Contributing Author Dickson Igwe
The first of three stories on a rapidly and
dangerously changing new world.
The world is certainly not getting any easier as we start the New Year. And Honorable Premier of the Virgin Islands, Dr. Orlando Smith, in his New Year Message, was right in determining that growing the tourism industry and the financial services sector was the way forward for these Antilles. He was also correct in stating that small businesses were integral to a healthy and dynamic Virgin Islands economy. With a growing population, and hundreds of new young graduates coming on to a difficult job market every year, working at building a larger and more dynamic national economy is not an option.
Small businesses in all free societies are the biggest employer of national labour, and critical cogs in the wheels of commerce and industry. And with a strong political intent to grow the tourism and financial services sectors of the economy, small businesses stand to benefit greatly from well engineered economic growth. The local Chamber of Commerce and Virgin Islands businesses should especially view the Premier’s words with the requisite perspective.
However, to grow the economy will take a transformation of the country’s physical and social infrastructure into a multibillion dollar dynamic. It will mean these islands moving towards building a social economy that can manage a multiple increase in visitor and population numbers in the coming years.
And that will mean spending millions of dollars on a robust 21st century national development model, and making the Virgin Islands attractive to global investors. But that also requires legislative changes to protect Virgin Islanders from new external influences such as large numbers of migrant workers arriving to work in a much larger social economy, and ensuring that foreign investment is to the benefit of Native Virgin Islanders. Consequently, whatever the international investment criteria adopted by policymakers, local land ownership must be aggressively protected. It is easy to become enslaved by unregulated foreign capital and end up second class citizens in one’s own country.
OK, before this Pilgrim conducts another rendition of that most boring of subjects called global economics, let him introduce Sun Tzu, the 6th Century Chinese Sage and military strategist, especially for those who may never have heard of this Chinese Philosopher. Sun Tzu’s ideas and mantras are much loved by corporate types, bureaucrats, and planners around the world, and in all fields of endeavour. In his Summa work, the ‘’Art of War’’ Sun Tzu stated that ‘’ the skilful leader subdues the enemy’s troops without any fighting. The highest excellence’’ he declares ‘’ is never having to fight, because the commencement of battle signifies a political failure.’’
In the same vein, and using Sun Tzu’s thinking as an analogy, knowing the enemy in 2012 will help these Antilles better prepare for living with an uncertain global economy and volatile geopolitics that will determine the trajectory of prosperity for these Virgin Islands in the coming years. The enemy, as far as this observer is concerned is not within the territory, although one must never doubt the capacity of human beings to do the most absurd things.
No, the enemy we must know and understand is clearly out there in the ‘big wide world.’ And the ‘big bad wolf’ roaming about hungrily is the unpredictable state of the global economy. The threat from an anemic world economy could prevent this country from achieving its developmental objectives by subduing revenues from tourism and financial services: the life blood of these Antilles.
But things could become even worse if the European Banking Crisis plunges the globe into a second and much more serious recession termed a depression or very long recession as some pundits predict. And, should war break out between the USA and Iran in the Gulf, over the Straits of Hormuz, then all ‘hell could break loose.’ The price of gas at the pumps could double, and that would plunge the global economy into a crisis far worse than ever imagined or predicted.
That would be sad news indeed were this to happen, and would mean even more austerity and hard times for this tiny West Indian country in the South Atlantic. But proactive and wise behavior by the country’s leaders and peoples will minimize the effects of a slowing global economy. Bear in mind that many a so called expert expects a financial crisis in 2012 akin to the 2007-2009 banking collapse, maybe even worse. Let us all pray this does not happen!
On November 26, 2011, an online source, the Economist, put it this way: ‘’ as the euro zone hurtles towards a crash, most people are assuming that in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic, a euro break-up would cause a global bust worse even than the one in 2008-09.’’ Ominously, the writer describes how ‘’ the chances of the euro zone being smashed apart have risen alarmingly; the odds of a safe landing are dwindling fast. Europe’s collapse could take with it the global economy.’’ Bear in mind, the European Union is the largest economic area in the world.
The Economist describes further how ‘’the ever greater fiscal austerity being imposed across Europe, and a collapse in business and consumer confidence,’’ means that ‘’there is little doubt that the euro zone will see a deep recession in 2012.’’ This is not good! One prognosis for Europe by Charles Recknagel, a Senior European Correspondent writing in Eurasia Review determines that ‘’ Europe will likely go one of two ways. It will either continue on its postwar path of ever greater economic and political integration, or fall back towards its traditional past of often quarrelling rival states.’’ Do bear in mind that Europe was the core theatre in two world wars in the 20th Century.
Europe today consists of 17 Euro zone states, and 10 states not part of the currency area: 27 countries in all. Recknagel reminds the reader that ‘’in 1997, long before the euro appeared on European streets, euro skeptic, Martin Feldstein, a leading American economist based at Harvard University, doubted the currency could succeed without a political and fiscal union.’’ An implosion of Europe may be unlikely as Germany appears willing to use its power to create a core of strong economies while leaving the weaker ones at the periphery to go it alone. Another thing: compared with the euro, the US dollar looks increasingly invincible these days: a good thing for a jurisdiction such as this one that uses the dollar as its currency.
The answer to staving off a terrible crisis according to some pundits may be massive debt write offs by banks in Europe, with the European Central Bank guaranteeing the solvency of vulnerable banks by essentially printing money and flooding the banks with liquidity. Banks could then write off this bad debt over a number of years and reflect this in their profit and loss accounts and balance sheets. Exposed US banks would do the same with the Feds guaranteeing US bank survivability. The European Central Bank could also issue bonds similar to US Treasury Bonds that investors could exchange for bad sovereign debt, thereby guaranteeing the continuity of the European financial system.
But all of this would again anger the man on the street who views these banking ‘fact cats’ as having it both ways: behaving recklessly with the money of investors and depositors and then depending on the taxpayer for a bailout. Another thing is that a debt write off could lead to global inflation, but inflation might be a better option than the world falling into a deep recession.
Reuters, on December 30, 2011, revealed how Bruce Bittles, Chief Investment strategist at Robert W Baird and Co in Nashville, determined that ‘’ there is a growing realization that the global economy is in jeopardy,’’ that ‘’ there is uncertainty in every corner of the world.’’ Yes, 2012 may be a very rough year indeed!
To be continued
Dickson Igwe is on Twitter and Facebook
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