The wind in the willows economy

GOOD NEWS ABOUNDS! The economy is back or so they say! May it be the case that a breeze, once of unfounded confidence, becomes now more so a vengeful wind. A wind in the willows. Here I refer to a very popular children’s novel from 1908.

Much later on, its material spawned a children’s stop motion animated television series that I was quite fond of.

Running from 1984 to 1988, this classic followed the daily exploits of central protagonists: Mr Toad, Rat, Mole, and Badger. Each character brought a different flair that made them more relatable to children.

Life lessons in each episode were explored and definitely imparted on us who were born before 1990.

I used to find myself drawn to Mr Toad and Badger. The young people of today would say that Mr Toad was “scenes”. He was rather boastful, wealthy, impulsive, and thus likely to be involved in or driving the show’s shenanigans.

Conversely, we had Badger who was a rather responsible and steady hand, often being the voice of reason. He was, to put it bluntly, the foil to Mr. Toad’s ways. The wind in the willows blew and would tell of their episodical differences but Badger normally led with what was consistent and seemingly better for the group’s wellbeing. If they followed Mr Toad’s ways, like in the episode he continually crashed cars that he bought because he had the money to do so, I am sure the wind in their willows would have stopped blowing quite a long time before the series finale.

Pathway to success

Economic pathways to success tend to resemble those adventures written in the Wind in the Willows. Even more so these reflect the responses to the economic reports of varying natures.

The television series stretched the content for longevity. Nonetheless, the millennial in me has plenty examples to draw from to attempt to make my points stick today. The Mr Toad approach, for the purpose of this text, is when positive economic news is followed by what holds as illogical statements of consequence.

Such tends to include the derivation of policies, actions, or intent which may be similarly deemed to be spurious or lacking rigour. Many politicians are likely to respond to positive economic reports in this way.

Political objectives may seem, for example, to lack economic foundations of what makes a small island developing state grow. And it is for that reason that very few ever employ the Badger approach. This one I deem to be quite relevant when economic forecasts are met with cautious optimism.

It happens also to be the best approach for policymakers as it allows for more robust forecasts. These result in better public finance (that is, tax) planning strategies, public accounting, and fiscal expansion strategies.

Similarly, this stance is relevant in monetary policies as well.

The wind in the willows blew through Barbados last week and it was quite warm. Note the following reasons for celebration: (1) the five-year achievement of primary surpluses by government; (2) a two year decline of public debt-to-GDP; and (3) record levels of tourist arrivals. As a side note, I wish for the day when our economic key performance indicators can better accommodate a better estimate of tourism’s contribution through average or dynamic spend per tourist.

But to my point, I would place a “combo wager” and posit, quite successfully, that this triple play of joyous news will result in some bold fiscal strategy meant to repeat such a boom in performance. The Mr Toad Approach as it were.

I expect that some other development project (construction or otherwise) that was not mentioned at any point during the Budget will make the headlines quite soon. Let me state that I am not inherently against anything developmental but I have a condition. Government can’t be the one to finance it especially if it is private sector led. So I believe that the state will once again be asked to assume significant risk and underwrite the backend of the project. Basically, it will, in this case, be asked to write off taxes against the project either on the importation of materials or on the first few years of profitability. Remember though that Government has been hamstrung by public debt and International Monetary Fund (IMF) financing to even implement this sort of fiscal strategy. It kept well in avoiding this for as long as possible. It also built a “healthy” rapport with the IMF and is in the process of doing so with the international financial community.

But fiscal success in CARICOM typically results in a too familiar outcome. So my worry is much more profound than what I revealed so far.

Mr Toad approaches are used by governments within the Eastern Caribbean especially when there is great news. There’s clear historical precedent and it often sets our economies back some years. I can opine that such tends to stall social development far worse than it hampers GDP on the surface. You can take from many examples but here are just a few: (1.) The years of great oil and gas profits earned by the government of Trinidad and Tobago were continually met by years of irrational spend and the near depletion of those resources a few times; (2.) After St Vincent and the Grenadines experienced the region’s fastest growth for a period in the early 2000s, its government began to invest in or underwrote some very ambitious projects that resulted in cost overruns. A key example is Argyle International Airport at 45 per cent according to some estimates. This loss was equivalent to about 1.6 per cent of GDP for each of the six additional years of construction past the project deadline. I could go on.

Risk takers

The Badger approach in the region, and therefore Barbados, would always emphasise that governments should be risk takers on economic and developmentally-focused legislation.

Ironically, it is Bermuda and the Cayman Islands which continue to lead in this regard. I note that they are still British colonies. Through the aforementioned mechanism, however, the state better “governs” the risk of private sector-led projects. It better focuses its resources on regulation as opposed to being diluted through active participation.

It is more so equipped to actually lend assistance through more effective lobbying on the international stage. It will at that point be not as dependent on, say, the Prime Minister being the sole platform for international lobbying on all things concerning a country. I may have oversimplified the Badger approach but there are leading examples. To this point, I mentioned the Cayman Islands earlier. Let’s be facetious and say that “Badgerism” allowed for them to have a very robust Freedom of Information Act that uncovered what they termed the scandalous affair between Cayman Airways and the Government of Barbados. We have already explored the weaknesses and long term strengths of this relationship. For the most part, it was quite “Toadian” from conception and, as a result, the wind in the willows eventually blew that house down. As it does with all the schemes by Mr Toad.

Jeremy Stephen is an economist/ financial analyst with extensive experience in private equity and economic consulting in Barbados and the region. Email: economistfeedback@gmail.com