The Tribune

TOUGH CALL

By LARRY SMITH

THE current debate over more and different taxes to pay for an expanding public sector has focused fresh attention on our economy and standard of living. Some prefer a big public sector and a leading role for state corporations. Others want a stronger private sector and a greater role for civil society. The trick is to achieve the right balance.

At a recent Chamber of Commerce seminar, COB lecturer Olivia Saunders said growth requires more tax revenues for government to “expand economic and social structures.” Others say more taxes will allow the government to promise a free lunch without restraining public spending and waste.

Meanwhile, with the support of international agencies, the government is pushing a range of social measures that include expanded NIB benefits, national health insurance, a broad-based consumption tax, and yet more levies for a state pension scheme.

Proponents justify these changes by pointing to the need for a more equitable society, with a better safety net for the poor. Ideologically, this is based on the principle that economic security promotes happiness, and is beneficial for growth and social stability. But poverty is not simply a measure of inequality between those who are well off and those who are less well off.

So what exactly is poverty?

Social scientists point to a much deeper set of deprivations, including extreme vulnerability and social exclusion. Aid organisations say it means people who live on less than one or two dollars a day, which applies to about 20 per cent of the world’s population. Rich countries (in the OECD) define it as those who live on less than half of a country’s median household income.

In 1998, the median income in the Bahamas was just under $29,000 per annum – meaning, by this measure, that those earning under $250 a week are considered poor.

But according to the World Bank, “Poverty is hunger and lack of shelter. Poverty is being sick and not able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job and living one day at a time...poverty is powerlessness and lack of representation.” There are probably not many Bahamians who fall into these dismal categories.

Some argue that Bahamians who think they are poor just need training in how to run their lives. In other words, although there are clearly different levels of income, very few Bahamians are unable to help themselves or to get help if they want to.

The voluntary contributions low-income people make to support the lifestyles of wealthy preachers or to build monumental churches, the lack of productivity, the careless reproduction of unwanted and uncared for children – these behaviours all point to a culture of irresponsibility and self-indulgence.

And even in our current economy, there are already lots of benefits for low income earners. In addition to handouts for the lower middle class like scholarships, mortgages and small business loans that are rarely repaid, there are the National Insurance benefits that are justifiably skewed towards low income earners. Not to mention our massive public health and education systems.

At the most basic level, our social safety net includes food stamps, day-care, routine medical care, school lunches and uniforms, housing subsidies and work relief – all administered by the Department of Social Services. And this does not even take account of the various charities and service organisations whose members contribute so much time and money.

Three years ago, a government study shed light on the living conditions of Bahamian families for the first time; after interviewing some 2000 householders around the country. The level of absolute poverty was defined for the first time in our history.

Surprisingly, the main conclusion drawn was that there was very little real poverty in the Bahamas. And the conditions that contribute to it are relatively easy to address. Poverty in the Bahamas was found to be less than in Barbados (with about the same size economy) and also less than in the United States (with its much larger economy).

To determine this, the study calculated the least amount of money needed to satisfy basic needs – and then looked at consumption patterns to set a national poverty rate of 9.3 per cent (or about 28,000 people – half of which are children).

This so-called “poverty line” is based on spending of $2,863 a year, or $55 a week (now about $3,000 a year with inflation) to buy an adequate low-cost diet with allowances for non-food essentials. About 5 per cent of Bahamian households fall below this threshold.

Almost half of these very poor households are headed by single women, supporting five or more dependents. They rent substandard houses – less than half have piped water and about a third have no proper toilets.

As one would expect, proportionally more poor people live on the sparsely-settled southern islands, where there are few public services and little to do. Many eke out a traditional subsistence living, and there are more children and elderly for each working person.

According to the study, it would take $24 million a year to eliminate poverty in the Bahamas; about what we spend now on the Department of Social Services. That’s because the poverty gap – or average shortfall of a poor person from the poverty line – is only about $81 a year.

But subsidies alone won’t remove the differences in living conditions or other deprivations. The real keys to poverty reduction, the study says, are education and employment. And many analysts think these are better addressed without more government intervention or higher public spending.

Economists say better education will raise the productivity of some unskilled workers and increase the scarcity of the rest, raising incomes in both cases. And this could be combined with tax concessions and subsidies for those on the lowest rung of the ladder. There is much to be said for some innovative thinking in this area.

According to the study, a strong link exists between the level of education and the likelihood of being poor. About half of Bahamians with only an elementary education are poor, compared to less than 2 per cent of those with a college education. And perhaps as a consequence, more than a third of poor household heads are unemployed.

As Olivia Saunders said at the Chamber seminar, “(The) poverty issue shadows unemployment. The unemployment dilemma is structural – the economy is not arranged so as to employ a sufficient quantity of the workforce.”

Our government wastes hundreds of millions of dollars a year on state enterprises that are either complete disasters (like the post office and ZNS) or that could be much more effective and sustainable if they were left to the private sector (like BTC and Bahamasair).

According to Tom Bain, the Bahamian financier who recently tried to buy half of the Bahamas Telecommunications Company (until the government took its marbles home), we are at a critical juncture and need to get it right economically or face serious decline. And economic decline would mean a lot more poor people.

Our Gross Domestic Product (the value of goods and services our economy produces) is about $5 billion and our population is about 300,000, producing a per capita GDP of $16,000. If we want to grow this per capita income, we have two basic choices: either produce more goods and services, or reduce the population.

“If we are to cut costs, drive up productivity, and fight for our market share and economic future, we must unleash our economy, starting with our utilities,” Bain said recently. “Let the business of government be government, and the business of business be business.”

It is easy to see the value of this view. The government already spends more than $235 million a year on social services and public health, education and housing (and has been doing so for decades). How effective is this spending? Are we getting value for money? Is there any real accountability?

Look at education. There are about 50,000 students in 147 public and 47 private schools, but exam results show a serious imbalance between the public and private sectors. More than half of all students in private schools get good BGCSE grades compared to only about a quarter of public school students.

The living conditions study suggests several possible causes for this...teachers, school environment, access to supplies, and readiness to learn of the students themselves. We have to determine which is more potent – and set about making the necessary changes...not simply spending more money reflexively.

As one correspondent I surveyed put it: “Teachers, supplies etc, can make a difference. But the student’s home environment is probably the strongest factor. The school system needs to have parenting classes (including birth control lessons) and citizenship classes to study the constitution.

“If some of it takes root, the next generation has a better chance of having parents who are at least alerted to the issues of raising better (and hopefully fewer) children, who have self-respect. Then teachers could concentrate on teaching skills rather than dealing with behavioural problems.”

In his 2000 book “The Tipping Point”, Washington Post writer Malcolm Gladwell demonstrated that the best way to understand social transformations is to realise that little changes have big effects. And change can happen dramatically if we want it to. Particularly in a small society like ours, starting an epidemic of social change doesn’t necessarily require millions of dollars, legions of consultants or armies of troops. We just need to focus on a few key areas:

“We are actually powerfully influenced by our surroundings, our immediate context, and the personalities of those around us.” Gladwell wrote. “Taking the graffiti off the walls of New York’s subways turned New Yorkers into better citizens….In the end, tipping points are a reaffirmation of the potential for change and the power of intelligent action...With the slightest push – in just the right place – (the world) can be tipped.”

• What do you think? Send comments to larry@tribunemedia.net or visit www.bahamapundit.com.