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Volume No. 1 Issue No. 53 - Tuesday January 06, 2004 |
What the Caribbean Needs
 by Kurt Valmond
The Islands of the Caribbean are not experiencing the kind of growth they would like to. That is, the kind of growth necessary to employ the legions of students graduating high school and entering the work force each year. Part of the problem is that many of the islands practice a largely socialist economic policy rather than a capitalist one. This has led to slow growth in most places, no growth in others and even contractions in a few.
The problem with a socialist economic policy is that it is too expensive an economic system for the young economies of most Caribbean islands. Socialist policies, legacies of colonialism, are usually heavy on taxes and heavy on social programs. Socialist policies in themselves are not bad actually, most programs are well intended when created, however, they are just too expensive for smaller countries that should be focusing the bulk of the budgetary spending on education and economic development.
For example, the industrialized nations of England, France, Germany and Spain tend to have high GDP output per person due to the advances of industry, which allows a few people to produce great quantities. This in turn generates large revenues from which the government can derive taxes. Thus, when the government of an advanced economy such as France, Germany or Spain decides to support social programs, a small percent of a large budget can go a long way.
Conversely, most islands of the Caribbean are agricultural based or tourism based, neither of which generates significant revenue per person. Instead, they do the opposite, by requiring many labor intensive hours and people to produce a small amount of revenue. This in turn generates a relatively small tax base from which the government must derive its budget. Thus, when the island governments decide to spend on a social program, it requires a substantial portion of the budget to meet the needs of the population.
This is where the more market-oriented policies associated with capitalism will be more helpful. Take the pension system for example, it may be wiser for the islands of the Caribbean to consider phasing out the current government funded retirement system we have now in favor of the individual retirement accounts of the United States.
In the US, Individuals can put money away for retirement in IRA's where the funds grow tax deferred until they are withdrawn after age 59 1/2. The US began its push toward privatizing retirement years ago, when the crisis of a bankrupt Social Security System became too big to ignore. Singapore also has a private pension system, yet boasts one of the highest standards of living in the world. This despite being no bigger than Jamaica, and considered a third world country just 30 years ago.
Thus, without the burden of funding retirement, which by the way does not earn new tax dollars for the country, a government can then redirect those funds to education and economic development. This is the only way a country can attract direct foreign investment and provide companies with the highly educated workforce the new global economy demands.
Doing away with expensive social programs is no panacea, but with the financial burden removed or even lessened, countries can focus their limited financial resources on where they really need to, that is to provide jobs for the legions of high school students entering the work force each year.
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