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COMMENTARY: The Austerity Club

By Dickson Igwe, BVI News Contributor

The floods and hurricanes of September 2017 were the worst disaster to visit the Virgin Islands since the 1800s. September 2017 was a crossroads for the Virgin Islands – an inflection point, and a time of great change.

The country and its residents together, must decide the way ahead. The proceeding story discusses the economics of Hurricanes Irma and Maria.

A visionary macroeconomic policy linked to a long term development plan will deliver prosperity to the Virgin Islands in due course.

And there can be no question that small, medium, and large businesses are critical to bringing the British Virgin Islands back to normality after the natural disasters of September 2017.

Private enterprise is vital to the Virgin Islands disaster recovery effort.

The primacy of private enterprise in the affairs of counties has been governed by austere economic theory.

From when President Ronald Reagan and Prime Minister Margret Thatcher ruled the roost in the early 1980s, the idea of liberal economics – laissez faire – has driven globalisation, and created a world in which 100 families control global wealth.

The Grocers Daughter and the Actor with Old World Charm were the protagonists of unfettered free trade – also called austerity and trickle-town after the era of Keynes ended at the end of the 1970s.

But, can austere economic policy – the belief that free trade and small government are omnipotent – rescue the Virgin Islands economy from long term economic contraction, a clear and present danger of Hurricanes Irma and Maria?

It is clear that a long recession in the territory will become reality, if disaster recovery fails to generate economic recovery.

Now, austerity is the pole opposite of stimulus. However, both economic doctrines contain useful ideas, even solutions, for these Virgin Islands.

Austerity allows for an economy to self correct. Austerity and laissez faire are synonyms. Free trade is the panacea that fixes every economy. For the austere economist, the businessman is king.

Austerity inhabits a cycle. This cycle is an invisible world that takes a country from economic contraction to economic expansion, and then back to slower growth, stagnation, and eventual decline. The cycle repeats itself into perpetuity. Economic history has proven that the economic cycle exists. It has been a consistent factor in western economics.

And clearly, post the September 2017 natural disasters, the Virgin Islands economy is in a state of contraction. The Virgin Islands economy has been placed at the very start of the cycle – a low point, from which growth must start. But the economy could also get worse. No one wants that.

Now, under the Austere Economic Model, economic growth is driven by private enterprise. The businessman is the key to any disaster recovery, post-Hurricane Irma. Business growth and business confidence are the critical components for economic growth. Business confidence precedes consumer confidence.

With the Austere economic model, the consumer – also known as the customer – is secondary. Nonetheless, consumer demand remains critical for economic growth.

However, consumer demand is decided by what Jack the Industrialist and Jill the retailer are capable of putting on the breakfast table. The businessman is at the top of the food chain. Economic growth depends on what the businessman decides to sell to Tom the customer.

Consequently, for the economist, who still holds to the belief that free trade is omnipotent, and the most critical idea in scarce resource management, adopting political and economic policies that allow the entrepreneur and businessman to maximise his profits, is the way to go in the Virgin Islands, Post Hurricane Irma.

To be continued

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2 Comments

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  1. E. Leonard says:

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    It is often stated that 2017 hurricane season was the worst since the 1800s, ie, Hurricane Irma was the strongest Atlantic hurricane in recorded history. But what hurricanes or gales (as they were called) occurred in the 1800s? My research shows (Wikipedia): 1852, unnamed, Cat 1; 1866, Cat 1, Great Bahamas Hurricane; Hurricane San Narciso, Cat 3, in 1867; damaged RMS Rhône resulting in scores of lost lives (some of deceased buried on Salt Island); Hurricane Santa Juana, Cat 2, 1871; San Felipe, Cat 3, 1876; unamed hurricane, Cat 2, 1894; San Martin, Cat 2, 1889; and unamed hurricane, Cat 2, 1899. No Cat 4 or Cat 5 listed.

    Moreover, left alone a down economy will cycle through the business cycle back to full employmen—laissez faire (Classical View). But that takes much too long. As such, in my view and in a down economy, government action is needed to prime the economic pump. Particularly, government usually increase spending and reduce taxes, fees…..etc—Keynesian View. This approach may require government borrowing to invest in the economic recovery.

    Hurricanes Irma and Maria ravaged the BVI, causing extensive damages, requiring approx $3.6B in recovery cost and thrusting the economy into the trough of the business cycle; economy is in the contraction phase as Dickson stated.Consequently, the BVI needs to use its strengths to work through weaknesses and threats to take advantages of the opportunities presented. This opportunity is among the silver lining from the battering of Hurricane Irma; the primary silver lining is that Hurricane Irma came ashore in the day time. Luckily only 4 people lost their lives incident to Hurricane Irma; the conventional wisdom is that probably more lives would have been lost if it had made landfall at night.

    Nonetheless, Rahm Emanuel, current Mayor of Chicago and former President Obama Chief of Staff, is credited with saying “you never want a serious crisis go to waste” or something like that. No doubt, the BVI needs to borrow a heap of money to rebuild. Nevertheless, the BVI needs strategic, tactical and action plans on how it is going to invest the money for the long term. Residents need positive outcomes, as well as positive return on their investment.

  2. Jerry says:

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    The folks above know far more about this than I do, but I would like to offer a few thoughts on my home away from home, a place I dearly love. I am from the US and have spent a little over a month each year in Tortola for the last 10-12 years.
    The positives for the island are its incredible beauty, its spectacular weather, its friendly people, its low crime rate, and the fact that it has not been built up with high ugly buildings. Whoever allows building permits has done a good job of not allowing the island to be ruined by overcrowding and oversized hotels. Whoever maintains order should be commended – many of the Caribbean Islands are not safe. I always feel safe in Tortola. And for the people of Tortola, I am thankful that you are so kind to outsiders who may do many things that drive you nuts. On a number of occasions, I have gone to a local church on Sunday and was the only white guy in attendance. The pastor and congregation could not have been more welcoming. I am grateful to the people of Tortola.
    I think immigration should consider lifting the 30 day sanction on tourists or make it easier to reup status so one can stay longer. If a tourist is spending $300-$500 a day, this can only help the economy. If folks like myself were to stay an extra two weeks or an extra month, this might be a boost to your beautiful island.
    As an outsider, my suggestions would be:
    improve infrastructure, such as roads, electricity, and cell and internet access, and continue to work on making it easier to get to the island by way of a regular ferry schedule (this has improved over the years but could improve) and by improving the airport so direct flights could come in from major hubs.
    These are no great revelations.
    In the short term, it would be helpful to find out about the progress in getting folks back their electricity and if potable water is a problem on the island. There are many of us who want to come back this year but are unsure of current conditions.
    Getting your faithful tourists back would be a good start to getting the economy on solid footing.
    (As a final aside, everyone I know who comes regularly to Tortola as a tourist has made a donation to hurricane relief. Our thoughts, contributions, and prayers are with you)

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