Economists: What are numbers to do with household fortunes?

Economic growth figures do not adequately show whether ordinary households are sharing in the gains, two university economists have told Barbados TODAY, calling for closer scrutiny of incomes, purchasing power and the distribution of wealth.

Their independent assessments point to a major disconnect between the quarterly indicators of economic activity reported by the Central Bank of Barbados and the daily experiences of ordinary householders.

Professor Troy Lorde, dean of the Faculty of Social Sciences at the University of the West Indies (UWI), Cave Hill Campus, and fellow economics lecturer Dr Antonio Alleyne, said on Monday that the growth indicators the bank announces every three months do not adequately explain how the average Barbadian is benefiting.

Professor Lorde said: “Traditional macroeconomic indicators are necessary but insufficient for understanding the economic circumstances of ordinary households. For example, GDP [gross domestic product] growth tells us whether the economy is producing more goods and services, but it does not tell us how the resulting income is distributed.

“A declining unemployment rate does not necessarily mean workers are earning adequate wages or obtaining secure employment. Similarly, low inflation simply means prices are increasing more slowly, not that they have returned to previous levels. 

“I would like to see greater emphasis on real wage growth, household purchasing power, underemployment, labour force participation and the distribution of economic grains.

“We also need to understand how changes in the prices of essential goods and services affect different income groups. In short, a household struggling to meet its food, utilities, housing and transport costs experiences the economy very differently from what headline macroeconomic indicators suggest.”

Dr Alleyne agreed that the economic indicators did not sufficiently tell the story of people’s reality: “One figure I would like that we really look at is income distribution. That gives us an indication as to how income is distributed. So we can say, well, yes, the economy grew by this amount, but where are all the finances captured…what portion of society is actually accounted for in that?” 

“Is it properly spread out or is it very, very skewed and the impact of that…because, if you have.. the more affluent population capturing 90 per cent of the wealth or 80 per cent of the wealth, you could see that is a disastrous situation right there. 

“So, if we had an idea, we would know… and government too, will also know how to best deal with some of these other forms of income distribution.”

Dr Alleyne continued: “I am not saying they did a good job or a bad job…and the information is not there to do a more effective job as it is. That income distribution information could possibly be captured in our ten-year census, but you can’t wait ten years each time to get information. 

“So, if it was something done more [often], even if we use overlapping years, it would be better to have some measure of income distribution, so we know how society actually feels about the growth, whether it is skewed, whether it is spread out, or whatever the case is.”

Dr Alleyne stressed that the information should indicate what was happening “out there”.

Professor Lorde then described the Central Bank’s regular reviews as providing a “generally credible assessment” of the country’s economic performance.

But, he said: “I always stress that macroeconomic performance isn’t necessarily a comprehensive picture of economic development. The review focuses more on stability than on whether it is becoming more productive, diversified, or capable of delivering improvements in living standards. I would like to see a more systematic analysis of productivity, domestic value added, export diversification and the quality of investment.”

He argued that the Central Bank did not have to produce every economic statistic, but could do more to connect the indicators it already reported and explain what they collectively revealed about the country’s economic trajectory.

But Professor Lorde’s main concern, based on the available figures, was “the weakening” of foreign exchange earning capacity (forex) compared to the growth of domestic economic activity.

“If the sectors earning forex are weakening, we will become more reliant on investment inflows, transfers or, somewhat adversely, borrowing or running down reserves to meet our external obligations. I am not saying we face an immediate forex crisis. But we still have to develop the productive capacity to replenish them sustainably.” 

The social sciences dean then weighed in on the format of the quarterly review, noting that it remained useful and relevant to policymakers, researchers, businesses and the public.

He said: “I like the format. I wouldn’t abandon it. But I would like to see a strengthening of its analytical content. It [needs] to be honest, like a plug-and-play document. Research staff [would be] assigned to various sectors [to] do their part, and then the document is put together. One improvement would be to provide a more systematic assessment of the composition and quality of economic growth.”

He suggested that the reviews could explain how much growth came from activities that earned foreign exchange and how much came from domestic consumption.

He added: “Another improvement would be to provide more detailed information on tourism earnings and domestic value added. The latest review shows starkly that providing arrival numbers alone is extremely inadequate. I would welcome a more detailed analysis of FDI [foreign direct investment], including its sectoral distribution and whether changes reflect new investment, reinvested earnings, project timing or other financial transactions.”

The headline net foreign direct investment figure was insufficient. He added that, since the country had been under various iterations of the homegrown economic adjustment programme BERT since 2018, it was reasonable to ask for evidence on productivity, export diversification, energy dependence and domestic productive capacity.

“Everything I mentioned here does not have to be produced quarterly, but periodic reporting on them would make the reviews more informative,” Professor Lorde said.

Dr Alleyne said more detailed information required contributions from both businesses and the government.

“Until you have some of that other granular bit of information which is difficult to collect and which is not generally forthcoming from the private sector…. The private sector in Barbados needs to understand, as well as the government, that this is a joint venture. If you really want Barbados’ economy to do well, we must be able to provide data to the relevant persons to provide proper analysis; and the data comes from the entities themselves.”

He also pointed out that the indicators captured by the Central Bank were long-established international measures used by most countries, with some Caribbean or Barbadian context.

He suggested that expanding those indicators would require investment and commitment from other parties.

“It may not be the best given as time has passed, but right now, it is still much better than not having anything at all. And it does give us an indication as to what is out there. Now, you have to take that and apply that to what the average guy says. We don’t have any sort of surveys that literally go out there every month or every quarter and ask the public key questions. Those are things that could be relevant.”

The UWI economist said such surveys would help explain economic activity and identify which areas were genuinely thriving, rather than reflecting the success of one large business in a particular industry.

“If we have a number of small businesses and they are all thriving as opposed to one big business in an industry and you are reporting for everybody else, those kinds of things become problematic.

“But the indicators are at fault. Obviously, more people, more activities, different behaviours, all of those things need to be captured. All of these things would be relevant to their economic performance as [it] is right now.”

But Dr Alleyne did not fault the Central Bank for failing to produce information that was unavailable to it, noting that much of its information comes from the Barbados Statistical Service (BSS), which is a department in the Ministry of Economic Affairs.

He suggested that the private sector should be more forthcoming in providing information that could paint a finer picture of the state of the economy, including “their capital performance, financial figures, employees’ skills set” that should be made available to the BSS and the Central Bank. 

But as a caveat he added: “A lot of what the Central Bank reports on is captured at the Statistical Services and is used, and it does need its credit when it comes to this type of information.”

(EJ)