St. Lucia Simply Beautiful

ECONOMIC AND FINANCIAL VIABILITY – BASIL SPRINGER COLUMN WHICH APPEARED IN THE BARBADOS ADVOCATE’S BUSINESS ON MONDAY, OCTOBER 24, 2011
 
“A cheerful look brings joy to the heart; good news makes for good health.” – Proverbs 15:30
 
About once per year, I remind readers of my 1993 adage “Vision without Action is mere fantasy; Action without Vision is folly; Neither Vision nor Action reeks of irresponsibility; Vision and Action induce synergy”.
 
As a country, we are faced today with the challenges of arresting the haemorrhaging induced by a recession and restoring the country to the status of socio-economic harmony. We are faced today with the challenge of increasing our productivity to enhance our competitiveness. We have an idea as to what the vision is for our country and every five years the people are given the opportunity to choose the political party and the Prime Minister that will lead the country for the next five years. Early in 2013 Barbados comes to the end of this cyclical process and a new cycle begins on or before that date – enter a General Election.
 
The call to account is based on a number of factors, not the least of which is the success which has been achieved regarding the previous election promises from a socio-economic perspective.
 
Even though the Vision is there, there has to be commensurate Action. The Vision postulates objectives to be achieved and the problems which have to be solved to achieve these objectives. The Action addresses the making of decisions and the execution of solutions. It is wonderful what the power of encouragement can do for a person – if you are happy, you are also healthy. The challenge is to encourage and motivate people to buy into the vision and then execute the solutions.
 
Much of our existing knowledge about decision making and problem solving, is derived from research led by 1978 Nobel Prize winner Herbert A. Simon in his 1986 paper Decision Making and Problem Solving. He concluded his paper with the following paragraph: “Gaining a better understanding of how problems can be solved and decisions made is essential to our national goal of increasing productivity. The first industrial revolution showed us how to do most of the world’s heavy work with the energy of machines instead of human muscle. The new industrial revolution is showing us how much of the work of human thinking can be done by and in cooperation with intelligent machines. Human minds with computers to aid them are our principal productive resource. Understanding how that resource operates is the main road open to us for becoming a more productive society and a society able to deal with the many complex problems in the world today.”
 
There are a couple of important concepts which should be adopted in the management of Small Island states. The one is “the relative roles of Government, the private sector and the unions”; and the other is an important concept of “economic vs. financial analysis”.
 
Barbados is a leader in the practice of public/private sector partnerships in Latin America and the Caribbean, where there is the opportunity for Government, the private sector and the trade unions to work together in harmony.
 
In my opinion, the relative roles of the parties are as follows: the Private Sector should be charged with the responsibility “To do Business”; Government should be charged with the responsibility of “Setting Policy which stimulates the Creation of a user friendly Enabling Environment”; and Trade Unions should “Promote Employer/Employee harmony towards increasing productivity for fair compensation and working conditions”. What is the efficiency rating of this social compact? Are the Visions clear? What Actions have been taken and by whom?
 
The sectors for economic expansion and development in Barbados are limited. They include: tourism; financial services; agriculture; creative industries; manufacturing; commerce; renewable energy; business development services; education; ICT; health & wellness; and construction.
 
We have postulated that the private sector should “Do Business”. The decision making structure within the private sector is that of financial analysis to determine what action to take.  The financial analysis consists of comparing revenue and expenses to determine profitability and then to assess whether the profitability is great enough to yield an acceptable financial return on the investment required to generate a continuing flow of revenue for the business.
 
There may be occasions where, in the solar (grid connected) PV industry, for example, the financial analysis indicates that the profitability is insufficient to generate an acceptable return and the business proposition is rejected by the private sector.
 
In this particular example, however, the advent of such an industry will contribute to the macro-economic environment in the country in the form of net saving of foreign exchange; increased energy security; employment creation; reduction in carbon emissions; higher living standards; and a more attractive investment climate.
 
Who is the guardian of the macro-economic environment? The Government is the guardian on behalf of the people. If the advent of an industry is not financially viable from the private sector perspective but may contribute a significant improvement to the country from a macro-economic perspective, then it is the duty of the Government to conduct an economic analysis and offer incentives of one form or another for the private sector to invest with the expectation of a fair financial return on investment.
 
The economic analysis aims at identifying and comparing economic and social benefits accruing to the economy as a whole, setting aside for example monetary transfers between economic agents.
 
Finally, it must be remembered that economic and financial analyses are not self-contained topics: they are used to verify the economic and financial sustainability of the projects likely to be implemented.  
 
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. – CBET – Columns are archived at www.cbetmodel.org)

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