The Draft Final Report, A Strategic Framework for Optimizing Benefits from Trade Liberalization in the Bahamas, by Trevor Hamilton and Associates, Kingston, Jamaica, to the Bahamas Chamber of Commerce (dated July 23, 2002) made some very important points and failed to make others. Furthermore, it promotes the currently "politically correct" policies touted by national and international politicians and bureaucrats. As the following comments will demonstrate the "Draft Final" Report should be considered as a good "first draft" in need of additional work before it is accepted as a "Final Report".
The following is a partial analysis of the Report that for reasons of brevity will not address the data or the FTAA/WTO membership issues.
What the Report says.
The Report contains lists of statements that include the following:
- Domestic and foreign investment is necessary for economic growth. The Report never states why growth is an important and desirable national goal.
- "Hospitality services" are described as "tourism, real estate merchandising and others", the sectors that will attract investment. International finance is written off as a growth driver, the apparent result of the eleven bills of Christmas 2000. But those finance bills also adversely affect real estate merchandising.
- Telecommunications will have to be modernized to become the "main technological" driver of the economy. The privatization of Batelco is mentioned but the written statement does not convey the urgency expressed at the Chamberﾒs seminar.
- Government services must be upgraded. There is no elaboration on what this means.
- The supply of skilled labor force is inadequate. There are many proposed projects and programs for on-the-job training, testing and certification. However, nowhere is there a discussion of the failure of public education and student performance (particularly males) or the reform objectives for that system. It is difficult to see how e-commerce can ever prosper or the economy grow without a very significant improvement here given the constant pressure and need to hire Bahamians.
The Report has extensive lists of projects for execution by the Government working with business and/or labour and presumably under the direction and with the assistance of a vendor like Trevor Hamilton. There is the Ten Challenge list, the six item Labour project list and the nine item Legislative list.
What the Report does not do.
However, the Report does not examine actual growth, give examples nor provide a development theory or model. No reference is made to any insights gained from a half-century of experience with programs intended to promote growth. The fact is that growth has eluded 80% of the world over the past 20 years. While it is difficult to disentangle the critical elements in any specific country, there are certain statements that can be made with authority.
- The 20th Century was one continuous experiment with Communist and Socialist control over economic activity that ended with a realization that free markets were the best, most efficient method for allocating scarce resources. Yet the Report emphasizes legislative and Government control solutions without reference to any market orientated solutions. At best such control solutions require quality managerial and administrative personnel that are clearly in short supply; and their use must be narrowly focused to avoid "compliance strangulation".
- Investment in education does little for economic growth if the activity with the highest returns is lobbying the government for favors. In an economy with extensive government intervention, such as the Bahamas, the government creates profit opportunities by its interventions that redistribute income and do little to enhance growth. Unfortunately, intervention is facilitated by the countryﾒs small size and physical isolation.
- The rule of law is closely associated with the commercial and industrial revolutions in Western Europe. It was essential to ending clerical and then royal control of commercial activity; now it is the only safeguard against political exploitation. Today justice in the Bahamas is not at all efficient and certain; and, in fact, one can argue that the rule of law is significantly perverted by politics and greed.
- Corruption and stealing are the most obvious growth-killing incentives that government officials and business managers face. "Requiring private businesspeople to pay bribes is a direct tax on production, and so we would expect it to lower growth." A 1990 survey of businessmen on corruption around the world listed the six most corrupt (in alphabetical order) as the Bahamas, Bangladesh, Indonesia, Liberia, Paraguay, and Zaire. Other studies show that corruption and growth are inversely related, the greater the corruption the lower the growth; and pilferage here can run as much as seven times the U.S. national average. "Nobody wants to invest in a corrupt economy, and nobody wants to do all the other things that make for a growing economy".[1]
- The Report does not draw on work already done on the Bahamas. Alvin Rabushka, a Senior Fellow at Stanford Universityﾒs Hoover Institution, did extensive work in the mid 1990s for the Stock Market Task Force. He was the co-author of the seminal work on the flat tax in the U.S. and most recently facilitated its introduction into Russia. Despite his sterling credentials his contribution to the Task Force is overlooked. Ralph Massey wrote "The Caribbean Tiger Strategy" for the sub-committee of the Economic Committee of the Chamber of Commerce in 1995. It was not recognized by the Chamber.
Two big problems.
Beyond these shortcomings two major problems remain.
Firstly, the Report repeatedly makes reference to the importance of consensus building among the "stakeholders", the new buzzword that replaces "tri-partite". This need for consensus appears to be triggered by a desire for power and control.
A consensus of a different type is especially essential for economic growth. Societies function best where there is a common core of values and trust. Such values and trust lower the amount of "friction" in a society-freeing society from regulation and litigation, reducing transaction costs and fostering economic growth.
This principle is seen most clearly in an extreme example. The "9/11" disaster changed the risks of air travel since no longer can every traveler be trusted. That extremely rare potential hijacker of yesterday sought publicity or passage; now he is a suicidal hijacker piloting a lethal missile. Air transportation costs rise, travel declines and companies downsize. The "tiefing" culture of the Bahamas produces the same but not quite so obvious results.
The obstacle to an enlightened consensus in the Bahamas is the great ethnic divide that polarizes society. This tends to focus policy on income redistribution via government giveaways, contracts, jobs and judicial permissiveness. "Societies divided into factions fight over division of the spoils; societies unified by a common culture and a strong middle class create a consensus for growth-growth that includes the poor."[2]
Furthermore, the Report proposes an expanding governmental presence with its attendant regulations, litigation and compliance costs. The alternative of a more efficient judicial system is never considered. This is dangerous because the Bahamian Government has limited resources. The Bahamas simply cannot sustain the fiscal deficits of 2001/02 and the one expected in 2002/03.
The Report should have dealt somewhere with values, objectives, limitations and priorities but did not. The "Draft Final" Report of Trevor Hamilton is a "feel good" effort suggesting that everything is possible. It should be more businesslike and less political. In fact, it proposes a "new socialism". The Chamber should ask Mr. Hamilton to take the above comments into account and develop a more realistic "Final" Report.
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The "To Do" Lists
The Ten Challenge List
- Develop industry profiles of disadvantaged enterprises
- Re-structure businesses to shift to low fixed cost operations
- Re-structure capital markets to enhance equity financing
- Enhance the position of business and labour associations
- Rationalize immigration
- Rationalize government procurement and trade administration
- Improve customs policies and efficiency
- Improve human resource and industrial relations
- Restore integrity to the financial services sector
- Develop e-commerce
The Labour Sector List
- Co-manage labour market information system
- Co-manage a national fund for foreign employee welfare
- An information technology institute
- A welfare fund for displaced workers
- A skills certification program
- In-plant or on-the-job training program
- Productivity gain-sharing and compensation program
The Legislative List of New Laws
- Competitive practices
- Anti-smuggling
- Consumer protection
- Intellectual property rights
- Anti-dumping
- Occupational health and safety
- Industrial Tribunal
- Financial service controls
- E-commerce
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[1] William Easterly, The Elusive Quest for Growth: Economistﾒs Adventures and Misadventures in the Tropics, MIT Press, 2001.
[2] Ibid.
