BVI News

COMMENTARY: Irma, austerity, and strategic planning

By Dickson Igwe, Contributor

Great strategic economic planning, specific to a country’s customs, traditions, and culture is good for everyone: citizens, employees, employers, businessmen and women, investors, and governments.

Post World War II, all developed western democracies and economies have adopted strategic economic planning: which is short, medium, and long-term economic planning.

The proceeding story is an attempt at assessing, in summary, post-World War II western economic history, as an economic planning model, for strategic planning purposes, in a disaster-battered economy such as the Virgin Islands.

The article will assert that all developed economies since 1945 have adopted strategic economic planning as modus Vivendi.

Now a country will not achieve full development, and a productive economy, without strategic economic planning. That is a globally accepted fact of economics.

Economic planning in the western world is driven by the economic elites. These are the brilliant luminaries, scholars, and intellectuals, who inhabit the halls of learning of Ivy League Universities, and various scholarly organizations, trusts, foundations, and institutes.

Many of these thinkers are also famous columnists whose articles drive western economic policy. They sit on the boards of banks and powerful economic organizations that decide the trajectory of the global economy.

And post Irma and Maria, a strong and visionary five to 10-year plan of action is a must if the Virgin Islands are to recover fully, and then take that desirable odyssey to El Dorado: the land of milk and honey.

Developed status is achievable and desirable for these British Overseas Islands. But it will take economic planning over the long term to achieve development, especially after the September 2017 tragedies that struck the Virgin Islands.

Why: because, after a major disaster, it takes economies years to get back to productivity, and economic growth. And if an economy lacks planning, underdevelopment becomes a permanent feature of the economy. That is not something these islands in the sun need. Underdevelopment is synonymous with poverty and social decline.

Traumatized economies take years to heal. After the Second World War, Western economies grew unhindered for 30 years with a small rise in inflation. The Marshall Plan and the after effects of Franklin Delano Roosevelt’s New deal, add post world war reconstruction, was sufficient stimulus for the post-war western economy.

But that is not the norm. After major wars or disasters, economies take decades to bounce back to any type of sustained economic growth. That is why economic stimulus is the answer to shocking an economy back to life.

After a smooth and prolonged period of economic growth post the second world war, there was the massive inflation of the early 1970s that was a rude and unexpected intrusion. This was a beast called Stagflation that was driven by the OPEC Oil Crisis.

This crisis ended eventually, but it was followed by ten years of western economic stagnation, and the failure of the Keynesian Stimulus model, to create the type of prosperity experienced between 1945 and 1970.

However, economic planners believed austerity to be the answer. So sometime after 1980, and in a world economy driven by powerful drivers of the free market idea: namely US President Reagan, and British Prime Minister Margaret Thatcher, deregulation, anti-trade unionism, public spending cuts, and a liberalization of capital flows, led to the birth of globalization.

Globalization and a newer beast called the information revolution, turned the world upside down.

In the 1980s, political and economic power swung decisively away from labour to capital: from the working man on the factory floor, and the comfortable white middle-class family, to the wily entrepreneur and super materialistic investment banker.

Today, as a result of this new global culture of ‘unfettered greed’, 100 families control half of the global wealth and practically control the entire global economy.

Another feature of the new global type economy was that jobs at the pinnacle, or top of the pyramid, became better paid, while the middle and working classes were pummeled. Then at the base of the pyramid, a new class of very poorly paid retail service type worker became the new norm.

This was an imbalance that affects all economies to this day. This imbalance is pervasive and damaging to economic growth in all western democracies. The imbalance is this: wages are growing more slowly than output. Consequently, who is buying the extra output? This is the paradox at the centre of austerity and is creating a deflationary economic environment.

The proceeding story will explain how the credit boom took up the slack in demand, created by austere thinking.

To be continued.

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3 Comments

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  1. Watcher says:

    Action needed, not theories.

  2. E. Leonard says:

    If you fail to plan, you plant to fail. Plan your work and work your plan. If you do not know where you are going, any road will get you there. Well worn cliches aside, planning/strategic planning is a critical organizational issue; it is a road map for both present and future actions; it also helps to avoid past mistakes. Planning is the first item in the planning, organizing, directing, representing, controlling……….etc leading and managing process/cycle.

    Planning is critical in a every functional area, ie, budget, economic, construction, education and training, disaster administration, public safety, land management, medical, environmental preservation and protection, infrastructure…….etc. Lack of planning can be disastrous. Nevertheless, many plans failed due to poor execution; they often make book ends on shelves. Well, now they may reside on some file on a computer or on a thumb drive.

    Planning is a critical road map to approaching a goal and striking a set target. Absent a plan, either a short, medium or long range plan, leaders/managers operate from the seat of their pants, creating the situation where often the target is missed by a country mile.

    Planning takes time and resources and requires buy in from key stakeholders but it is a worthy effort. Hurricanes Irma and Maria thrust the VI into a crisis so effective planning is needed more than ever. It has huge financial needs on the road to recovery and planning will be key to prioritizing and maximizing limited resources. No doubt planning will be critical in rolling out and executing the proposed $721M Recovery Plan.

  3. Economics says:

    In the last article, Igwe discussed the Process of Creative Destruction. In this article he seems to correlate Austerity with the imbalance of wealth. However, if you look at the very richest, Jeff Bezos (D\CEO of Amazon.com) has recently taken the number one spot from Bill Gates, these individuals revolutionized technology which has lead to a great extent to the fall in retail and factory production. This has nothing to due with any governments desire to live within a budget (Austerity)and is exactly Schumpters Process of Creative Destruction in the works.

    I am looking forward to Igwe’s next article where he has alluded to how he will explain how Austere thinking lead to the sub prime mortgage crash. I am confident that some clarification will be needed with that point of view as well.

    Further, I hope he takes a close look at what really has happened in modern times, not post WWII where the US controlled 50% of the World’s economy. Speaking of the US there are 3 great examples to study now the Trouble Asset Relief Program, The Stimulus, The Tax Bill. In Europe, we have other examples as well.

    Most of these programs involve a bit of stimulus and trickle down economics and each have aspects that work and some that have not. If we have an intelligent conversation about these programs, one will see that Government Stimulus can work, but it can also fail. Same with Trick Down or Supply Side theory.

    As this pertains to the BVI in its economic planning, reality will be needed well beyond theory. That reality is that the BVI needs a combination of stimulus and supply side economics in addition to private grants, loans, and investment to emerge. Looking forward to your next article Dickson1

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