A Self-inflicted Recession

By GREGORY McGUIRE

Any lingering doubt that the honeymoon of the Kamla Persad-Bissessar-led People’s Partnership Government (PPG)  is over would surely have been erased by last week’s show of strength by the Public Services Association (PSA) and  its colleagues in the labour movement.

As it enters its sixth month in office,  the PPG should be sensing the public’s increasing impatience over its apparent inertia with respect to  both policy and action. That is, assuming it has not already fallen prey to the self-delusion that has marked every single administration until now.

The government’s failure to complete the appointment of state boards and to treat with outstanding liabilities, along with its lack of clarity on economic philosophy and direction, stand out as major shortcomings of the Persad-Bissessar administration.  The situation hardly engenders either business or consumer confidence, both of which are essential ingredients for a return to modest economic growth.

The protracted delay in the appointment of State Boards and Statutory Authorities is baffling to the point of bizarre. Could it be possible that the Government does not understand the importance of the State, including State Enterprises, to the daily functioning of the economy? Could it be unaware of the creeping sense of paralysis? Did someone advise the Government that serving the people is limited to fighting corruption and coping with floods? As important as these matters may be, effective Government and governance requires far, far more.

Spending by the government and the state sector is the single most important fillip for the economy. Government expenditure is equivalent to 33 per cent of GDP. The combined employment of Central Government and state enterprises is in excess of 120,000 persons, not counting CEPEP and URP. The domestic expenditure multiplier provides the stimulus for economic activity in other sectors. So when Government’s inaction stymies the activity of the state enterprises and statutory authorities, the result is an overall slowdown of economic activity. Is someone expecting the economy to wait while they get a handle on how it works?

Jobs are being lost across sectors as firms waiting on outstanding payments from the Government are forced  to shut their doors. With Christmas round the corner, who could blame them for giving up on 2010 while hoping for better in 2011? The protracted delay is likely to result in higher unemployment and lower output. It would be hard to find a better example of self-inflicted economic recession.

The problem of State board appointments brings to the fore once again the old debate about the role of state enterprises in direct economic activity.  There have been immediate calls for privatizing non-strategic companies and putting the public service back to work by scrapping the special-purpose duplicate organizations such as the Sports Company of Trinidad and Tobago and the Education Facilities Company. There is certainly a need to rationalize the state enterprise sector through mergers, closures and privatizations. One might have thought that this government, which campaigned against nepotism and curry-favouring, would  have come to office with ready-made solutions to the challenges of staffing state boards through a simple change of the Governance model and the composition of boards. These enterprises belong to the citizens of Trinidad and Tobago, not to the political party. Therefore it is wrong for political parties to continue to treat state enterprises as part of their dowry.  One alternative model is to limit the state appointment to a simple majority, with the other members being nominated by different interests groups including the labour movement, the university, business chambers and the relevant professional associations.

While one might argue that the delay in State board appointments is short term and temporary, the same cannot be said about the policy vacuum with respect to the economy.

The PPG has kept its election promise to scrap the aluminum smelter. It is apparent as well that Vision 2020 and its constituent elements are now history. Indeed the administration’s stance thus far suggests that everything created by the PNM is, at best, subject to careful scrutiny. Indeed, it is well within its right to do so, given that it had campaigned on an anti-corruption platform with a promise to investigate and scrutinize PNM initiatives. But the electorate also wishes to see a return to economic growth. The private sector wishes to get  indicators of Government’s overall direction with respect to  its economic development agenda. Households will continue to hold on to their money, spending only on essentials as a hedge against possible job losses.

Perhaps the Government is operating on the assumption that the economy is self-regulating and will swing back to growth on its own time. It might also be the case that those who were in Government during the UNC’s 1995-2001 term believe that projects will continue to flow as it did back then.  This would be a grave error.

The economic circumstances of the world  and T&T are fundamentally different from  the 1990s.  Back when the UNC took office, there were several energy sector projects either under construction or in an advanced state of negotiations. These included: Atlantic LNG, Farmland Miss Chem; Methanol 4 and others.  On this occasion, the PNM left only the solitary smelter which has since been scrapped.  Energy was the major driver of the high economic growth levels experienced over the last fifteen years prior to 2009. There is nothing on the horizon to suggest that this sector will continue to lead. Back then the economy was rebounding from a punishing twelve years of slowdown. Liberalization and subsequent decline of the exchange rate made Trinidad and Tobago’s exports more competitive within Caricom and beyond.  Having experienced the prolonged recession, public expectations were modest- very modest.

In today’s environment, the appreciation of the real exchange rate in recent years has eroded the competitive advantage of non-energy exports. This coupled with a weak regional economy has stymied export performance of the non-energy sector.  Today T&T, along with the global economy is struggling to climb out from a  sharp recession. Coming after the years of plenty, public expectation is high- very high. The economy is at a very important juncture requiring positive initiative  if we are to avoid a prolonged period of recession similar to the 1980s. The problem is that beyond initiatives to satisfy election promises, there has been very little by way of policy initiatives to boost the economy in the short term.

In the meantime, Government has embarked on a new planning initiative to address the longer term challenge of diversification.  Planning Minister Mary King is currently hosting  a series of consultations on the establishment of a “national innovation system and accompanying structure to facilitate economic transformation of the Trinidad and Tobago economy”.  Of course, this is what was  expected of Minister King.  In her time as Independent Senator and newspaper columnist, she has championed the need for a national innovation system. We look forward to seeing what shape this will take and whether, in the long term, it will indeed be any more successful than other models of economic transformation.  The problem for the PPG is that while Minister King plans, citizens, with their high expectations, will demand action.

The Government’s current challenges are in part due to the nature of political parties and the political system. It should be patently clear, even to its supporters, that the PPG was not prepared for Government.  Even if it were a single-party Government – UNC or COP, one’s conclusion would have to be the same.  We are yet to breed a culture of opposition politics that engages in more than just strategizing to rout the incumbent. The inclination has been simply to pose and oppose.  It is a problem that afflicts all opposition parties bar none.

The English provides a very relevant and contemporary example of what ought to be.  Within six months of taking office as leader of a coalition government, Prime Minister David Cameron has taken the tough decision to introduce a full package of austerity measures to cut the rot and restructure a faltering economy. Nobody knows for sure whether his strategy will deliver- and he certainly has his critics- but it is instructive that despite leading a coalition government, Cameron did not have to wait and see how the wicket was playing before making bold strokes.  The same can be said of the opposition Labour Party which has established its own shadow cabinet under new leader Ed Miliband to prepare, not just to defeat the coalition at the polls, but to run the country afterwards.

Even the PPG would admit that it had no such preparation. The political theatre that threw up Persad-Bissessar as party leader and paved the way for the PP coalition, allowed neither time nor energy for anything but campaigning and vote-winning at any cost- including, as it turns out, to the Treasury. It is true that Mr Manning left a legacy of reckless spending and rogue decision-making. But this is precisely why the electorate was willing to put aside its reservations about the overnight coalition and accept its promise that it knew how to put the country back on track.

As it heads into its sixth month in office, the PPG seems flat-footed, unable even to operationalise the very coalition that was to herald a new culture of politics. Instead, we have the sorry spectacle of a government that has come to office with Labour within its folds yet seemingly without the resources and instincts to re-frame the dialogue and alter the dynamics of negotiations.

As Lloyd Best would say, “when the spotlight is on you, you cannot rehearse.”

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