Occasional Essays
February 24, 2006

Can we not work out our salvation?

Recently there has been much talk about fiscal deficits and the private sector. It must not be forgotten that governments do not run countries in order to have big or small fiscal deficits. They run countries for the welfare of the people. This involves ensuring that law and order prevail, that there is physical infrastructure and access to education and health facilities. In a capitalist economy governments also aim to provide jobs indirectly and to a lesser extent directly. If people have jobs then it is possible for them to get food, clothing and shelter. {{more}}

In their efforts to achieve the foregoing objectives, governments may have big or small fiscal deficits. It all depends on the stage of development they are at. The ULP considers that it assumed government at one of the low points of our island’s history. SVG was the poorest state in the OECS. The biggest project undertaken by the outgoing NDP government, Ottley Hall, was a scam, plain and simple.

The new ULP government decided it was going to do something about it. Looking at the other OECS islands it was immediately clear that the main reason for SVG being at the bottom of the totem pole was the small size of its tourist sector compared to that of some of the other islands. There was no God-given reason why this should be so.

After all SVG has Soufriere and the Grenadines. It is also the ancestral home of the Black Caribs. SVG therefore had every reason to be up there with the rest of them. To get there however SVG would need to have jet airports like the other islands, set up a proper Tourist Authority, establish other infrastructure such as the cross-island road as well as the bridge at Rabacca and start the theme park at Orange Hill. It would also have to attract investors to build hotels and related facilities. All this would take time to construct and during this time construction would be the growth sector in the economy. But everyone knows that the construction sector cannot be the engine of growth in perpetuity. The intention therefore is that at the end of the construction period the facilities would become operational and tourism would become as big a driving force in the economy as it is in the other islands.

It would be interesting to hear what alternative strategies for development the critics have to offer. The options are not many, a point the late Paul Southwell felt obliged to make when he was getting a lot of flak for building the St. Kitts airport.

Now to the private sector. The Mustique Company is the private sector entity that has the biggest impact on the economy of SVG. It makes a significant contribution to government revenue through its annual fee, aliens’ landholding licences and the hotel turnover tax. It employs between 500 and 1000 persons. It buys fruit, vegetables, flowers and exotic plants produced in St. Vincent. Canouan is expected to contribute in like manner. We hope that foreign investors will establish the tourist facilities on the mainland that will contribute in a similar way. The foreign private sector also makes a significant contribution to SVG’s economy through the telecommunications, brewing, banking and insurance industries.

The domestic private sector is engaged in agriculture, hotels, manufacturing, construction, banking, insurance and wholesale and retail distribution. Distribution cannot be an engine of growth. Rather it benefits from the growth generated by other sectors.

Government assists the domestic private sector in a variety of ways: fiscal incentives, factory shells, soft loans and subsidies. It even tries to secure markets for the flour millers. An unusual subsidy is the one enjoyed by the Chamber of Commerce. Government has handed over to them the car parks at the airport and on the waterfront. They pay to Government only a small fraction of the income they derive from these facilities.

It is nonsense to talk of Government crowding out the private sector. Crowding out means that Government borrows so much money from the banks that there is none left for them to lend to the private sector. The truth is the banks have much more money to lend than can be profitably lent on St. Vincent. As a result they have to invest abroad.

In recent years it has become common to talk of public/private partnerships. Under these arrangements, in big countries the private sector invests in infrastructure projects such as roads, prisons, power stations and, in the case of England, even the Channel Tunnel. In SVG the large scale firms that could finance these types of ventures simply do not exist. In our island public/private partnership is taken to mean the Government establishing factories and even car parks and letting the private sector run them. In other words, whereas in big countries it is the private sector assisting the government, in SVG it is the other way around, the Government assisting the private sector. Nothing is wrong with this. We are a very small developing country but the critics should not forget it.

The Government cannot afford to abandon its programme of developing our infrastructure and helping the private sector. After all, it is not in the business of learned helplessness. What the Government has to continue to do is to try to finance as much of its programme as possible from grants and low interest loans.