This piece was published in its original form about eight years ago in February 2016. Upon reflection on the contents of this article, it is clear that they remain relevant despite the passage of time. Hence, slight edits have been made to align certain aspects with the realities of the present-day Bahamas.
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. All eyes remain on the crime menace, the cost of living crisis, the healthcare crisis, the absence of transparency and accountability in governance, as well as the hardship faced by our people. 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, the need to address both government revenue and expenditure.
The government has obviously achieved its goal of enhancing revenue via the implementation of VAT and the recent mid-year budget communication proves this. However, the expenditure side of the equation seems to have worsened with the government's insatiable appetite for spending. The middle class remains under the immense pressure of contraction and may soon become extinct. This is not unrelated to the increasing tax burden placed on a segment that is so pivotal to the economic fortunes of any nation. The collective voice of households that belong to this group has become louder as they demand more accountability in the governance of our nation. Besides the obvious revenue increase, what does the government expect to achieve by taxing its people into poverty? Is this the plan to achieve economic prosperity for the masses or create a society dependent on government assistance?
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 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. These principles are clearly not applicable in the Bahamian context.
Self-interest and the big picture
The discourse within our nation on matters of national importance and colossal 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 in the best interest of the country. 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". 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 economy, as human nature is one that favors investments and risk-taking based on perceived returns.
Our wealth as a people
Over the last eight years, the involvement of the citizenry in national discourse has increased and social media has been a great equalizer. This is why the lavish spending and travels of our political leaders on the taxpayers dime has received much backlash. The economic policies of the government will continue to receive much scrutiny by a more enlightened and savvy populace.
In its quest to create a dependent society with a high cost of living, the government should note that incentivizing the private sector 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 thrive within the private sector that causes jobs to be created and the standard of living of Bahamians to improve. Overtaxing the masses is not a viable strategy for economic prosperity, and uncontrolled government spending is a recipe for disaster. Bahamians don't want handouts, our people simply want a fair and equal chance at achieving the Bahamian Dream. That being said, the greatest obstacle to our achievement of wealth lies within us. This stumbling block resides within our psyche and the dreams we have for ourselves. Smith expressed this in his own way when he stated that: "The real tragedy of the poor is the poverty of their aspirations".
Written by: Arinthia S. Komolafe
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