By Gordon Barlow

How peaceful it is, driving through George Town when there are no cruise liners in port. Not good for public revenue, but very peaceful.

At last report, public revenue is expected to be $130 million lower than budget this fiscal year. How useless an annual budget exercise can be in volatile economic conditions, if there is no provision for interim adjustments. If the Financial Secretary wants to keep on top of things, he’d better start reviewing his projections every three months or so while the present recession lasts.

All public revenue derives from three sets of contributors: local residents, visitors, and offshore clients. When all three sets fall off at the same time, revenue declines.

Borrowing money is only a temporary solution to a cash shortage, because loan repayments delay economic recovery. Raising import duty might defer cuts in public expenditure – but only by transferring the pain from government to individual local taxpayers. So would imposing new taxes. Any new or increased taxes or borrowings would be dangerous and stupid at this time.

(A few months ago I devoted a column to rubbishing the idea of an income tax. Some silly woman didn’t read past the headline and publicly accused me of favouring it. Sigh.)

There is no sensible alternative to cutting public expenditure. Cuts will have to be large, and long-term. Politicians and senior bureaucrats must take the matter seriously. They must turn their backs on extravagance, waste and personal vanity. We have had it up to here with “the politics of vanity” during the last four years. If there is pain to be borne in this recession, let it be shared by all.

For instance: first class junkets to beauty contests and sporting events are extravagant, wasteful and vain, and come across as arrogant in the extreme. “Do as we say, not as we do”? No, thank you.


Blood on the carpet

A proposal announced recently was the creation of a “bricks and mortar” offshore financial industry, to be situated onshore (as it were) in Cayman. All major offshore companies would be required to invest in actual fully staffed offices, instead of fifty cents’ worth of Dymotape on an outside notice-board.

This huge project might eventually bump the population of Cayman to 80-100,000 people. Wow. Many of the newcomers – perhaps most – would be prospective voters. As our first line of defence against all future attacks from high-tax nations on our economic integrity, they would be too valuable for us to treat like serfs. They would, of course, also be taxpayers from Day One.

So the proposal would require a radical change in the official attitude towards transient workers, and immigrants in general. The indentured-labour system would have to go. There may be blood on the carpet when that happens, but the alternative might be significant economic regression.

Another proposal for balancing government’s books – i.e. another alternative to cutting civil servants’ wages – is a reduction of the scope of government. Roll back the inexorable expansion that we could barely afford during the boom years. Abandon the whole idea of Big Government. Shrink it by withdrawing from all non-essential state enterprises.

Let’s go back to basics and review the notional purpose of government. It (government) was never intended to be a vehicle for politicians’ vanity projects or bureaucratic empire-building. The original purpose was simply to protect the welfare of the general public, while allowing private businesses to do what they do best – provide goods and services at prices the public will pay.

Civil servants are not supposed to be paid to manage businesses. They’re not trained for it, and not temperamentally suited to it. If they were, they wouldn’t be in the civil service. This explains why all state-run ventures are unprofitable.


Core government

Privatisation – selling off government’s for-profit ventures – will be an essential part of cutting public expenditure. If that is not done, it will be because our rulers aren’t serious about balancing their budget. Unless they start talking about privatisation pretty soon, we will surely come to doubt their commitment to the cause.

Somewhere, sometime, staff layoffs will have to happen. Private entrepreneurs may be glad to buy some of the state’s unprofitable operations – but probably not right now, in the middle of what could be a long recession.

Since there is no money in the kitty for unemployment benefits, all displaced Caymanian citizens (native or immigrant, without distinction) must be found jobs elsewhere in government. Permanent residents working for government (directly or indirectly) will have to make do as best they can. So will transients; they may well have to roll themselves over. I’m sorry, but this is an emergency.

Government must be shrunk to its essential core; when it is, its staff should be overwhelmingly Caymanian. Ideally, the private sector workforce will be much as it is now. In this emergency, private businesses must be allowed to choose the most efficient employees they can find, wherever they can find them.

Forcing private businesses to replace productive workers with less productive ones would hold back Cayman’s ability to rebound economically. The private sector needs to be much more free enterprise than it is now, and much less handicapped by protectionism.

Protectionism doesn’t matter so much in government, because productivity and profits are not essential factors in the provision of government services. That’s not said unkindly. It’s just a fact of life; and a crisis like this is not the time to be ignoring facts of life.