|Delivering the promise of job creation|
Arinthia S. Komolafe
Published: Jun 29, 2012
The global economic downturn continues to take a toll on The Bahamas and the Bahamian government which is faced with enormous challenges. New investments have been minimal and insignificant to facilitate significant overall job creation in our country. The rising cost of energy, goods and services has forced the average Bahamian to face the reality of an unfavorable economy and economic climate characterized by high unemployment, underemployment and part-time work.
Consequently, the government’s revenue continues to be negatively impacted resulting in consecutive budget deficits in recent fiscal years. In the midst of these challenges, Bahamians and The Bahamas face a job crisis, a housing crisis and a growing debt crisis individually and nationally.
The current administration led by Perry G. Christie campaigned on the ability to create jobs and relied upon its first term in office from 2002-2007 as a persuasive precedent to recreate the magic of what it claimed to have been 22,000 jobs created. However, the ability to repeat this performance depends heavily upon attracting both local and foreign direct investments (LFDIs) in a global market which due to economic hardship is plagued with limited capital and investor skepticism.
It seems prudent for the government to seek to attract new LFDIs in industries other than tourism and financial services which have suffered shocks due to the economic conditions in the United States and Europe. The importance of proper oversight and management of our economy is vital in these tough times, as any missteps or wrong turns in shaping economic, monetary and fiscal policies could spell disaster for the average Bahamian and investors alike.
Christie had indicated that some 40,000 jobs will have to be created. It is expected that very few of these jobs will be created in the civil service, where wages and benefit packages account for more than 40 percent of government expenditure. The central question, however, is who will create these jobs and is it the function of the government to do so?
Previous policies employed
During the height of the “Great Recession”, the previous administration led by Hubert A. Ingraham embarked upon an aggressive capital expenditure project including a New Providence Road Improvement Project, resorting to fundamental principles of Keynesian economics. Keynesian economics, fashioned after theories of the noted English economist John Maynard Keynes, advocates deficit spending and asserts that fiscal and monetary programs can assist governments to stimulate economic activity and reduce unemployment.
Governments can take certain actions by increasing taxes, influencing monetary policy through interest rate reductions and government investment in infrastructure. In spite of this policy adopted by the former administration, the rate of unemployment continued to soar climaxing to 15.9 percent at the time of the Ingraham administration’s exit from office.
In the final analysis, the reduction of the prime rate by 75 basis points reduced the burden of servicing government debt and provided minimal relief to some consumers. Further, the capital expenditure provided jobs primarily in the construction industry. However, the overall positive effect was not felt by the average Bahamian, particularly low-middle income earners.
The current administration must be cautious not to buy into the fallacy that government spending alone drives the economy and thereby creates jobs. The private sector is the engine that is predominantly responsible for creating jobs and is encouraged to do so through legislation and government policy that provide an environment for business to prosper. The con of Keynesianism is that investment in infrastructure (with very little expectation of short-term return) typically benefits one sector of society or restricted industries and not the entire economy overall.
The other reality is that if government spending is going to increase, it almost always means that borrowing will be necessary. Hence, the result of such borrowing will become a burden to the taxpayer who may pay through increased taxes. In certain instances, tax increases may prove burdensome to the private sector which in turn may resort to lay-offs to curb overhead expenditure. Consequently, the sole government policy of investment in infrastructure may prove to be counterproductive in this regard.
The results of a government job program are mixed and carry certain consequences as well. Studies have shown that in some instances where government job programs have been implemented to reduce unemployment, for every one job that was created, two jobs were lost. The net effect resulted in more government directed or initiated jobs created at the expense of fewer private sector jobs.
The way forward
For job creation to occur, the government and the private sector must work simultaneously in a collaborative manner. The pure market theory which lends itself to the notion that the market will correct itself through supply and demand cannot prevail in isolation. Socialist type theories that encourage excess government intervention through nationalization, continued funding of non-performing government corporations, welfare programs and regulatory and protectionist mechanisms that impede growth and investment will also not prevail in this economic climate. An equilibrium must be sought between the benefits of a market-based and free enterprise driven economy and reasonable government regulation and intervention.
Ultimately, the government for its part must seek to restrain its expenditure, reduce taxes cautiously and reasonably while providing concessions that will positively affect the average Bahamian taxpayer in the short run. Alternative energy solutions must be explored to reduce the burden upon business owners and policies should encourage the creation of venture capital funds and provide tax incentives to such investors. The existence of venture capital funds will in turn provide entrepreneurs with access to capital for expansion and spur job creation.
Reduction or restraint of expenditure must be balanced against revision and reform of compensation and benefits packages for the civil service including but not limited to pension schemes. It is widely known that successive administrations will not take the unpopular but important decision of streamlining the civil service for fear of political backlash at the polls. However, governments must revise and re-negotiate existing and new industrial agreements within the framework of current fiscal realities.
In the final analysis, sound economic management in the best interest of The Bahamas for generations to come must precede political agendas. The current administration must be willing to take the tough decisions that will benefit the country in the long run.
• Arinthia S. Komolafe is an attorney-at-law. Comments can be directed at email@example.com.