Surviving After Shocks

Restructuring of the Barbados economy will be critical to the country’s resilience. Policy reform and technological change will be fundamental in stimulating economic activity for small economies. This is the opinion of Dr. Simon Naitram, President of the Barbados Economics Society, who was participating in a keynote panel discussion at the Central Bank of Barbados’ 40th Annual Review Seminar.

During the session, which was entitled “COVID in the Caribbean: Challenges, Outlook, and Policy Prescriptions”, Naitram didn’t offer specific policies that we should consider, but instead reiterated that technology, specifically learning new approaches to solving problems, will be the engine driving the process of economic growth and development.

Technology alone, however, will not be able to achieve this economic transformation, Naitram argued. He explained  that technology  as  an enabler along with changes in policy and investments will effect the required changes that the region needs.  

Surviving persistent shocks requires business and policy innovation, along with investment in technology

Naitram explained how the COVID -19 crisis has impacted the relationship of supply and demand. The reasons for this are threefold: an almost non-existent demand for travel and exports; closure and restrictions on businesses hindering supply; and the reduction in spending power impacting local demand. Such shocks, he explained, can create permanent loss of economic activity:

“You end up with a lot of these businesses possibly going out of business, what we call ‘exiting the market’. And these business exits or firm failures will cause permanent losses in economic activity. They are not temporary losses because if they exit the market, they don’t reopen when the restrictions are all gone.”

Thus, the dependence of small economies on tourism is counterproductive to survival. Naitram believes the volatile characteristic of the industry, coupled with low wages, makes tourism an unpredictable source even during stable times. In any given year, the variance between the highs and lows of tourist arrivals can be 45 percent, according to his findings.

For him, the solution is clear, greater spillover in the economy will require restructuring of the tourism industry.

“We will always have a competitive advantage in tourism. There is no need to ditch the tourism industry. Instead, we need to think of a tourism that is not tourism at all. We need to think of a tourism that deeply embeds itself in the heart of the society.”

Barbadians need to shift the value-creation processes to Barbados. Rather than “what can I import?”, we need to think “what can I produce?”

Naitram all calls for out-of-the-box thinking in creating new domestic-oriented industries because the old approaches have become ineffective This creative thinking, he believes, is possible with innovation and technology. The opportunities this presents are endless. First, it would lead to the creation of more jobs , and with the advent of robotics, economic diversification is more attainable.

Naitram encourages us to look at industry with new eyes and envision customers that will exercise more choice, demands greater participation in economic activity and seeks meaning over the functionality of products.

In this view, progressing into this new reality will require restructuring of the Barbados economy. Traditional policies, he stressed, are not adequate for large nonlinear shocks created by the COVID-19 pandemic. Now is the time for institutional and structural change. Without this, we revert to measures that will hinder long-run economic growth, Naitram predicted.