There is a reason to debate the Government’s role in the private economy. In principle, I support limiting the Government’s role in economic development to providing infrastructure. If done correctly, everyone benefits.
The undeclared ongoing financial crisis, economic recession, and runaway inflation are genuinely not the Government’s fault. These are legitimate justification for the Government to remain “overactive” in the economy. But at some point, we must stop the subsidies.
My concern is, our Government continues to provide (promise) millions of dollars in direct payments to selective sectors of the economy. Some may argue that the aid could have been handled differently. For example, assisting the production sector would have a more lasting economic benefit. Your position on this argument is based on which side of the political spectrum you fall. Unfortunately for us, the two leading political parties seem to be on the same page on this issue. Therefore, we do not have a debate on an alternative approach to economic recovery. The discussion today is about who is getting the handout.
I believe that any direct payment to individuals or corporate is a bailout with minimal economic effects.
Since independence, all of our governments have made a habit of selecting sectors of our economy to subsidize. First, it was agriculture (Bananas); then, a half-hearted effort in fishing, banking, and light industries. In more recent times, we added tourism, now back to fishing and agriculture.
A better way to support any or all of these industries is by building the supporting infrastructure, not replacing the private sector activities. For example, government building the airport is good; building hotels is not in our best long-term interest.
An example of a missed opportunity in the 1980s by the Government was their lack of attention to fixing the infrastructure problem related to bananas, mangoes, and other fruits and vegetables. As a result, we lost the opportunity to export these commodities to the North American market. This resulted in the significant exporter of agricultural products Eastern Caribbean Agency (ECA), being forced out of business. Now I am sure there were other contributing factors to this company’s failure, but no one can deny the loss of that market was a contributing factor. More importantly, our failure to address the production issues around fruits and vegetables contributes to the ‘constructive’ destruction of the business sector and that business.
It is critical to understand why bailouts and other forms of corporate welfare persist. Politicians want to be seen as doing something to create jobs to help the economy grow. Therefore, they will enact policies that give certain businesses benefits at the cost of a wider group of taxpayers. For more on corporate welfare, read Mr. Ivan O’Neal’s weekly column. Companies dependent on extended startup support from the Government tend to need those subsidies to remain a going concern.
Broad-based tax relief would improve the incentives for all businesses to invest capital and enhance productivity. There is a significant difference between government support for “Big Business” and government support for free-market.
Government bailouts invite corruption and undermine citizens’ faith in the even-handedness of Government. Whatever short-term gains come from such arrangements, they are not, in the end, sustainable. They are obstacles to true prosperity, innovation, or economic diversity in the long term.
Economic Development centered on ill-conceived incentives is counter-productive. It is like paying people to be your friends. Many folks might surround you if you’re giving out cash, but you aren’t exactly making deep connections. There will undeniably be a short-term boost in the economy due to these handouts. But, will it be sustainable growth? Sooner or later, we have to deal with the actual costs of these selective government-business partnerships. Vincentians have a right to wonder if it is worth the price. Being skeptical about any cost-benefit is natural.
Experience tells us that most companies that depend on government subsidies to establish themselves are more likely to fail than one that grows out of the creative distribution and rebirth process.
Horatio