The Tribune

By RICHARD COULSON DURING several recent months, the downward spiral in share prices and the threat of global recession have been largely driven by news - mostly bad - coming from the Eurozone. The abrupt reversal to price increases over the last few weeks presents a conundrum for believers in conservative economic principles. The price spike (which, of course, may be temporary) began right after the US Federal Reserve and the central banks of Canada, England and Switzerland announced swaps and other measures to enable larger dollar flows to Europe. Simultaneously, China's central bank dropped its prime rate, followed by the decision of the European Central Bank (ECB) to make cheap loans to the banking sector. These measures were not quite the abhorred policy of "printing new money", but they certainly made money cheaper. To conservative economists - the opposite of the late John Maynard Keynes and the very much alive Paul Krugman - this kind of tinkering with the money supply is anathema, as it is said to result in rash government spending, growing deficits, inflation and enhanced moral hazard. But it's hard to argue against success, and rising stock markets indicate solid signs of success. They lead to optimism, which in turn leads to more retail and wholesale buying, which leads to more production of goods and services and higher employment. Even German Chancellor Angela Merkel, a strict defender of financial restraint, did not criticise the recent monetary loosening, although she has vetoed more aggressive actions by the ECB and the issuance of multi-national sovereign Eurobonds. She regards these steps as temporary band-aids that don't go the root of the problem. Her own solution is much more profound. She wants a radical restructuring of the treaties that bind the Eurozone countries together, compelling each of them to manage their economy in a prudent fashion, with strong sanctions for non-compliance, so that a rogue nation like Greece cannot again run off the rails and endanger the entire zone. Of course, she recognises that these changes will require long and difficult negotiation over several years. Both long-term measures and immediate band-aids are needed to save the multi-nation Eurocurrency. And despite current problems, the Euro has proved an essential tool to encourage cross-border trade and investment. By analogy, the US Dollar is essential for trade throughout the US. Nobody - except the most fanatic libertarians - proposes that the Fed be abolished, and that the State of New York issue its own currency and abandon the greenback. All these current and proposed actions do not arise from the private sector, but are created by the public sector - central banks, national governments and their legislatures, and supra-national bodies such as the ECB, the IMF and the European Community. The private sector is an interested and highly concerned bystander that can give good advice, but does not call the shots. Final decisions are in the hands of political leaders and their public servants - the often reviled 'bureaucrats'. The Eurozone has a lesson for the Bahamas. A considerable proportion of our populace is suspicious of government, believing that nothing good will come from meddling by the public sector. This is understandable, in view of the well-publicised incompetence in several (not all) ministries and public corporations. But the day has passed when we can insist that the role of the state be limited strictly to public safety (police, courts and prisons), road building, schools and national defense - but keep hands off anything to do with economic development. Once government starts spending money for any purpose, issues of economics and finance inevitably arise, with decisions to be made about taxes, budgets, money supply, borrowing, foreign exchange reserves, etc. The answer is not to exclude government from these matters, but to work towards an efficient, free-market oriented Government. Consider Singapore, run by an activist public sector involved in every aspect of national growth, but committed to policies encouraging private enterprise and capitalism. In the coming years our Government, whether led by the FNM, PLP or DNA, must abandon cherished policies that worked in the past but are now out-dated. Our leaders must learn to "think outside the box". They must realise that our nation will never rise from its depressed level as long as our development remains myopically focused on tourism. No country can achieve first-class status while it is primarily devoted to helping people to play, rather than to work. The most dynamic modern countries are now committed to different goals - the exchange and enhancement of intellectual capital through the unprecedented new capacities of computers, information technology and Internet communication. These factors are changing our lives as radically as once did steam, electricity, aircraft and the motor car. But what portion of our population is devoted to them, rather than to serving the tourist? Look at the humid island of Singapore, the often-freezing Boston/Cambridge complex, or congested Oxford University. Each is a dynamic centre, incidentally enjoying a profitable tourist trade, but their success and appeal by no means arise out of tourism. Rather, they have become magnets for ambitious, energetic people who increase their productivity by gathering together for invaluable personal exchanges, under the umbrella of superb educational and cultural facilities. In its own small way, Nassau could become a similar centre. We already enjoy a high degree of basic literacy, certainly capable of improvement. Growing segments of our young people are demonstrating aptitude and interest in technology, and in all the arts - from painting to music to theatre and dance. The new emphasis will require radical change in antiquated policies that continue to stifle us. A few examples: * Defence of our dollar through restrictive exchange controls, rather than opening up to free inward and outward investment * The rejection of income tax as somehow 'un-Bahamian', although it is used by all other modern countries, including our successful competitor, Panama * Protecting bloated over-employment by endless subsidisation of Bahamasair, instead of selling it off to competent private sector Bahamians * Changing the thrust of our immigration policy from keeping the bad guys out to seeking and encouraging the good guys (and girls) to come in, creating a true melting pot that would not submerge our culture but diversify it. Graphically speaking, the hub of our development efforts, and a larger portion of our financial resources, should shift from the Ministry of Tourism to The College of the Bahamas. Already a respected institution, with proper stimulus it can become a full University, acting as the intellectual driver of the country. Its magnificent new Harry Moore Library (initiated by a public-spirited expatriate, which too few Bahamians have a visited), now provides a physical nexus around which satellite centres of learning can be added in many disciplines, from sciences to the humanities. This can lead to new manufacturing and service industries in consumer electronics, communications networks, medical technology, pharmaceuticals and specialty agriculture - all of which can not only increase employment, but raise it to higher levels. Let us dream that one day Nassau will be marketed to the world not as a tourism centre, but as a hard-working, productive intellectual capital, a true modern city which just happens to have good beaches, sea and sunshine. Tourism will continue its ancillary role, both in our capital and in the unique resource of our incomparable Family Islands, which can forever provide a protective "green-belt" when we need to escape the stress of city life and refresh ourselves by contemplating nature.