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Is our Govt underperforming?

Sunday, March 18, 2018

Recently, there was a media release of the ratings of our government as to its performance over the last two and a half years. In particular, it was found wanting in its handling of the economy so much so that the population is disappointed that the economy has not rebounded.

The major complaints were that foreign exchange is still not available in the quantities required to satisfy the need/demand for imports together with the forced reduction in government spending giving reductions in transfer and subsidies and on-shore business activity.

This shortage is due to the drop in prices of oil and gas on the global market and the reduction in local production of both, causing the usual hardships: increased unemployment and taxation. Still, there is a recent increase in these commodity prices but nothing yet to celebrate.

What is strange is that given our plantation economy we all should expect its boom-bust nature. We are now experiencing a bust and hence foreign exchange will be in short supply.

It may not be the short term fault of any government that we are in a bust given our economic model, though we can lay it at their feet in part that we have not over time diversified the economy.

As a small open economy we must import most of what we consume. Hence we must export.

Thus it is high risk to depend, as it were, on one crop. However, the development and maintenance of a sustainable economy depend on the integration and collaboration of the private sector, the government and the R&D institutions. As a result, the failure to diversify the economy is indeed a failure of the three partners of the triad to collaborate in building globally competitive export companies.

To plagiarise Professor Michael Porter’s comment: “Governments do not compete in the global market, companies do. Yet no one berates the private sector on its failure to produce export companies.”

In our present model the government manages the exploitation of our petroleum resources so ensuring that some foreign exchange is retained in the on-shore economy. The private sector uses this foreign exchange to import, mark-up and sell anything that the population may desire.

The R&D/education institutions train graduates. Many of them are not required by the present economy and 70 per cent of our graduate workforce emigrates. We are even being told that our welltrained petroleum graduates are not getting jobs in T&T. (The plan is for the Government to employ the best of them as they are seen eventually as the future managers/ planners of the sector).

Hence, diversification is about the reconstruction of the economy, getting the triad of government, private sector and the R&D institutions to create this integrated activity; build other export companies. The fact that we have been calling for this reconstruction/ diversification for over 50 years suggests that there are apparently unsurmountable hurdles.

Prof John Foster of the University of Queensland, Australia, tells us that an economy is a complex adaptive system; complex in that it is made up of a number of autonomous economic interacting sub systems and adaptive in that it can adapt to changes (technological, other disruptive ones) in the economic environment. However this adaptive property can atrophy, can become rigid, depending on the history of its economic activity.

In our case the history of the economy is that of a plantation, though there have been changes in the commodities exploited.

The model of the economy has remained unchanged; the plantation/ off-shore earns the foreign exchange and the on-shore private sector imports the requirements of the population.

The model has become rigid and it is difficult for it to naturally adapt particularly to the looming depletion of the petroleum resource.

The current reaction: the private sector complains of lack of foreign exchange, government tries to maintain the plantation/ energy sector model and the population is disappointed in government’s performance.

The private sector, in general, is looking for foreign exchange to also expand into the region, into its traditional import-sell activities.

The question then is: what kind of intervention is required to initiate this economic transformation?

Other countries have successfully made such an intervention; examples are South Korea, Taiwan, Chile and Singapore. In these cases government policies and investments galvanised the private sector and the R&D institutions into action and, as such, it was the initiator of change.

Initially, the establishment by our government of its Economic Development Board (EDAB) and that organisation’s move into the creation of a local innovation system, promised by its development of an economic roadmap via a foresighting exercise, gave us some hope that such an intervention was underway.

The resignation of the EDAB’s chairman, Dr Terrence Farrell, has dashed such hope.

Further, the government has retreated into its conventional Pt Lisas position of couching its “diversification” thrust in part in plans to build an aluminium industry based on imported ingots to produce motor car wheels, wire, cable and flat plate.

Our comparative advantage appears to be cheap natural gas/ electricity, possibly imported from Venezuela. The rigidity then is also in the culture of our Cabinets and their leadership.

Mary K King


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