I have argued time after time that economic policy making is one of the most difficult issues any government has to deal with on a regular basis. This process becomes increasingly more difficult in times of economic slowdown both domestically and externally. The net result is that countries usually search hard and far for solutions that in many cases are inappropriate for their own peculiar circumstances.
Economies worldwide are typical in the sense that they all comprise of several different types of relationships among sectors, industries, consumers, and producers. Hence, for example, activities in the financial sector are likely to have severe implications for output in the real sectors and in turn affect the economy as a whole.
Differences occur across countries particularly because of the dynamic nature of the relationships among economic agents. And that simple fact accounts for the success or failure of common policies. In other words, policies that work in one country may not necessarily succeed in another simply because of differences in existing relationships among the main drivers of economic activity.
Therefore, it came as absolutely no surprise to me when a group of world-renowned macroeconomist gather at an International Monetary Fund conference last month to discuss economic policy issues in the aftermath of the 2007/2008 global financial and economic crisis with the goal of better understanding how the global economy works and was virtually without any real answers to the ongoing economic problems confronting the world economy.
Once again, as economists, we continue to head down the wrong path, believing that when it comes to economic policies that somehow “one size could fit all.” That belief has been tried and tested on so many occasions in the past and each time the outcome is the same: failure.
Consequently, if countries all around the world are to overcome their current financial and economic challenges and put themselves in positions to generate sustained levels of growth and development they have to look inward for solutions. In other words, countries have to determine what types of economic policies have worked for them in the past and whether they can still generate the requisite economic outcomes given present circumstances.
While no country could afford to ignore what is happening in other countries worldwide, the idea of simply adopting policies instituted by foreign governments is a formula for disaster, particularly in cases where the dynamics that exist in one country is very different from those in other countries.
Once again, there are clear implications here for Barbados and other Caribbean countries seeking relief from their present state of economic hardships. The policies we implement must be home grown and consistent with our economic realities. The idea of borrowing policies from other countries because those policies may have been successful elsewhere is to fall into the trap that “one size does in fact fit all.”
If that practice continues, at the end of the experience, it will simply be a case of the more things change, the more they remain the same.
(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)