Former Prime Minister Owen Arthur today sounded a stern warning to Barbadians that the era of the ‘welfare state’, in which citizens were guaranteed free social services and other entitlements “paid for by a plethora of taxes” was fast coming to an end.
In fact, while likening the Barbados economy to a speeding vehicle, he cautioned that it was fast approaching a dead end and therefore urgently needed to change course in order to avoid plunging into a calamitous “developmental trap”.
“I say to you that a developmental model based on protectionism, trade preferences, unique tax benefits and on economic sectors which do not make the fullest use of our human capital will lead Barbados into an economic cul-de-sac,” he told participants in the Innovate Barbados 2017 conference at the Lloyd Erskine Sandiford Centre this morning.
Without making direct reference to any of the current fiscal policies of the Freundel Stuart administration or the recent promises by Opposition Leader Mia Mottley that if elected, the Barbados Labour Party will make tertiary education free again and will immediately repeal the dreaded National Social Responsibility Levy, Arthur cautioned that the heavy provision of welfare services by the state was no longer sustainable.
“Barbados is following the development model pursued in Nordic countries by providing its citizens with a wide array of social services and entitlements paid for by a plethora of taxes.
“Nordic countries, however, support their welfare systems by exhibiting and maintaining some of the most liberalized and technologically dynamic business systems that can be found anywhere in the world . . . [and] are at the top of the global competitive indices, the ease of doing business and every index, not because of the high taxes, but because they have the most dynamic business,” he cautioned, in a seeming dig at both sides of the political divide.
It was in his Budget presentation on May 30 that Minister of Finance Chris Sinckler unveiled a $542 million austerity package aimed at closing the island’s worrying deficit of $537 million.
However, based on Acting Central Bank Governor Cleviston Haynes’ review earlier this week of the performance of the economy for the first nine months of the year, some hard political decisions still have to be made in terms of state spending, with a view to erasing the country’s worrying deficit, estimated at $279 million for the last six months, as well as stopping the free fall of international foreign reserves, which plummeted further below the 12 weeks benchmark to reach just 8.6 weeks of import or $549.7 million at the end of September, putting more pressure on the stability of the Barbados dollar.
During his presentation Arthur made no mention of the review, but he was insistent that there must be a new model of development in which innovation, technology and entrepreneurship are the principal drivers of economic and social activity.
The former Prime Minister, who in the past has called for the privatization of some state-owned entities and abandonment of some welfare support programmes, stressed that Barbados simply could not afford to continue to “confer massive benefits on our citizens through entitlements without equally becoming technologically dynamic and changing our business culture as the basis on which we generate income.
“Therefore, we need a willingness to liberalize our business environment because without such liberalization the impulses for technological development will continue to be stifled in this country,” he said as he addressed the topic, Small can be Smart.
He pointed out that other small countries had already embarked on programmes to become more innovative and technologically advanced, while cautioning that “Barbados may fail if it doesn’t embark on a similar endeavour”.
“The need for Barbados to move to a higher stage of technological sophistication derives from the fact that its transitional drivers and enablers of economic development and social platforms have been eroded in value overtime by adverse effects and now operate as fully depreciated assets,” the respected economist said, pointing to the shift in focus from one industry to the next in Barbados over the years.
“Barbados’ future will surely come to depend upon how it responds to the challenges being thrown out by what has come to be termed the fourth industrial evolution,” he said.
Further outlining his vision of change for the island’s development, he said there was also a need for the development of a “new class of indigenous international businessmen”.
“Barbados’ international business and financial industry does not have to be foreign driven or dependent only on the visions in tax treaties and the like. The development must now be made responsive to technological imperatives,” Arthur said, adding that industrial policies would also have to be redefined to lessen the reliance of businesses on subsidies and fiscal incentives.
He said for the changes to take place the financial system, which is currently highly liquid but risk averse, should also be more willing to finance more innovative and technologically based start-ups.