The good news is that Trinidad and Tobago has seen growth in productivity over the past four years. The bad news is that the Government is doing little or nothing to sustain this trend.
A report from the Inter-American Development Bank (IDB) highlighted in yesterday’s Business Express showed that local firms have been producing more with the same resources—a key measure of productivity. Especially notable was the finding that the non-energy sector has been growing more rapidly than the energy sector, particularly in food processing, textiles and garments, and metal-related production.
While that measure must be seen in the context of energy production declines, it shows that the economy is not inextricably linked to fluctuations in energy earnings. This is extremely important since, in the long run, oil and gas rents will inevitably be reduced and the country will have to generate other sources of revenue.
This is where the Government’s present fiscal paradigm is fundamentally wrong-headed. The rentier economy is effectively defunct. Yet virtually every fiscal statement from Government officials is premised on restoring energy revenues, when the focus should be on facilitating private sector productivity. The IDB report identified six specific obstacles to business in T&T collated from a survey of 180 firms. In order of concern, these were (1) access to finance in the form of collateral requirements, (2) an inadequately educated labour force, (3) customs and trade regulations, (4) corruption, (5) the macroeconomic environment, and (6) tax administration.
All these are solvable problems. In fact, with political will, at least three of the issues could be fixed within a year (three at the outside). Tax administration, customs and trade regulations, and even financing can be swiftly revamped, since most of the work involves removing regulations that hamper business. The main barrier to such reforms is that regulations benefit bureaucrats and politicians, which creates problem (4)—corruption.
The only long-term issue is (2)—a labour force lacking the requisite knowledge and skills to grow the T&T economy. But the blueprint to fix that has been on the Education Ministry’s shelves gathering dust for over a half-century now. The original education plan of the 1960s and 1970s involved creating specialised schools that catered to the academic abilities and interests of different student cohorts, from crafts to trades to the professions. That plan could be restarted next week.
As for the more general macroeconomic challenges, the Government has direct and indirect influence over five key areas: public spending, monetary policy, interest rates, inflation, and exchange rates. This last has been a burning issue in recent years due to the forex crisis, and the experts are still divided on whether devaluation is a tenable policy or not. But the Government has simply shut down discussion on the matter rather than exploring this option.
The IDB report shows that contrary to conventional wisdom, economic growth is not driven by Government action, but the opposite—meaning that to create prosperity for all, the Government must stop constraining the market.