UWI alumnus President Anthony Carmona and Prime Minister Dr Keith Rowley were among guests when Robert Bermudez was installed as the sixth Chancellor of the University of the West Indies last...
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Budget 2018: Harnessing the wisdom of the crowd
We are in the home stretch for the 2017/18 Budget and much of the discussion and speculation is going to be about which expenses will be cut and what taxes and other fiscal measures are likely to be increased. I have often lamented the short-term nature of our budgeting process and the fact that measures come about annually and are a closely guarded secret until the day of the budget presentation.
I expect that anyone involved in any level of corporate planning—whether it is an industry specialist or someone operating at a C-suite level—would agree with the following statement.
In order to successfully plan and execute on those plans one needs to have a multi-year horizon.
Further, this multi-year horizon needs to be properly and effectively communicated. This is why annual budgets are either part of a three- or five-year forecast. This forecast is then updated as circumstances change.
In T&T successive administrations have perpetuated a myopic approach to governance with the emphasis on an annual budgeting exercise that includes passing reference to medium-term projects without the necessary detail or clarity to allow the public to understand how they will be actioned.
My wish—which I have expressed every year before the national budget—is for this year to be different. I live in hope. For clarity I am not speaking about the Vision 2020 Plan nor the “Medium Term Plan” of the last administration. I am referring to a plan that actually has numbers associated with it, as opposed to a series of glorious thoughts and ideas.
To appreciate how wrong we have been in the past see if you can find a copy of the original Vision 2020 document. There you will find in the first few pages a targeted inflation rate of five per cent on the road to achieving developed country status.
Appreciate that one key role of government and its agency, The Central Bank is that of price stability. Then check the inflation trends in the years subsequent to the release of the Vision 2020 plan and you will appreciate that through this one measure the plan failed before the ink had time to dry.
The lack of price stability has seen the cost of many items increase by 150 per cent over a 15-year period. The cost of owning a home and home ownership, in general, has increased at a faster pace meaning the gap between the owners of capital and those without has grown wider.
As the cost of home ownership and durable items (cars and appliances) increased many had to finance this through higher levels of borrowing which mean that the all inclusive cost taking financing charges into account resulted in a 200 to 300 per cent increase in these items over the period in question.
Appreciate as well that as this happened over the past 15 years, the savings rate would decline and a rapidly aging population would be saving less and less for retirement. The full price to pay for this is yet to come.
The last administration had a Medium Term Plan that spanned three years.
Published in 2011, by the time we got to 2013 those targets were actually blacked out on the document that was available online. A clear admission that they were not achieved or achievable. This plan was supposed to provide the guidance for the preparation of the annual budgets during the time it was in effect. However, it was difficult to find many direct correlations between the Medium Term Plan and the respective budgets.
The repercussions of the past 15 years are now being felt.
The ever increasing use of subsidies and make-work programs masked the true economic impact of our failure to implement and execute plans within the required timelines. As the tide on these subsidies are now coming in, many are left standing close to be proverbial shore with their nakedness exposed. This is creating a backlash in the society and the antagonism towards “the one percent” by “the balance” is evidence of this reality.
Moment of truth
The point to appreciate is that up to now our inability to plan and to execute on those plans have meant that private sector capital will prefer to stand on the sidelines and sit idle as opposed to being deployed in a productive way that helps to meet our economic objectives. Our inability to plan and execute over a multi-year horizon means that every year we are simply seeking to out fires.
In the current environment, that fire is morphing into a raging inferno and there is a real risk it will consume the most valiant attempts at fire fighting.
Bear in mind that since 2009 we have been running budget deficits. This trend is likely to continue into the foreseeable future. Recognise as well that this month marks the 10th year since the start of the global financial crisis so for the past eight years, the world has been in recovery mode.
Statistically you would expect a global economic expansion to lose steam at some point over the next three years and this will have an impact on our economic fortunes. However, by the time we get to that point we may have used up significant buffers that have assisted us to keep going over the past few years.
Recognise that we have not put anything into the Heritage and Stabilisation Fund for five years and that trend is likely to continue to the foreseeable future. The likelihood is that we probably will no longer be able to make any contributions to the heritage part of this fund again. What we have now we will have to make it work for the next generations.
These are our realities.
So, how do we get out of this quagmire.
Both this administration and the one before have spoken extensively about the use of Public Private Partnerships (PPP). It is in my view a valid mechanism if we would use it properly. Sadly, we are nowhere close to doing so.
Firstly, for extensive use of the PPP model to make sense the “private” element of the equation has to have line of sight of government plans and policies and that line of sight must be transparent as opposed to only being accessible to those within a close circle of financiers and friends. This is why multi-year budgeting is so important and forms a clear prerequisite to what we want to achieve.
If there is a line of sight as to projects and timelines and the process is seen to be transparent then the private sector with a two- or three-year horizon in place can begin the process of acquiring resources, training and development in order to bid and then deliver on the requisite projects to the standard required by the public.
We are already behind on this timeline so the tendency is to move towards less transparency and have more directives from the State.
Of course, a key part of this equation is the implementation of the necessary procurement legislations that are required. To date, successive administrations have dragged their feet on this important piece to the PPP puzzle. This is why we continue to have scandal after scandal on the issue of public procurement and which is why the necessary private sector impetus that is required has failed to materialise.
At the very least if we have proper and transparent competition by the private sector to participate in various Government initiatives then that, in itself, will lift the standard of our private sector operations and push the economy to greater heights.
The most important thing for a government facing this type of fiscal challenges is to realise that the more one attempts to micro-manage, the greater the risk of failure.
Key decision makers in the current administration—if they are serious about a collective national effort to move the economy forward—would do well to understand the concept of “The Wisdom of Crowds”.
In fact, there is a book published in 2004 on the same topic, “The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations.”
The “wisdom of crowds” is the basis upon which capital markets of the western world function and, if we truly want to move forward as a country, then we have to provide the enabling mechanisms for this collective wisdom to manifest itself and then lead to concrete action.
Providing clear, definable and implementable multi-year details in the form of a budget presentation that can lead to transparent and determined action by all elements of the private sector is the biggest step that we can take to extricate ourselves from our current predicament.
Ian Narine can be contacted via email at email@example.com