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Vision and visionaries to steer us through crisis
By Raffique Shah
October 05, 2008
With Ronald Reagan now dead and Margaret Thatcher barely alive, I shall resist the urge to blame this global financial crisis solely on them. In many ways, they cannot be blamed for today's debacle. Some enterprises Thatcher divested should never have been state-owned: a trucking business (National Freight Corporation), 27 railway hotels, carmakers Jaguar and Rolls-Royce. Why would any government engage in such ventures?
But in her zeal to shed government load, she sold off the country's silverware. People may not remember the British Government owned in strategic companies like energy giant BP, Cable & Wireless, British Telecom, British Gas, British Airways, British Steel, and the regional water and electricity distribution companies. What her divestment frenzy did was give many Britons who acquired shares in these companies a false sense of security, of ownership of profit-making enterprises that brought them some gratification by way of share-price increases and dividends. But they soon realised they did not control these companies, especially the really big ones. The majority shareholders who "called the shots" were all corporate fat cats who cared nothing about the small fries.
Deregulation, liberalisation and privatisation fuelled a kind of wild consumerism the world had never known. Like the current Trinidad and Tobago Government, the mantra among those who thought the party would last forever was "have money, will spend". Even the crash of October 1987, in which the Dow Jones fell by 23 per cent in one day, failed to drive home to British and American consumers (in the main) that the spending-party could not last forever.
Banks were no longer the conservative institutions that the middle-classes and the poor had loved to hate. Buoyed by deregulation, they began offering a range of financial services hitherto unknown.
Insurance companies, already profitable from underwriting life, health and corporate insurance, spread their wings so wide, they themselves did not know what their real assets and liabilities were.
AIG, for example, when the recent crash hit them, first asked Washington for US$20 billion as a bailout. That number soon went up to $85 billion. Huh? The world's largest insurer did not know its precise financial position?
Here in the Caribbean we have much to worry about: our biggest worry must be the Government and many financial wizards telling us we have nothing to worry about! All around companies and countries are falling into financial pits-but we must rest easy.
Put our faith in Patrick Manning and Ewart Williams and Karen Nunez-Tesheria. They will see us through this global crisis, manage our funds wisely, keep us insulated from a world ravaged by rising poverty even in developed countries (don't even bother to add poorer states). Well, I have news for the Prime Minister and the genial Central Bank Governor, who, to be fair to him, has sounded some alarm bells within recent times.
Already the housing market has slowed to the proverbial crawl: those who were lucky to get their houses sold at highly inflated prices can count themselves lucky. It's the poor buggers who bought those properties that will suffer if a crash does come. Bank interest rates are climbing, which signal higher monthly payments for million-dollar mortgagees. Inflation is at an unacceptably high level. Consumer spending has slowed considerably, certainly among those who can ill-afford high food prices. This in turn could adversely affect businesses, with small retailers feeling the heat most.
Those of us who were around in the early 1980s when oil prices plummeted, we saw the sad fallout and would not want to go through that experience again. Middle-class people who bought houses they thought were bargains ran into the two-headed monster of higher repayments and lower salaries or even loss of jobs. Many simply abandoned their dream homes. Today, downsizing has begun as corporations seek to trim their staffs to cope with falling profits. People will lose jobs, Mr. Manning. When government's construction frenzy slows down, unemployment will rise even higher. The downward spiral has begun.
It is not that we can't stave off a recession. I am yet to be convinced that oil prices will drop lower than the budgeted US$70 per barrel. The energy guzzlers are shifting from the North to the South, keeping demand at a steady, if not rising, rate. Our downstream products will enjoy healthy markets for many years to come. But drilling for more oil and gas, whichis an imperative, is increasingly expensive.
The Government will have to offer generous incentives to attract further exploration.
Our laid-back approach to food production is what bothers me most. There is much talk but little action. If government diverts 10 per cent of the resources it has put in its chase for a new POS skyline into agriculture, we could increase food production to a level where it dampens inflation. If we join hands in the Caribbean, embrace our brethren in South and Central America where land space is not a problem, then food inflation would subside.
First, however, we must have a vision of where we want to be in 2050 (not 2020), and visionaries to take us there. That is a very tall order in a country where mediocrity thrives.
PT I
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