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Driving competition

“In our view, the economic fundamentals of Barbados continue to weaken, reflecting not only the external environment but also more pronounced competitiveness and other structural shortcomings…” — Standard and Poors, July 2012

What exactly influences a country’s competitiveness? Over the years, many researchers have investigated the subject of competitiveness. In a recent seminal paper, researchers Mercedes Delgado, Christian Ketels, Michael Porter and Scott Stern presented an intriguing perspective of the drivers of national competitiveness.

In light of the challenges which Barbados faces in its quest to earn foreign exchange, attract foreign direct investment, enhance entrepreneurial outcomes and ultimately achieve sustainable economic and social prosperity, it would be useful to discuss the essential features of competitiveness.

Maybe this type of discussion would enable a better appreciation of Barbados’ competitiveness and structural shortcomings with a view of vehemently pursuing targeted solutions to these problems. Competitiveness is an important prerequisite for national prosperity. Broadly speaking, macroeconomic and microeconomic factors underpin a country’s competitiveness. This means that not only the Government but also the private sector and civil society have a crucial role to play in improving Barbados’ competitiveness.

Another important point to consider is that competitiveness is not solely about costs (i.e. relatively low costs of labour, land, capital or energy). Rather competitiveness could be thought of as costs relative to the rate of productivity growth given the quality of a country as a place to do business. It is all about value for money; product quality, customer service quality, and the general business environment (including business practices and business facilitation).

To improve Barbados’ competitiveness we must sustain an increase in output per working age individual while absorbing unemployed labour in the most productive economic endeavours. Simply put, it is all about creating value in excess of the cost of production at all stages of production, distribution and sales.

So what are the factors which influence competitiveness? The macroeconomic factors are social infrastructure, political institutions, monetary policy and fiscal policy. In simple terms, monetary policy involves interest rate policy and influencing access to credit and its availability. Fiscal policy is the use of taxation and government spending to achieve economic and social objectives, chief among them is demand management.

Collectively the macroeconomic factors are concerned with basic health and education, the quality of political institutions, the rule of law, fiscal sustainability and debt, and inflation policies, i.e. the tasks of stabilising the costs of living and the costs of doing business. You do not have to be an economist or a rocket scientist to recognise that Barbados has been experiencing a sustained rise in the general price level.

It certainly is no secret that government’s financial situation and debt are of grave concern. If we are honest with ourselves we can all agree that there are major shortcomings with national education attainment, problem solving and innovation skills, judicial equity and timeliness as well as tertiary healthcare and disease prevention. All of these shortcomings, including the high prevalence of chronic lifestyle diseases etcetera impede national competitiveness.

Though it may not be as apparent to most Barbadians, some of our political institutions are antiquated and the quality and timeliness of public administration is a serious drag on national development.

Microeconomic competitiveness entails aspects of “the national business environment, the organisation and structure of economic activity and the use of sophisticated business management practices (e.g. whether firms use incentive pay)” (Delgado, Ketels et al, 2012).

The business environment is invariably influenced by government action or inaction. Regulation and legislation can foster or stymie investment and growth. It is however important to also recognise that market dominance, anti-competitive behaviour among businesses, commerce barriers and poor entrepreneurial access to capital are characteristics of an undesirable business environment which also inhibits investment and growth.

In order for Barbados to become more competitive, companies — small, medium and large — must continuously improve their operations and business strategy. Supplier, distribution and logistical networks have to be continuously enhanced to facilitate the mushrooming of business among related companies at various stages of the supply chain.

Productivity growth is all about doing more with less or creating higher value added goods and services. Labour productivity is not about working longer hours to produce more but rather increasing output per hour worked.

Essential ingredients for this recipe include increased capital investment, especially in machinery, equipment, technology and, business and public administration. There is a lot of scope for technological integration and application in local companies and public institutions.

The point is, Barbados did not need Standard and Poor’s to inform the nation that it has competitiveness and other structural shortcomings. Many facets of Barbados’ society and economy are fundamentally undermining national competitiveness. Before the Great Recession of 2008/09, Barbados’ progress was heavily dependent on FDI in real estate, and tourism buoyed by a strong pound sterling. Those sources of economic expansion were unsustainable. The practice of annually increasing salaries to compensate for inflation without increasing productivity was also detrimental for prosperity.

These two features of Barbados’ most recent period of buoyant economic growth contributed to the erosion of Barbados’ competitiveness by pushing up factor costs without concomitant productivity gains. This reality transcends political administrations. It is absolutely imperative that all segments of Barbados do their part to enhance domestic and international competitiveness. No government can do it alone.

Yesterday’s media reports of the egregious business practices of the Barbados Water Authority is just another unfortunate example of the type of mismanagement, lack of transparency and poor accountability that retards competitiveness. The Auditor General’s findings are symptomatic of the weak institutional governance and poor management that exist in both public and private sector organizations in Barbados. Sound institutions create a context for more sophisticated management practices (Delgado, Ketels et al, 2012); which are important pillars of a competitive economy.

Better can be done and better must be done, but it will take a collective national effort to take Barbados from stagnation to sustainable prosperity. The good news is that research has confirmed that size needs not be a constraint of growth or prosperity. This is something which Barbados has proven in the 1960s, 70s and 80s.

Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience.

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