The role of the Government

The world is in recession. Governments everywhere are striving to combat it. It behoves all Vincentians to reflect upon their own condition.

In the closing months of 2008 a highly unusual situation unfolded in the USA. A Republican Administration, ideologically opposed to government intervention in the economy, started pouring billions of dollars into the financial system in a desperate bid to stave off recession.{{more}} In England and Germany, some banks even had to be taken over by the Government

In the developed countries, when the going is good, people can afford to be followers of Lord Keynes, who advocated government intervention in the economy, or of Milton Friedman who argued against it. However, when these same people start getting thrown out of work they forget all about ideology. They expect their Government to do something, not fiddle while Rome burns.

In developing countries like SVG, Rome is, as it were, always burning. When Milton Cato was returned to office in late 1974, he found that there was no money in the Treasury and he had great difficulty paying the Civil Service. The banks would not pick the Prime Minister’s height, even though the National Provident Fund, the precursor of the NIS, was pouring money into these same banks. Mr Cato decided to set up the National Commercial Bank (NCB).

The NCB has had its ups and downs. But the ULP administration cleaned up its balance sheet, merged it with the Development Bank and refused to sell it off. Last year, the Bank declared a substantial dividend.

SVG’s approach on these matters has never been ideological. We have simply done what seems appropriate at the time. In a country as small as our own, Government intervention in the economy is a necessity. Indeed it was the colonialists who started the intervention. They provided electricity and water for the populace. Our Governments since Independence have carried on in that tradition no matter what the current economic fad is.

The colonialists went further. They were confronted with a whole heap of small farmers trying to export arrowroot, bananas, potatoes to distant markets. They, therefore, set up a series of marketing organisations; the Arrowroot Board, the Banana Board and the Marketing Board. Their aim was to try to guarantee quality, timeliness of shipping and, above all, to ensure that farmers receive payment. In recent years, the role of agriculture has changed. The emphasis is now not so much on distant export markets but on the local and regional ones. The Boards set up during the colonial period are no longer necessary and such exports as there are can be left to private entrepreneurs, WINFA and LAP.

Today, our lead sector is construction and the Government of SVG, like governments everywhere, have always played a major role in this sector building houses, airports, roads, bridges and other infrastructure. Governments have been traditionally involved in these areas for three reasons. Firstly, the projects are usually very costly. Secondly, it is not always easy for the private sector to recoup the money they invest in infrastructure projects .The Government can, however, do so by imposing taxation. The third reason, and the one which has now come to the fore, is that governments rely heavily on these big infrastructure projects to get out of a recession. For this very reason, countries as large as China to those as small as Singapore are now embarking on additional infrastructure projects.

Given that construction is the lead sector, SVG is already into this phase with its heavy emphasis on infrastructure. We have to continue and if possible expand. The problem is money. SVG does not have sizeable budgetary surpluses or a lot of reserves. Judicious use should, therefore, be made of the NIS.

The organizations through which our Government usually intervenes in the economy: NCB, Vinlec, CWSA, IADC, HLDC, NIPI and NP. The National Tourist Authority and the Bridges, Roads and General Services Authority will soon be added to the list. Every effort must be made to ensure that these organizations are efficiently run.

However, even if the Government of SVG does everything correctly, the recession will still pose problems. Ours is a very small and wide-open economy. It is heavily dependent on the outside world for tourist earnings, remittances, foreign investment and aid. Our fate does not entirely lie in our own hands.