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Why Rowley is right

Sunday, October 9, 2016

Kevin Baldeosingh

Let us begin with two premises: (1) that the economy of T&T has the potential to become developed; and (2) that no government has any clue how to do this.

As an illustration, consider the Indian delicacies stretch in Debe. Everyone who eats doubles or saheena knows about Debe, and people actually drive miles down there to get these comestibles. Now contrast this with a grey concrete structure located off the highway on the south-bound lane between Chaguanas and the Chase Village flyover. I was once told that this was built for doubles and other vendors, in an attempt to replicate the Debe strip. On paper, the idea must have seemed viable: a high-traffic location with convenient stopping. And yet, although vendors did occupy two or three of the sheds at the start, the structure is now empty. The Debe stretch, by contrast, should never have become a bustling centre for Indian Trinidadian food: it is out of the way, has no parking, and its products are all available elsewhere. Yet the stretch has been thriving for decades and is now a brand.

This, in a nutshell, is the difference between a free market and a planned economy. In fact, the very term “planned economy” is an oxymoron. This is because, save for subsistence economies, an economy is too complex to be directed by a central authority. This is so even though we now understand much better how economies work than was the case when Adam Smith founded the discipline in 1776 with the publication of Wealth Of Nations. Like the three-body problem in physics, understanding does not necessarily mean control. 

The challenge can be shown by a key mechanism of the market: prices. “Non-market systems have their advantages, but they also lose something important: information, information about wants, needs, and desires, and about inconvenience and costs. Sometimes the loss of information is offset by gains in equality or stability,” writes economist Tim Harford in his book The Undercover Economist.

In such a system, the State sets prices for goods and services. This is doomed to failure. It is why the Soviet Union collapsed, and why Chairman Mao killed between 40 to 60 million people in the Great Famine, and it is why no socialist system has ever succeeded in making any country prosperous. Prices signal needs and wants, and producers respond to these signals according to available resources and skills.

Harford uses this example: “In a market system, prices provide a way of deciding who gets to enjoy a limited supply of schools: whoever pays most gets to send their children to the best schools, an uncomfortable state of affairs, which the government school system is designed to prevent. But the prices also give the signal to build more schools, hire more teachers or raise their wages if they’re in short supply, and buy better materials. In the longer term, a price system will transform a high willingness to pay for good schools into a lot of good schools, just as surely as it will transform a high demand for coffee into a lot of cappuccino.”

It is in this sense that Prime Minister Dr Keith Rowley was correct in noting that dependence on the Government to supply roads and schools and health centres is counter-productive. This is why the most effective governments try to facilitate the market, rather than interfering in it. They do this by reducing bureaucracy for entrepreneurs and firms; by ensuring a level playing field for financial agents; and by staying out of commercial activity. Any interference by a government in the market is sure to have unintended consequences. Those consequences may be either positive or negative, but there is no way to predict which. 

By contrast, if economic and financial decisions are left up to the players in the market, competitive wisdom will more effectively ensure that the right choices are made. And, as Adam Smith noted in his book’s most famous passage, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

There is, however, a crucial caveat to the invisible hand. Smith noted that, “In a tribe of hunters or shepherds, a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison than if he himself went to the field to catch them.” Applying this concept to a modern economy, the assumption is that the average level of skills and knowledge of the population is adequate to take advantage of market opportunities. 

This is a large assumption for a population where even UWI academics believe Animal Farm is an anti-capitalist polemic. And, as long as that deluded ethos holds sway among both our elites and the hoi polloi, economic progress will be that much harder.

Kevin Baldeosingh is a professional writer, author of three novels, and co-author of a history textbook.


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