Economist Wants Less Government in the Economy

Lennox Andrews

Lennox Andrews

Local economist Lennox J. Andrews says there is “too much’’ Government involvement in the Grenada economy, resulting in too many people dependent on the State for jobs.

“There is too much Government in our lives and Government’s role in the economy is not to provide employment for everybody,’’ Andrews said in a Barnacle interview in which he discussed a wide range of economic issues including the meaning of growth, productivity and the Gross Domestic Product (GDP).

Andrews, current General Manager of the Communal Co-operative Credit Union, is a former Permanent Secretary in the Ministry of Finance in St George’s. He also worked as a country economist for Grenada and Montserrat at the St Kitts-based Eastern Caribbean Central Bank (ECCB).

He has suggested that what Grenada needs is for Government to “create the conditions’’ for more self-employment; i.e. getting more Grenadians to work on their own.

“The more people you have working on their own, the more output we’re going to have; the more output we’re going to have, the greater our GDP.  Greater GDP means that our people have produced more for our own consumption, thus creating the conditions for an improvement in our living standards’’ Andrews said.

“Now, what Government can do is that Government can tax those who work on their own and earn additional income which can be used to provide public goods. So, it is always in the interest of a Government to create the conditions for people to work on their own, as against government giving them work.  Expressed differently, government should seek to put people to work rather than give people work.’’

Andrews noted that in Grenada, “about 80% of our factors of production are in the hands of the Private Sector’’, which ought to “take the lead in economic activity, in employment generation and in income and output’’.   Andrews explained that jobs are created by the use of factors of production: land and capital in particular (labor as a factor of production is hired).  And because the majority of these factors are in private hands then it is the private sector that should use them to produce goods and services that are in demand and hence take the lead in the country’s economic development.  In other words the conditions for private sector led growth have been created since the factors of production are in the main owned and controlled by the private sector.

Government role under such conditions is two-fold.  One is to facilitate private sector activity in the economy and the other is to regulate private sector activity to ensure that said activity is always in the interest of the wide population.

Andrews stated that government must be seen as a public good; it should first and foremost produce those goods and services not likely to be produced by the sector, but are still needed by the population.  Public goods are those that you cannot exclude someone from consuming or its consumption does not create rivalry among consumers.   Examples of public goods are roads, street light, law and order.

The economist explained the main reasons why the Private Sector would not produce those goods.  The private sector would not build a road because its use cannot be rationed (say through pricing) so that the cost can be recovered and a profit earned.  But government can build the road and use it to facilitate private sector activity. This can be done by constructing, say a farm road, which allows the farmer easy access to his farm and thus facilitate the production of agricultural products.  Of course the farm is to be build from tax income.

In general, he indicated that “the Private Sector individual would not invest, would not take risks, if he thinks that his investment would not yield a certain kind of return to him.  In other words, private individuals produce in anticipation of a demand and would only use their resources (land and capital) to produce a good or service to satisfy that demand.

Andrews hinted that a major constraint to our economic development and higher levels of GDP is the small size of our domestic market.  According to Andrews Grenada, with a population of just over 100,000, is a small market with low demand.

“We need to have more people.  We need to find a way to increase the number of persons who are living in this country,’’ Andrews emphasized. “Either we make more children or we bring people in to stay here.  In the same way we ask tourists to come and demand what we have, we have to find a way to increase our domestic people residing in this country.’’

Andrews also called for a change in “economic thinking’’, with greater concentration on finding overseas markets for Grenada’s products and services.

“We try to focus too much on the domestic side and limit our production within the narrow frontiers of the domestic economy; that’s making no sense,’’ said Andrews. “The world has billions of people. Why can’t we produce for the external market?’’

Andrews, questioned on the state of the economy and whether there is growth, said the “typical economic indicator and definition for growth revolves around the concept of GDP – the value of the output that is produced within a country in a year”.

“So if our productivity were to increase, there is a likelihood that our physical output is going to increase,’’ said Andrews, adding that another way to assess the health of an economy is by observing the informal sector, which includes itinerant roadside sellers of food and drinks.

“The growth of the informal sector is a sign of a dying economy,’’ Andrews said. “But then the thing about the informal sector is that, there is a positive attached to it. The positive is that, people looking towards themselves as against others to help themselves; people wanting to do something to help themselves.’’  There is an entrepreneurship that is imbedded in the informal sector and that is good for the economy and for the thinking of the people.

In terms of agriculture, said Andrews, “there is a lot of potential for the rural economy.  I mean, our soil is rich.  We can go forward with agriculture in Grenada’’.

However, said the St Andrew-born economist, “we must see agriculture not just for the domestic market first of all, but we must see agriculture for outside as well’’.

 

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