepreneurs, and technological change that were at the heart of economies and economic growth.

• Innovation economists believe that what primarily drives economic growth in today’s knowledge-based economy is not capital accumulation, as claimed by neoclassicalists, but innovation.

• The major drivers of economic growth are productive efficiency and adaptive efficiency. The focus in innovation economics is the study of how societies create new forms of production, products, and business models to expand wealth and quality of life.

• In contrast to neoclassical economics, which is focused on getting the price signals right to maximize the efficient allocation of scarce resources, innovation economics is focused on spurring economic actors – from the individual, to the organization or firm, and to broader levels, such as industries, cities, and even an entire nation – to be more productive and innovative.

• Spurring evolving and learning institutions is the key to growth.

• In innovation economics, “social technologies” of institutions, culture, norms, laws, and networks that are central to growth.

• Innovation economists view innovation as an evolutionary process.

Current push on innovation in Barbados

• Innovation should be current in the minds of many people in Barbados. On April 11, VOB had the topic on its Sunday Down to Brass Tacks as 'Science Technology & Innovation - are we doing enough?' The discussion came immediately after the annual Innovation Awards. Much of the discussion focused on science and technology aspects of innovation.

• Press reports noted widely comments from Minister of Innovation, David Estwick, who is responsible for government policy on innovation (plus a range of economic affairs) (see http://www.nationnews.com/news/local/estwick-innovationcopy-for-web). He was quoted to have said the following:

"The school system must be seen as an environment which nourishes and encourages creativity and innovative thinking. Innovation must become a way of life for our people.".

"What is needed is a system that facilitates and develops strategies for research and technology development and application in the public and private sectors, as well as the university."

"Most of us are aware of climate change . . . droughts, floods and heavy rains. These conditions can have an adverse effect on the agricultural sector and hamper food production," and noted that “farmers should be trained and provided with newer technologies in order to cope.”

• The Minister also reiterated Government's commitment to consolidating the various venture capital windows in Barbados into one agency, which would in turn support businesses in commercialising existing or new ideas.
  

• Pointing to Government's commitment to innovation via the creation of a Ministry of Innovation, he called for innovative thinking in traditional sectors like agriculture and manufacturing, which would involve the embracing of new technologies.
  

• Minister Estwick was also reported (in The Barbados Advocate , April 13, p7) to have said that Government intends to offer appropriate tax credits to companies that pursue research and development of innovative projects targeted towards manufacturing or agro-processing activities.

• Further, the Director of the National Council for Science and Technology (Dr Lennox Chandler) announced in mid-April that the NCST will be developing a national innovation strategy for Barbados this financial year. He noted that innovation is happening but not operating to the level it should. He stated that “all over the world over 90 percent of the innovations have their genesis in science and technology...” [I do not know the basis of that conclusion, but feel that it comes from a very narrow view of what innovation means.]

• So, at the highest level of government we appear to have an understanding of many elements that are needed to push innovation as a policy agenda item, and a degree of political commitment to back up that understanding. Also, there is a sense of the need for an environment in which innovation can flourish.

Measuring innovation across countries

• However, a good amount of innovation is already going on in Barbados, but it is useful to see that in some broader international context.
  

• There are several international benchmarking studies of the innovation performance of countries, the Global Innovation Index (GII) being one. Other examples are Richard Florida´s index for the Creative Class and the Innovation Capacity Index (ICI). The traditional approach to measuring innovation has been to look at parameters like patents per million of population, publication of scientific journals, research and development expenditure, etc. The latest GII report adds other parameters that capture innovation in emerging markets and the effects of innovation on social welfare.
  

• I will focus on the Global Innovation Index (GII), as this is clearly the most comprehensive in country coverage and also itself innovative by looking at a wider measure of innovation. [The GII is a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan research affiliate. NAM describes it as the "largest and most comprehensive global index of its kind". The Global Innovation Index 2009-10 ranks countries on parameters like ‘Institutions’, ‘Human Capacity’ and ‘Business Sophistication’ to arrive at a global ranking for nations on innovation.]
  

• The GII report presents the latest findings and highlights the best policies and practices for promoting innovation readiness. That suggests that countries can learn from each other in seeing how innovation has been brought to bear in making their economies grow.
  

• One statement from the report that I would echo and stress is that 'Innovation can therefore — and often must — be disruptive to catalyse the process.' [We can ask 'What does that imply for Barbados, which has hailed itself as a place built on stability and maintaining status quo?']

• One trait of successfully innovating countries is clear: In the face of adversity, they deliberately play to their strengths and act boldly with an eye on new opportunities.

• The GII study underscores the fact that successful countries today are not necessarily large geographically speaking or richly endowed with natural resources, nor ones able to project military power internationally. [This argues that Barbados' size and limited resources are not real impediments to its being highly innovative.] Increasingly, they are ones that have managed to expand opportunities for their populations through the full exploitation of the opportunities afforded by the world economy through international trade, foreign investment, and the adoption of new technologies. [In this vein, we have to ask 'Has Barbados expanded opportunities in this way?']

• Innovation will be likely distributed globally rather than being a prerogative of the western world. For example, in a continent like Africa locally emergent innovations might bring greater prosperity than Western solutions.

• Iceland (320k people on 40k square mile island) is the surprise leader in the latest report, despite the tough economic situation it has faced since two years. Sweden and Hong Kong (7 mill people on 426 sq miles) follow in 2^nd and 3^rd positions. Switzerland is 4^th. Denmark is 5th and Singapore is 7th: how these small countries have pushed innovation will be looked at more closely, later. Among the best innovators from last year, USA (11^th), UK (14^th), Germany (16^th) have fallen in ranks.

• Barbados ranked 50th overall out of 132 countries, with Trinidad 55th and Jamaica 70th. In the Americas, it ranked 5th (of 25), with Trinidad ranked 7th , and Jamaica 11th.

Some comments on the details of the GII

• Distinction between enablers and outputs while measuring innovation in an economy. Enablers are aspects that help an economy to stimulate innovation and outputs are the results of innovative activities within the economy.

• Five enabler pillars that are included in the GII: Institutions, Human Capacity, General and ICT Infrastructure, Market Sophistication and Business Sophistication. The Enabler pillars define aspects of the conducive environment required to stimulate innovation within an economy.

• Two output pillars, which provide evidence of the results of innovation within the economy: Scientific Outputs and Creative Outputs and Well-Being. The overall measure of innovativeness of an economy is obtained by taking a simple average of the scores along the input and output pillars.

• An Enabler has the following elements under it: 1) Leadership, 2) People 3) Policy and Strategy 4) Partnership and Resources and 5) Processes. The elements that come under ‘Results’ are: 1) People Results, 2) Customer Results, 3) Society Results and 4) Key Performance Results. The ‘Enablers’ feed into the ‘Results’ and vice versa.

• If we compare all the regions [for all the pillars], the average score for Europe is the highest followed by Asia, America and Africa. This may be quite natural, given that Europe has the maximum number of developed and developing well-to-do economies. The American continent comes 3^rd, though it houses traditional innovators like USA (11^th), Canada (12^th), and strong emerging economies like Brazil (68^th) and Mexico (69^th). However, it falls in continent-wise rankings due to the poor performance of other economies in the region. [This implies that sub-regions like the Caribbean weigh down on the whole region. So, we may wonder how Barbados could be driven by innovation when it is in a less innovative region.]

Lessons from successful innovating countries

• Facilitating governments clearly set the climate for innovation, not by blocking innovation but by encouraging key factors and inputs that facilitate it. [Look at areas where Barbados is weaker in innovation, where we will see that this area is a major failing.] For example, governments have to step in to formulate efficient rules regarding patents, copyrights and handle the problem of piracy. This is one of the fields where government actions can yield positive result.

• Governments should also outline clear policies for encouraging innovation in the form of tax credits, research and development funding and policy changes. [Barbados is on the way to doing this.] [But we should note also fiscal regimes that would favour introduction of new items.] They can make it easier for companies trying to import foreign technology and ideas by making the entire process of commercialisation of ideas easier and efficient. [But you can see that this is already creating the scope for tensions in a local economy, with the clear threat that may come from the introduction of foreign competition.]

• They should also diffuse the technology throughout the economy. Governments that neglect such strategies and attempt to spur innovation in specific industries through the use of subsidies and the application of external tariffs fail to realise the negative consequences of such policies. For a country to compete internationally in today’s times it has to incorporate information technology in all aspects of its social and economic life. Governments should make huge investments in building up the national digital and IT infrastructure.

• It is necessary that a country builds up a strong base of world class educational institutes where talent can be nurtured. This talent pool is the driver of innovation and research activity in the economy. Another way to achieve a pool of highly talented work force is to open the country to high skill immigration. [Barbados may have good educational structures, but the talents being developed are not those that drive innovation.]

• Innovation requires an environment conducive to taking risks in order to flourish. A country needs to cultivate an ambiance such that it allows its entrepreneurs to reallocate capital to more productive areas whenever planed ventures do not work out as envisaged. [Barbadians are renowned for being risk averse, so do we have to accept that the national 'character' puts limitations on innovation?]

• An ecosystem of creativity with mentorship goes a long way in creating critical mass of innovative clusters. (e.g., Silicon Valley) A well-developed education system is crucial for all countries that wish to innovate. Continued excellence in mathematics and science, foreign languages and engineering will reach greater importance to cut across disparate talent pools. [Does UWI's focus militate against some of the driving trends towards innovation?]

• Another interesting trend is the absorption and application of existing knowledge in new innovative ways to transform life and economy at the grass roots level (e.g., exploiting modern mobile technology to control and operate irrigation pumps from a distance; micro-finance).

• Rethinking partnerships–between industry, universities, governments to create more innovative clusters, to create more open innovation models, to create solutions for a sustainable future by facing the challenges of climate, environment–are essentially innovations that can no longer be carried out in silos or in isolation. [Again, are government and UWI too isolated in their interactions with other parts of the economy/society?]
  

Lessons from small developed countries

• Denmark (5.5 mill people, 16k sq miles), ranks 5th: Small countries like Denmark face a big challenge as these nations must seek to compete head-on with the research power of, say, the US and China - in contrast to what Sweden has done.

• Danish model teaches us that innovative societies do not have to invent lots of things themselves: in fact, this news must come as rather a relief to many smaller countries around the world. What aspiring wealthy states have to do is to rapidly identify clever inventions by others and sense where they can best be fitted into current society.

• Danish model requires an educated workforce and educated consumers. It requires a population willing to communicate needs with each other, to learn about technology all their lives. There must be good relations between managers and staff, so that the latest changes do not pass decision-makers by.

• Denmark has all these things, because the structure of its society is flat: there are no great income and class differences, no great hierarchies in the workplace.

• Singapore, ranks 7th. Its impressive success had come in large part from a technology-centered, engineering, top-down kind of social development. In 2002, the “Remaking Singapore” initiative was launched to turn Singapore into a world center of creativity, innovation, and design. These new capacities are associated with a human-centered, social science, bottoms-up model. A hub for the electronics, semiconductor, pharmaceutical, and bio-tech industries every year Singapore gives 100 scholarships to science and engineering students, funding their doctorate programs in foreign universities. The $650 million program, launched in 2000, is now seeing its first PhDs return to Singapore, where they work in government research labs or local universities for several years.

• Government commitment to education is one reason many large drug makers have made Singapore a base for their manufacturing and research. In Singaporean fashion, the government is redesigning the education system to promote creativity among the young. But risk of new generation migrating to US, Canada, Australia, and government is main initiator of new entrepreneurial ventures.

Barbados' innovation strengths and weaknesses

• Some in Barbados have asked 'Why, with all the knowledge available of what needs to be done to foster innovation, was it not being done? Was the fault with policy makers in different ways?' One basic answer is that innovation is taking place, but is perhaps not as much as is possible or is not driven by science and technology . However, the GII data for Barbados indicate that the basis for innovation is not broad and has key weaknesses to offset some important strengths.
  

• The GII country details show that Barbados is very strong in its ICT infrastructure (ranked 1^st, largely on its leading the world in broadband access per 100 inhabitants (1^st). It is also strong in core social areas such as political environment (17^th), human capacity (18^th) and quality of education institutions (24^th).

• But, it is significant that Barbados is very weak in areas that help business development: Business sophistication (66^th), Business conditions provided by public institutions 68^th), Market sophistication (94^th) Knowledge application (106^th), Investor/creditor conditions (110^th), Openness to foreign competition (121^st), Creative outputs and well being (131^st).

Some implications for Barbados

• The weaknesses in business development affect much more that innovation.
  

• What can innovation can do to raise productivity, not just of labour but of all parts of production? What is Barbados willing to do to bring new products and ideas to bear to make workers more productive, make financial investments more productive, make machinery more productive, and make land more productive? It is useful to remember that combinations of these elements may be needed to get the improvement desired, such as new ways of working with existing machines, new financial instruments that could help businesses, getting different machines to work with existing land and crops, etc. [We have heard many comments that financial support is a major constraint to starting business, but we need to look too at the unfriendly business environment created by government. It may not be obvious but the nature of corporate structures in Barbados works against innovation, as these are largely family-owned businesses with interlocking directorships.]

• In the case of economies based largely on service delivery, such as Barbados, it is a mistake to focus too heavily on science and technology as the basis of innovation, because the intelligent application of labour (people) can pay huge dividends. Barbados could be more efficient if it used current technology well (e.g., by automation and computerisation), but it can become more efficient by doing things smarter or differently.

• Using tried technology in a new setting—i.e., Barbados—may be the way to go in many sectors, e.g., generalising recycling as part of a strategy to reduce use of landfills, or projects to use recycled tyres for energy production. Offering to foreigners high quality medical care and wellness as a core element of a tourism strategy. [Policy to encourage widespread use of solar panels for water heating was indicative of drive to shift toward sustainable/renewable energy use, but it was not followed by other bold moves in the same direction.] [Interesting that some tried technologies which have been widely applied elsewhere meets resistance or limited take-up in Barbados, e.g., ATM/electronic banking, where Barbadians seem to want to hold onto old ways that involved face-to-face transactions.]
  

• Doing the same thing with a new audience, e.g., establishing road tennis or draughts matches—where Barbadians have uniqueness or special skills to offer—as 'shows' for tourist attractions (akin to The Bahamas taking its annual junkanoo festival and packaging it year round as a tourist spectacle). In some senses, this can be seen as better marketing, but that is still innovative.

• But, it is also important to understand that innovation brings risks (and we need to see these in the broadest sense), not least because it may make current ways of operation and existing goods or services obsolete and in the end threaten livelihoods of some to improve the livelihoods of others, and not necessarily in the same time or the same degree. So, applying innovation may meet resistance as it also means a willingness to see (perhaps significant) social (and political?) change, and changes in the established economic order. At issue, is whether the society is really built on encouraging and embracing change and newness, in particular, seeing social and economic mobility. [For Barbados, this leads to thinking about the contentious issue of political power in the hands of the demographic group that does not hold most economic power, and how that division has hampered the progress of the black majority in the country.]

• This is not said primarily to spark controversy, remembering that innovation is disruptive, but to highlight what is an important feature of social organizations. They are often zero-sum games, where one person or group can win only if another loses, or at least one may need to guard against that being the case. [The US is famed for allowing significant social mobility through economic activities based on innovation. This has also been the basis of the so-called 'economic miracles' in south East Asia, and it can also be seen in the rapid transformation of certain former Soviet Union countries. We can look at the Caribbean in a contrasting way as a region that only has a limited amount of social mobility.] [We also have to understand how social movement of people can accelerate the risk of over-turning existing socio-economic and political arrangements.]

• What is the incentive for those who have social, political and economic power to encourage innovation, if they are not able to capture or exploit the gains themselves in some way? In a small geographical and economic space there may be more pressure to suppress innovation as the chances of it upsetting the status quo are much greater.

• Important to see innovation as not just part of the role of the private sector. Public sector agencies, need to innovate too, and new ways of thinking, administering, and delivering public services can offer significant productivity gains for both the public sector and those in the private sector who benefit from the service delivery. But, applying technological progress to service delivery should make us mindful that if productivity increases that may mean the demise of existing job positions. Public sector reform that is only talk and no change--i.e., perpetuating inefficiencies--can actually be a great brake on innovation and productivity, as it reduces credibility of policy statements and initiatives, which too often have a history of 'words without deeds'. [Examples: Duplication of information about citizens across government departments. Immigration data that is not used to track temporary workers and visa status violations.
  

• To what extent are policy initiatives second- even third-best solutions because politicians and civil servants are locked into a certain mindset and use information inefficiently? [Pictures of long lines of people waiting to file income tax returns; stories of interminable waits at Licensing Authority and Immigration Department are vivid reminders that in some areas of public service delivery the country does not appear to have made much progress.]

• One way people get around the constraint of seeing their innovation come into play is to leave the country and get their chance abroad. That's an immediate loss for the nation, though over time the value may still accrue to the country through financial flows from the materialisation of the innovation and also the 'identity' element that may go with it. [In that regard, one can look at the marketing of Rihanna as a major innovation—taking a Barbadian and making her into an international star, which opens the door to others who are prepared to go that route. In fact, the novelty factor may be in not insisting in pushing a national image.]

• Smallness may put a heavier premium on selectivity in terms of areas for innovation. It may be impossible to develop feasible research and development activities across the board. But it may be possible to focus on some areas where there is a sort of 'comparative advantage' on a national or regional basis, so tropical focus may be relevant. It may be very natural for the small country to look outward to get maximum value from implementing ideas [variation on the theme of exporting].

• Barriers to entry by innovation may exist within an economy: these may be consciously and blatantly maintained or 'institutionalised' and subtle. [One may look at the protectionist attitude to competitive entrants to the Barbadian market as opposition to innovation, e.g., Subway, Island Grill, who have different products and different sales styles, which could threaten seriously market share of current operators.]

• Going forward, can Barbados and Barbadians find a way to think differently about itself/themselves and where it wants to go? What does it say that a society applauds lawyers and doctors above engineers and chemists? How do people respond to new approaches? Some would argue that the physical and economic limitation on small countries may constrain innovation because resources available to fund certain types of education or activities is limited. [This may be true in some senses, but keeping in mind that newness is key, size should really have little impact.]
  

Unity Bar Lunctime Lecture, April 30, 2010: Dennis Jones Speaks On "Innovation and Economic Progress: Some Issues for Barbados"

The next lecture in the series will be delivered on Friday, April 30, 2010, by Mr. Dennis Jones, International Economist, at the "Errol Barrow Gallery", DLP Headquarters, 'Kennington', George Street, Belleville, St. Michael; his topic will be "Innovation and Economic Progress: Some Issues for Barbados". As usual, lunch will be served from 12.30 pm and the lecture will start at 1.00 pm.

Are The People All Doddery Or Just Imprisoned By Their Points Of View?

The little tempest that has begun to swirl on the island over the past week since the central bank governor published comments and figures about the wider financial cost of building a new prison at Dodds has become more blustery today.

The Advocate leader says 'Gov't should know better' (click link to read or click image to enlarge) and argues that the previous Barbados Labour Party Government showed 'poor reasoning and bad judgment' in its choice of options to rebuild the prison and its selection of a contractor, alluding to the fact that the contractor, Alaskan company, Veco Corp., had executives who were under criminal investigation from 2007 and the 'former chairman and former vice president pleaded guilty to conspiracy, bribery and tax violations'. It draws the connection between a new home for criminals being constructed by those who were themselves involved in 'serious irregularities'. Naturally, it touches on what has confused many: that the cost of the new prison has shifted from B$200 million, to B$289 million, to B$749 million. That is not so hard to understand, as the first figure was an initial estimate of 'general costs'; the second figure was agreed contract amount; the third figure is the total contract figure plus interest to be paid as part of the BOLT (build, operate, lease, transfer) arrangement.

The Nation is on its rival's heels, with an editorial entitled 'Let's reason in prison debate', which talks about how issues can get both emotional and get mired in political point scoring. Its slant is to not question the arithmetic but to plead that 'critical elements went into the decision to build Dodds have been ignored'. It argues that these were made for 'safeguarding the economy from the deleterious fallout' from the fire that destroyed Glendairy prison. Cricket World Cup was in the offing; the security of Barbadians and tourists were 'equally paramount'. It's probably right to argue that 'we do not feel there could have been many Barbadians...who would have disagreed that new prisons (sic) had to be built'. But that does not excuse what appears to have been a case of being economical with the truth about what the country would have to deal with financially. If public comments flying around now are a gauge, it is the case that a good part of the population had no idea that the final cost would be more than the capital sum to build the prison. That reflects a certain attitude on the part of those who govern: we know best what should be shared with the populace and the less, the better. But it also betrays a certain attitude on the part of those governed: not to press for disclosure and to be content with flimsy arguments about major decisions. It has nothing to do with 'a modicum of reason and common sense'. My understanding is that the matter was not pressed that hard by those who were in opposition politics at the time, and are now in government, so it's an awkward falling knife to dodge.

Finally, Clyde Mascoll's weekly column in the Weekend Sun, 'What Matters Most', talks about 'Dusk or dawn'. He, too, talks about the governor's report and the discussion on how economic trends were portrayed. On Dodds, he feels that the treatment of payment of debt service on the lease agreement for Dodds 'justifiably triggered' a response from the leader of the opposition (Ms. Mottley) and the former PM (Mr. Arthur). I wont argue about the governor being selective in his treatment of debt obligations: he was. What I would have preferred to read from Mr. Mascoll (whom we should not forget was Minister of State in the Ministry of Finance in the previous government during important decisions on the matter) was more than 'It has apparently fallen on me to give the public a perspective that offers an alternative understanding of the economic issues confronting Barbados'. He could have said something like the partial treatment needs to be complete and that transparency in the fiscal affairs of government was less than it could and should have been. This is not just my view, but has been written publicly by the IMF in its Fiscal Transparency Report on Barbados. The country needs to see and understand what its forthcoming debt obligations look like, and for how long. We could then have a useful public discussion about how it is envisaged that these will be met.

CLICO MOU: Why Did We Have To Wait So Long?

For the life of me, I have never understood why the Government did not make public the Memorandum of Understand (MOU) with CLICO that has supposedly existed for about a year. But, I see that it has now been tabled by the Finance Minister (see Barbados Today and image alongside for extracts). I presume that this was in response to the question from the Leader of the Oppostion that was on yesterday's Order Paper, see below:

*8. Miss Mia A. Mottley (St. Michael North East): To ask the Minister of Finance:

1. Will the Minister of Finance urgently provide to this Honourable Chamber the terms of the Memorandum of Understanding announced in his 2009 Budgetary and Financial Statement signed between the Government of Barbados and Clico Holdings Barbados or any other subsidiary of Clico Holdings Barbados? Will the Honourable Minister also state whether it is his intention to lay this Memorandum in this Honourable House? If so, will the Minister state when he intends to lay the said Memorandum. Will the Minister of Finance further provide the terms of reference of the Government Control Oversight Committee that has been established to have oversight over the sale of financial subsidiaries of Clico Holdings Barbados and their expenditure? Further, will the Minister of Finance indicate if the oversight committee is still operational; and did the mandate extend beyond the six (6) months given at the time of its establishment?

Transparency and accountability in government affairs should have argued for this being presented to the House much sooner, not least so that any matters contained could be discussed fully. We will now listen to the explanation why despite repeated previous requests that this be done that it took so long.

What Position Do You Play? The Central Bank Governor Faces Some Tough Tackling

Since presenting his review of the first quarter last week, the central bank Governor has been assailed by several leading members of the opposition Barbados Labour Party about what he did and did not say and how he presented the economic picture, claiming that it was not 'fair and balanced' (see, for example, Nation report 'Economic report missed the mark, says Mottley' and Advocate, April 16, page 3). I'm not really getting into what is brewing up to be some top level political fight, with the current PM/Finance Minister quickly rebutting the claims (see Advocate report). I would not wish to take away the chance for some opportunistic opposition politicking, though it's worth noting that there is a lot that could have been said about many economic developments in many previous quarterly reviews. The discussion has a number of points of interest, most notably the highlighting of the overall cost of the building of a new prison. It's good that past government ministers feel that a fuller picture should now be given of this obligation, which begs the question in my mind why that was not insisted on earlier. That information, which is in the purview of the PM, Finance Minister, and Cabinet, should not be coming to the population now. The country has limited resources and good husbandry of those should be a paramount point in the minds of politicians, together with clear explanations of what the decisions mean at a given time and in the future. Without knowing whether discussions were ever held between previous PMs, finance ministers and central bank governors about the tone and content of the central bank's publication, I will take it that the latest comments will be duly noted, with or without the Governor raising an eyebrow.

What should not be in contention is that the Barbadian people should not be in the dark about the nation's obligations, and it feeds confusion to give no clear or only partial information about these, sometimes in a drip fashion. The details of the Build, Operate, Lease, Transfer (BOLT) agreement for Dodd's Prison may be contentious in some eyes, especially if the options for building of a new prison and its financing were not fully aired in a manner that the public could understand. But the details of this and other BOLT arrangements and other obligations should be known: it's the public's business to know what they have been committed to by elected officials. Looking forward, it should be standard to show the forthcoming government obligations to repay principal and debt service on a loan-by-loan basis, and the underlying terms of the loans should not be any big mystery.

I have also been interested by reports about the Governor's comments about two red flag issues for Barbados. One is the country's foreign reserves and the other is the level of central government debt.

On reserves, the Governor is reported to have said that the current level of reserves (about 20 weeks of imports) is "enough" when compared with an international norm of 12 weeks for 'our kinds of economies'. He added that raising this level would "not be in Barbados' favour". He did argue that "adequate" reserves were needed to protect the value of the exchange rate, but holding reserves are not a good thing as "reserves are ... funds that you have earned and are lending back mostly to the US government". He seemed to dodge the issue of letting reserves fall so that more could be used for domestic purposes, saying that the "issue of credibility needs to be considered" and letting them dip too much would worry people. But, he has opened the door to speculation about that possibility that there is going to be repositioning on the matter and that too may lead to his having to face more heavy bombardments.

The second intriguing repositioning being undertaken by the Governor appears to be in the context of 'constructive dialogue with rating agencies' on how to view Barbados' public debt. The press report suggests that he has been arguing that because much of the central government debt is held by the National Insurance Scheme (NIS), it is not at risk of not being repaid because NIS is only interested in the income from the debt and will roll over the principal because they need the income to pay national insurance claims. He also added that because government and statutory corporations hold bank deposits these should somehow be netted against the debt outstanding, and the position of general government and debt held by non-general government (which would be under 50% of GDP) is perhaps more appropriate. Clearly, the international markets are very sensitive right now to the prospects faced by heavily indebted countries so trying to put your national position in the most favourable light is a good strategy. I don't know if the NIS shares the Governor's views about its holdings of government debt and whether they are not concerned about getting back that principal. Bad news if they are. I'm not clear where the line of argument about cash in the bank takes you: it is not there to deal with debt obligations and has plenty of claims on it for every day operations. In similar vein, foreign assets in commercial banks are not part of the country's reserves, having other calls on them, so the country would not throw those in to show that it has adequate import cover. Nice that it exists but it has another role to play.

Well, Dr. Worrell is not ducking controversy, and opening up a raft of issues for discussion makes for more interesting times.

What should be the focus of the 2010 budget, given the current economic environment?

The following was published in the Barbados Business Authority on April 19, 2010.
BBA Apr 19 2010 Budget Expecations

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The next Budget is already largely prepared. The government unveiled its Medium Term Fiscal Strategy (MTFS) several weeks ago. This set a clear annual adjustment path towards a balanced budget by 2014, from a deficit of about 8% of GDP in 2009, to be achieved by holding revenues broadly constant as a share of national income and cutting spending gradually as a share of national income. So, what will the Finance Minister tell us in the next Budget? If he points to a different path, then one must ask 'What is the medium term strategy meant to be?' Thus, one focus of the Budget should be to confirm the MTFS as a credibile policy framework.

In the near-term, there will be little growth to drive the Barbadian economy.
The major industrial countries on which Barbados relies heavily for tourism and exports are just edging their way out of recession, so will provide litte pulling power. The government expects negative real GDP growth to continue in 2010, on the back of a tourism sector that is still suffering, while positive growth is not forseen until 2011 (+2.6 %). But, while more output may be lacking, the government has the opportunity to focus on getting the country to improve the quality of its outputand be more productive. That means especially making better service a reality across all sectors and having meaningful public sector reforms.

The country still has serious problems centred on government financial operations and the level of government debt.

While the MTFS does not see much increase in the relative share of revenues, the government needs to square that with its commitment to improve tax collection and reduce arrears. Therefore, the Budget needs to explain how revenue collection will be more efficient yet revenue yields will not grow noticeably.

The government has promised in the MTFS to look harder at its spending and aim to get better value for each dollar—in its words, 'focusing on quality spending, and reducing wasteful expenditure will allow the Government to allocate resources to high priority areas'. Part of the Budget focus should be to make that commitment clearer, by identifying what it deems as 'quality' and 'wasteful' and identifying clearly the priority areas that could benefit.

The government should also show how it will fulfill its MTFS commitment to 'seek to effect a prudent debt management strategy over the medium term'. To do that it said 'Emphasis will continue to be placed on accessing long-term funds from international financial institutions to finance public sector infrastructural projects, although there may be selective recourse to external commercial borrowing'. The first quarter funding seems to have been at variance with that, when the government financed its operations entirely by new domestic loans, bonds and treasury bill issues.

The government's other major fiscal concern is how it will reduce the high levels of debt, consistent with the MTFS. Public debt is forecast to decline from about 110% of GDP in 2010/11 to about 91% in 2014/15. The government is already due to borrow US$200m abroad to repay a US$100m loan and add US$100m to reserves to overcome a forecast shortfall in tourism earnings. The government needs to show that this will not raise overall debt levels, worsen debt service ratios, and that this way of covering for weakness in tourism really will be an exception.

It takes a village to raise a child and a day to build a school

Unfortunately, many of Jamaica’s basic schools are not compliant with the Ministry of Education’s Early Childhood Commission (ECC) standards and are under threat of closure.

Food For the Poor (FFTP), a US-based international relief and development charity, which feeds 2 million poor persons daily, has brought their skills to help. Their Christian relief programs and projects are helping children and the poorest of the poor by providing food, housing, health care, education, water projects, emergency relief and micro-enterprise assistance in the Caribbean and Latin America. FFTP, in collaboration with the Ministry of Education’s ECC and through partnerships with private sector entities for funding, has over the years, provided many of these schools with new physical plants to bring them up to standard, while providing the teachers with a better facility to extend instruction and students a healthy environment to receive learning.


Last Saturday, a friend was involved in one of these projects, to build a new school, Alexandra Hope, which is being built by Scotia Volunteers and Food for the Poor is a combination of two previous basic schools which never had a home after they were destroyed by Hurricane Ivan several years ago. The students of one school were previously studying in an unfinished changing room of a community complex, and those of the other school were in the cellar of one principal's home.

Education and children are primary focus areas of the Scotia Bank's community service policy. This volunteer initiative had approximately 80 bankers erecting the school within 2 days, sometimes in the pouring rain. Food For the Poor undertook pre-project activities -- the foundations and set preliminary plumbing and electrical lines. In one day, Scotia Volunteers established the structure, painted the school, and established a vegetable garden.

Inspiring!

Incidious Trend?

My wife is a pretty sharp cookie and a decent economist, so when she alighted on an article in yesterday's papers ('Paying with gold', Weekend Nation, page 3), I had to take note. She had just read that jewelery was being used in exchange for items such as brand-name clothes and shoes. She asked me "Since when is gold legal tender in Barbados?" Without too much hesitation, I said that it was not, but neither is the US dollar or other foreign currencies, and we see them being offered and accepted quite freely and openly. Our training tells us that things like this can be the thin edges of several wedges. One concerns whether people have lost confidence in the local currency. I think that one does not really apply. Barbados is not suffering very high inflation and the Barbadian dollar's fixed rate to the US dollar has been maintained a key pillar of economic policy for three decades, to the point where one former Governor of the central bank said recently that the fixed rate is 'sacrosanct'. Another concern is whether it's a way to bypass certain administrative barriers.

So, why is it that on the one hand merchants would take jewelery, mainly gold, instead of cash? The police indicate that this is a new trend at stores around Bridgetown that they have discovered as they investigate an increase in robberies of jewelery and cell phones. Most merchants would not normally have the means to assess the value and quality of jewelery and gold. While they may always run the risk of being passed counterfeit Barbadian dollars, they would normally have some recourse to the central bank if they could show that they were unwittingly duped. Who do they know who would willingly take the items from them, rather than being able to use local cash again in their business or depositing it into a bank account? Why take the risk that the goods are stolen or even of dubious quality? Is it that, with gold prices around US$1500 an ounce, they feel that they can speculate on the commodity? Sales, recorded by the movement of merchandise, would have value greater than reflected in cash payments, so there could be some extra profit involved in the resale of the gold and jewelery worked out well. Why would you go into barter (exchange of goods) arrangements, unless you had a clear outlet for the goods that you were taking for your merchandise? The press reports indicate 'substantial prices are being offered in the United States for gold jewelery', and the recent arrest of persons at the airport with substantial amounts of stolen jewelery may be testimony to that.

I can understand the temptation to take hard currencies, like the US dollar, Canadian dollar, British Pound, or Euro, and even the EC dollar, in exchange for goods and services, especially if the customer appears to be a tourist. One could argue that it is a matter of convenience (even good service) to accommodate the visiting foreigners' lack of local currency. (Ironically, most of these same visitors would find it mighty strange for foreign currencies to be tendered in their countries.) Again, the risk of counterfeiting is there, as well as the fact that the foreign currencies are not legal tender, which should cause some sanction from the central bank. If your business needs foreign exchange, the existence of exchange controls makes it tempting to bypass the administrative limits and get foreign exchange directly, rather than through the banking system.

I wonder if the central bank has been looking closely at these kinds of developments in recent years and especially during the recession.

Holding On: The Latest Economic Review

One swallow does not make Spring, and one quarter's data do not tell all about economic development. Nevertheless, we all need to take note of what the latest quarterly economic review from the Central Bank of Barbados shows. In trying to see what the signs are, one clear message is that tourism remains under immense strain. I am concerned with the observation that the 'Estimated average expenditure per tourist was lower, and the average visitor stayed fewer days. Hotels have been obliged to discount prices in order to remain competitive in a declining market, and this had an adverse effect on tourist spending.' When hotels are giving lower prices to attract customers and those customers stay less and spend less, this is worrying. The tourists have pocketed most of the gains and the country has taken most of the strain.

The Government has more than a few headaches to deal with this year concerning its debt. Nevertheless, despite the heavy debt service on the lease agreement for the Dodds Prison, this was offset to some extent by funds received from the European Union, and other net capital recorded. People will be happy to read that reserves cover still remained adequate as a result of the financing from abroad, but one needs to know a bit more about the net capital flowing in to understand if it is something that is sustainable or some sort of one-off items.

But just down the road, the Government needs to repay (in June) US$100 million on a loan contracted in 2000 for the purpose of its capital development programme. The central bank reports that 'In order to make this payment without resorting to the use of the country’s foreign exchange reserves, it has been decided to secure new foreign borrowing in an amount of US$200 million. The extra US$100 million will be used to boost foreign reserves in anticipation of the seasonal decline usually observed in the second half of the year'. We will have to see how easily that money can be raised at on what terms.

The central bank confirmed that the Government has committed US$65 million to guarantee loan financing for the Four Seasons Hotel and Villas at Paradise Beach. In its words 'The success of this project should assist in the maintenance of Barbados’ competitive image in the top end of the tourism market. The guarantee is intended to be a catalyst for the negotiation of the remaining funds needed for completion of the project and it provides government with a 20 percent share in the ownership.' While I understand the potential importance of the development and the catalytic nature of the guarantee, the prudent side of me is still nervous until work restarts in earnest on this project because if that guarantee gets called then talk of moving to sustainable path for debt and the budget has to start over.

Add to that the fact that the 'Government has also stated its commitment to a resolution of the affairs of Clico Holdings Barbados and its affiliated companies that does not result in a loss of principal to any member of the public who invested in these companies.' It will be interesting to see how that particular set of commitments can be met, and what if any implications that may have on the public purse.

On budget finance, the Government is trying to follow through on its medium term strategy, which is 'to eliminate the overall fiscal deficit by the year 2016, mainly through containment of fiscal spending and greater efficiency in revenue collection'. In the first quarter of this year, 'current account spending is estimated to have been reduced by 23 percent, compared with last year. Capital expenditure, which had been cut substantially last year, was a little lower this year, even though some roads, housing and other infrastructure remained in progress. Government revenue fell by 22.8 percent, mainly on account of import duties and excises. VAT receipts increased 5.5 percent, and income tax receipts were not much changed, after adjustments for extraordinary items'

Financing the first quarter fiscal deficit of B$132 million (compared with B$156 million in 2009) was wholly by new domestic loans, and bond and treasury bill issues taken up by the public, the NIS and commercial banks. The central bank notes that 'Their appetite for government paper exceeded the government’s needs and the Central Bank reduced its lending to government by B$86 million.' I know that will make the Governor happy. But, as noted above, the real test will come in testing the water of foreign appetite for more government debt.

The Governor is due to take questions from the press today, so I wait to see what if any elaboration that may give.

Waiting Not In Vain: Where Do I Find Barbados?

Whenever we have visitors I like to get them to reflect on their trip in its many and varied ways. I sometimes incorporate parts of that, gained from conversations, in what I write, but I prefer to get impressions in their own words. Here is one fresh set of views, which has a wonderful perspective from an American visitor who wanted to see the island and find out something about her Barbadian grandparents.
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By Margarett

Our Barbados experience was one we will long remember, not only for the beauty of the island and the warmth of the people, but for our post-9-11-type travel experiences getting there and returning to Washington DC.

We had planned early, read guide books, looked over maps, talked to others who had visited Barbados, and rolled out of bed very early the morning of our departure in order to arrive at the airport early and avoid problems, but Murphy’s Law took effect before our plane departed. Philadelphia was experiencing winds that were gusting up to 40 miles an hour; we had to wait for clearance from Philadelphia to take off but when we arrived in Philly air-space, our pilot was instructed not to land. We circled the city for almost an hour, while the flight we had booked so carefully took off for Barbados without us. We were rerouted and arrived at Grantley Adams International Airport more than 7 hours later than scheduled. Thank God (or Steve Jobs) for cell phones!! Our hosts were understanding; they’d had similar travel experiences in the past.

The immigration and customs and the baggage handlers in airport were efficient; they were obviously tired and wanted to get us on our way so that they could go home. As we picked up our rental car, we were asked if we had ever driven on the wrong side of the road, i.e., the left side, before. Fortunately, one of us had had experience. We were grateful to be able to follow our host home rather than try to navigate on our own, as it was almost 11 pm.

The next morning, we accompanied our host to a weekly lunch gathering of friends and acquaintances, several of whom had originally met at the Saturday morning Brighton Farmers' Market. We had crossed the center of the island diagonally to reach Bathsheba, in St Joseph’s Parish, and the Atlantis Hotel. We found a wonderful buffet lunch of familiar and not so familiar food. The food was well prepared and well served; we ate too much, of course, not noticing our over indulgence because of the beauty of the east coast.

We spent much of our time in Barbados exploring the south and west coasts, getting lost several times. The Bajans we asked for directions were generous with their knowledge and advice. Everyone we met communicated a sincere desire to answer our questions and give us any help needed: from the bus driver who showed us the way home at 11pm at night to the guys having a few drinks at a “provisional” bar on Sunday morning - - wasn’t that faded tee-shirt on one of the Sunday morning revelers displaying an image of the New York City skyline with the Twin Towers still in the foreground? Life seems to be lived in real time though; it is more than just motions. Each time we got lost, we managed to find our way back to Bussa, our landmark.

Our trip to the Saturday morning breakfast at Brighton Market introduced us to new friends and an eclectic group of vendors. As it was the day before Easter, the Easter Bunny came on his tractor, bringing freshly dug carrots for all the children. The Bunny loaded all the children in the wagon he was pulling and took them for a ride. They whooped and shrieked, as delighted children do. It is sad that many adults lose their ability to enjoy simple experiences in the same easy manner. As a retired educator, I was impressed by how well-behaved the children were. Would that parents in the area in which we live had the same high standards for their children.

At Brighton, a new friend, William, who had been born in Barbados but spent much of his life in Canada, asked around to get information for us about Rock Dundo, St. Michael’s, where my grandfather was born. He learned that the Great House was still there and he got some sketchy information from an old-timer about how to get to it. William and his wife picked us up the next morning and we headed to the Rock Dundo area but, as we didn’t know the exact street where the Great House was located, our guide consulted with some locals. We had to “tour” the area to find the house as it has not been taken over by the Heritage Trust and wasn’t easy to locate. We took pictures to send to our relatives.

We were impressed by a great many of the ways-of-life of Barbados and the friendly Bajans. One of the most impressive thing was that Bajans do not seem to let a “tight schedule” dictate how every minute will be spent; no one seemed to be in a huge rush to get to the next activity on their schedule early so they could “wait”. They always spent a few minutes visiting when greeting each other, asking for information, or otherwise engaged with others. Many Americans we know make a practice of hurrying up so they can wait – or so they can stress themselves into a cardiac arrest! Another wonderful aspect of Bajan life is the beautiful public parks and beaches, among them public beaches on the south shore and Farley Hill in St. Peter’s. Also, as a farm girl from Texas, I was very impressed with the sleek, good-condition of the goats, milk and beef cattle, and horses, considering there was a drought in progress.

The good news was we didn’t gain any weight from the wonderful Barbadian food; it is delicious but not fattening. The bad news was that it turned out to be harder to get off the island and back to the US that it was to get there. Because our plane was 4 ½ hours late taking off, we had to make an unplanned visit to Miami and leave for DC the next day. The Miami airport vendors were closed when we got there, but we were told the hotel had a restaurant and room service. It turned out the restaurant was closed and the kitchen was all out of food – so no room service. The bartender was just making her last call, as we crossed the lobby, so we didn’t have to go to bed thirsty as well as hungry. DC was in the middle of a heat wave when we arrived; luckily we had been acclimatized in Barbados.

Unity Bar Lunchtime Lecture: April 16, 2010: Mr. Reudon Eversley--"The State of the Barbados Fourth Estate: Reflections on the media today"

The next lecture in the series will be delivered on Friday, April 16, by Mr. Reudon Eversley, Journalist and Communications Consultant, at the "Errol Barrow Gallery", DLP Headquarters, 'Kennington', George Street, Belleville, St. Michael; his topic will be "The State of the Barbados Fourth Estate: Reflections on the Media today". As usual lunch will be served from 12.30 pm and the lecture will start at 1.00 pm.

Gave Instead Of Lent 38-41

March 29: Gave my legs and body a few extra minutes of rest as they recovered from their soccer exploits.

March 30: Spent the morning and early afternoon at the beach with some staycationing friends and their children. Then gave American Airlines as much time as they needed to deliver passengers to the island. Poor people had had to be transferred from another carrier after missing their initial connection, so were glad to be here, however. Anyway, what's a few extra hours waiting for friends?

March 31: Gave our American visitors a little tour of the islands central and eastern sides and helped them try to connect with those who could help them locate the birthplace of grandparents

April 1: Gave a rib tickle to my little daughter who looked hard enough to see the rabbit coming through her ceiling.

In The Swim: CARIFTA Swimming Championships 2010

My musings on the just completed Carifta Swimming Championships in Kingston, Jamaica, were published by Ian Bourne on his Bajan Reporter website today. He also published several photographs I took during the first three days of the events.

Look! Up There On The Ceiling

In passing on traditions to a child, it's always worth getting to April 1. "Look! Up there. Just in the corner of the ceiling. Do you see it?" She gazed and stared. "The ears. Look again! A rabbit coming through the ceiling." She looked again. "Yes. I see it!" I told her she was an April Fool and she smiled. Then I gave her a pinch and a punch for the first of the month, and said "No returns." She gave me her Grr face. Moments later, running around naked, she told me she had played a trick on her Mummy. I don't know what it was, but I suspect it was telling her that she was unable to zip up her (invisible) dress. She pinched and punched her mother, but did not say "No returns." So, I gave her a punch and a kick for being so quick. Got to love the start of a new month, and April too.