There is much to say about the economic future of our country and our path to economic independence as a people. We are at a crossroads on our national voyage with challenges confronting us left, right and center to use Bahamian vernacular. It is clear that all eyes remain on the crime menace, the outcome of the Baha Mar saga, the proposed National Health Insurance scheme, the promised gender equality referendum, the unemployment challenges particularly among our youth and the sluggish economic growth.
In the midst of all these challenges, it seems fair to state that there is increasing anxiety among the populace about the state of the economy and the impact of government policies on economic growth and development. In assessing our current position and charting our course for the coming days, it is imperative that we go back to the basics. This leads us to a man called Adam Smith who is no stranger to economists, students of economics and individuals with an interest in the field of economics. This piece considers some of Smith's views and their application to our nation.
The Wealth of Nations
Smith is often referred to as the father of modern economics and a symbol of free market capitalism. It is not surprising that one of his works - An Inquiry Into the Nature and Causes of the Wealth of Nations, which is often shortened as The Wealth of Nations - is one of the most widely read or referenced documents in history and is viewed as a must read for any economist.
Indeed so profound was this masterpiece that Alan Greenspan described it as "one of the great achievements in human intellectual history". In this writer's readings and research it was also interesting to come across assertions that former UK Prime Minister - the late Baroness Margaret Thatcher - used to carry a copy of the book in her handbag. This speaks to the extent to which many regarded and still regard this piece of work by a pioneer of classical free market theory.
Fiscal policy in The Bahamas
In the lead up to the introduction and implementation of Value Added Tax (VAT) in The Bahamas, there was much discussion about the need for fiscal reform. It appeared that both the government and the private sector were on one accord on the need for not just tax reform but rather comprehensive fiscal reform. In essence, we ought to address both government revenue and expenditure in order to reverse the economic fortunes of The Bahamas.
It is obvious to all that the government has achieved its goal of enhancing revenue via the implementation of VAT. However, the verdict on the expenditure side of the equation is still up for debate and is a topic for another article. There has been much lamentation globally on the predicament of the middle class which appears to be under immense pressure and is facing contraction daily. This is not unrelated to the increasing tax burden placed on a sector that is so pivotal to the economic fortunes of any nation. This has led to an increase in the volume of the voices of households that belong to this group and a demand for more accountability in the governance of nations.
The Bahamas has not been exempt from this global trend. The question arises as to what we expect to achieve by levying more taxes and how the increased revenue is being spent or allocated by the government. It is fair to state that the current government is the most scrutinized administration in recent memory and this scrutiny can only intensify in the years ahead.
Taxation and the wealth of nations
The conversation on taxes and government spending leads us back to The Wealth of Nations and the four maxims highlighted by Smith in relation to taxes. The maxims address the need for subjects of every state to contribute support to the government based on their abilities; the importance of certainty in relation to the time and manner of payment as well as the amount payable; the necessity of convenience to the taxpayer in remitting payment and the adoption of a philosophy that takes out or keeps out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.
The thrust of Smith's proposition on taxes is tied to the traditional role of governments in societies and the allocation of taxes received from the people. Fundamentally, revenues derived from taxing people should be used to promote justice and public institutions that could otherwise not be provided for by the private sector to the benefit of society as a whole.
Taxes should be used to fund national security, roads, subsidies for education, health and other necessities for those unable to afford them and regulatory agencies. Smith argued that it is the role of government to provide goods and services "of such a nature that the profit could never repay the expense to any individual". On the other hand, the tax system should be progressive although the tax burden should be proportionate based upon earnings and economic status.
Self-interest and the big picture
The discourse within our nation on matters of national importance and colossal significance is sometimes steered towards demonizing the private sector and entrepreneurship. While the tone of these debates is either intentionally or unintentionally orchestrated to achieve political objectives, we must be careful not to promote an unsustainable economic model. It is simply untenable to attempt to build a country in which the government is the main employer and is responsible for the livelihood of the vast majority of the citizenry.
That being said, the government ought to effectively fulfill its role in enacting comprehensive legislation and properly regulate businesses that operate within this jurisdiction in the best interest of the country as well as the people within our borders. This is important when we consider the instructive quote attributed to Smith: "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest". However, inherent in this quote is the notion that in looking out for their own interests, individuals, entrepreneurs and corporate enterprises inadvertently spur much needed economic activity which achieves the optimum outcome for all. In essence, the desire to maximize profits has the effect of creating employment, encouraging innovation and creativity, producing goods and services, meeting the needs of consumers, contributing to government revenue via fees and taxes and leading to the circulation of funds within the economy. The nation benefits ultimately from the pursuit of self-interest in an environment in which special interests abound as human nature is one that favors investments and risk taking based on perceived returns.
Our wealth as a people
The calls for more involvement of the populace in decisions that will impact this and future generations should not be ignored. In particular, the economic policies of the government will continue to receive much analysis by a more enlightened and savvy populace. The expectation is that governments will be able to strike the right balance between fulfilling its traditional roles and promoting growth in economy led by the private sector with focus on encouraging entrepreneurship especially within the SME sector.
The government should note that incentivizing the private sector (with emphasis on local investment) brings about much needed competition and serves as a catalyst for innovation. This in return leads to economic prosperity and by extension economic growth and development. It is the creation of an environment in which commerce and industry thrives within the private sector that causes jobs to be created and the standard of living of the citizenry to improve. However, the greatest obstacle to our achievement of wealth rather than riches in The Bahamas lies within us. This stumbling resides within our psyche and the dreams we have for ourselves and our Bahamaland. Smith expressed this in his own way when he stated that: "The real tragedy of the poor is the poverty of their aspirations".
o Arinthia S. Komolafe is an attorney-at-law. Comments on this article can be directed to a.s.komolafe510@gmail.com.
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