Since the 2007/2008 global financial and economic recession, countries all around the world – irrespective of how big or small their economies are – have been struggling to return to the growth and development path which they enjoyed prior to the downturn in the international economy.
One of the more crucial challenges all nations face is coming up with the right mix of policies that can potentially reverse the current downward trends in many of their major macro-economic variables.
Equally important is the recognition that countries have to determine what, if any, economic paradigm can be followed to bring about the kind of relief their citizens have been waiting for over several years.
For example, there have been widespread debates over the suitability of Keynesian-style economic measures that suggest deeper government’s involvement in the management of the economy particularly as it relates to increasing spending to boost economic growth and development.
The supporters of this strategy argue that in the absence of booming private sector activities (a phenomenon consistent with economies in recession) the only hope for increased economic activity lies in higher government’s expenditure.
The critics often point to the huge fiscal deficit likely to arise from such higher spending and question how this deficit can be financed and sustained going forward.
Another major issue that has occupied the economic literature is the debate over stimulus versus austerity as the preferred strategic option to respond to the state of depression that currently exists in many countries.
In the United States, for example, the Federal government clearly favours stimulus, consistent with the policy-prescriptions of Keynesian economics.
In Europe, however, many of the ailing economies have attempted to stabilise their situations by turning to austerity measures which essentially dictate massive cuts in expenditure and higher taxes in some cases.
To date, there is no real consensus as to which strategy or paradigm a country should adopt in order to address its financial and economic problems.
That is so because there is little by way of empirical evidence in the United States and Europe in particular to generate any comfort that stimulus or austerity in general provides the foundation for “take off” as far as economic growth and development are concerned.
What this suggests, therefore, is that these countries may very well not have found the correct medicine for their current economic ailments and should consequently seek alternative remedies that are consistent with the characteristics of their respective economies.
Against that backdrop, there are two critical lessons that Barbados and other small, open Caribbean economies should take away from the most recent global recession and the policy options pursued by countries all around the world: First, that when it comes to finding solutions to financial and economic problems, one size does not fit all.
Second, and perhaps more importantly, that unless policy makers understand precisely how their respective economies work, it would be extremely difficult to craft policies that can remedy the problems faced.
If as a people we are able to accept and appreciate these two fundamental issues, then, we would have found the right keys to open the doors to our future financial and economic successes. And that is as simple as it gets!
(Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)