#BTColumn – Spreading wealth in a post-pandemic Barbados

Disclaimer: The views and opinions expressed by this author are their own and do not represent the official position of the Barbados Today Inc.

The current pandemic has exposed structural flaws in societies that were there all along, but to which we either complacently turned a blind eye or believed pessimistically that this was the way it necessarily had to be. The prime example is economic inequality.

Both the idea and reality of the allocation of economic resources in a society being best determined by the market mechanism has been around for so long we not only take it for granted but find it hard to conceive of any alternative, even when we see how market failures, as in the financial crash of 2008, wreak havoc with people’s lives. Moreover, we seem resigned to the inherent tendency of the capitalist market to generate economic inequality.

Fortunately, as a result of the organisation and struggles of labour movements and trade unions over the years, the social democratic state has managed to put in place such protective measures as unemployment insurance, free education and healthcare, and subsidised housing to shield the most vulnerable from the harshest effects of the market.

But there’s a problem. Whenever the market economy slows, stagnates or declines, the resultant fiscal crisis of the state leads inevitably to slashing the budget for social welfare expenditures, even though economists now recognise that austerity only makes things worse.

But what if the conventional prescription for the functioning of a market economy is not necessarily our only option? Might present-day capitalism have reached or be reaching a tipping point from which it will morph into something qualitatively different?

Since 2008, serious tensions have arisen in capitalist societies, many provoked by the growing anger and despair of citizens at the stark economic inequality and the corporate pollution and plundering of our planet so as to make it practically uninhabitable by the end of this century, but many also attributable to technological progress [digitalisation, artificial intelligence (AI), robotics]. The new technology (which is still in its infancy) seems to many not only to threaten to displace workers but also to usher in an era in which machines will control humans. Facebook and Google harvest for free the personal data of users and sell it for billions of dollars. The surveillance state is a fact of life.

The daunting question facing us now is who will rule: humans or algorithms, including those of impersonal machines and the impersonal market?

In response to all these concerns, there has been a flood of books published in the last decade that seek to address the crisis of the capitalist market system and suggest some radical ways in which it might be changed.

Some of the titles include: Life after Capitalism, Re-thinking Capitalism, The Future of Capitalism, Does Capitalism have a Future?, Capitalism without Capital, The Enigma of Capital, Post-Capitalism, Capitalism 4.0, and The Zero Marginal Cost Society, just to mention a few.

The authors of these books discuss the growing inequality of wealth and income as well as the corporate short term obsession with shareholder value at the expense of innovation and the welfare of employees, customers and communities. They also examine some of the consequences of the info-tech revolution such as the ‘gig’, ‘sharing’ and ‘platform’ economies.

They do not agree either on what might be the future of our economic system or on how we might get there. What they all agree on, however, is that present-day capitalism either has reached or is reaching a stage at which basic changes are required if our societies are to survive.

Are we in Barbados, an emerging knowledge economy, anticipating these changes, or, better still, can we not lead them? True, we are a vulnerable small-island state, but our greatest weakness is paradoxically our greatest strength. Small states have the nimbleness to both initiate and react quickly to the constant innovation that characterises the digital era. In Barbados we are blessed with the intellectual ability, the visionary potential, and the organisational capacity, especially in the context of the existing partnership between government, capital and labour, to which, in this perilous age of climate change, should be added a voice for the environment.

The traditional way of addressing the inherent tendency of a market economy to generate inequality is by redistribution in such forms as transfers or social entitlements. Indeed, many people, including myself over the decades, have argued for a universal basic income. This is the payment of a regular sum of money to a country’s citizens, usually as a replacement for a range of existing government benefits such as pensions, child allowances, and unemployment payments. The problem is that few governments, including that of Barbados, can afford to undertake the level of distribution that would have a serious impact on economic inequality.

As a result, many are now focusing on ‘an opportunity web’ in addition to a ‘safety net’, or, as some have called it, ‘universal basic capital’.

The idea is that rather than try to redistribute income after the fact, you build it up from below by spreading the equity around i.e. giving all citizens greater access to wealth/capital. This would include, among other things, savings, equity in businesses, stock ownership, real estate, land, bonds, education, and so on. Wealth is more secure and valuable than income. It allows families to build resilience and plan for the future—to survive the loss of a job or a major illness, to seek higher education, to save for a home, to start a business, to simply take a vacation or to retire.

So how might we do this? There are a number of ways.

One that has proved highly successful is government investment in free tertiary education and training, along with public infrastructure including broadband. The quantity, quality and accessibility of information are the most important sources of capital in the knowledge economy. This, however, would require significant reform of our ailing secondary school system which leaves a large majority of students ill-equipped upon graduation with both the ‘hard’ and ‘soft’ skills required for success in a constantly innovating economy, not to mention inculcating life skills like how to grow wealth.

Second, the practice of companies offering workers a share in the company’s profits or broad-based equity participation should become more widespread. In the European Union, 20 per cent of private sector employment is covered by such schemes. Companies in Barbados can be incentivised in all sorts of ways to do so.

Third, tied in with the preceding objective, the trade union movement, in pursuing its goal of protecting workers rather than jobs, should actively assist innovation in enterprises and use their bargaining power to gain a greater share of the wealth created by innovation-led productivity gains. They must be proactive rather than reactive.

Fourth, the credit unions must also be facilitated to play a more substantial role in financing small start-up entrepreneurs rather than them having to rely mainly on commercial banks and their predatory practices. We should also encourage and facilitate more cooperatives in every area of economic activity, as well as social enterprises that use profits for environmental or community-serving goals.

Fifth, there should be more varied affordable tax-exempt savings plans, including ‘child bonds’ to encourage people to save from an early age.

Sixth, and perhaps most important, the government should act swiftly to establish a Sovereign Wealth Fund (SWF) — promised in the party’s 2018 manifesto — as a way of ensuring that future generations of Barbadians have access to and benefit from the wealth created by this country. Such a fund should be transparent and accountable, and be owned by the people, not the state. That is, it must not become a slush fund for any political party in office.

SWFs come in all shapes and sizes, the most successful being that of Norway, funded originally out of the country’s oil revenues, through which the government of that country now owns 60 per cent of the national wealth. The Fund had a return of 20 per cent on its investments in 2019.

Wealth understandably flows to those who use their ownership of capital to create, build up and manage successful businesses by hard work and innovation. We must also recognise that some measure of their wealth comes from the natural and publicly built environment. For example, visitors come to Barbados not only because of our fine hotels, restaurants and other attractions but also because of the extraordinary beauty of our land, beaches and marine environment as well as the hospitality and welcoming warmth of our people, not to mention the publicly funded technology and infrastructure. So shouldn’t some share of the profits of the tourism industry go to a SWF that could provide access to capital for other entrepreneurial Barbadians?

A SWF, owned by and run in the interests of citizens, would transform a part of national private and corporate wealth into shared public wealth, and use the income to ensure everyone benefits from rising returns to capital.

Finally, our economy should be subject to the ethical requirements of our society and dedicated to growth that is neither damaging to our environment nor benefits only a privileged minority, but adds to broadly shared wealth and wellbeing.

Who knows what this may lead to?

(Dr. Peter Laurie is a retired permanent secretary and head of the Foreign Service who once served as Barbados’ Ambassador to the United States)