What’s the difference between an accountant and an economist? The answer is: No difference, if the question refers to local practitioners. But seriously, folks, regardless of our habitat, people too often confuse one with the other. What we perceive as accounting may actually be economics, or vice versa. After all, learning to be an accountant entails getting to know about economics.
As a field of study, accounting has existed long before the concept of finance was developed. It is governed by various principles that include relevance, timeliness, reliability, comparability and consistency of information. The key output of accounting is called a financial statement, used to give light to the public on how well a company has performed or about its financial status. Accounting, then, is the medium of communication between businesses.
Economics, on the other hand, is a science that deals with the issue of scarcity. Its basic premise is that everybody concerned must employ certain means to counter the very limited resources available. Economics centers on the study of production, distribution and consumption of goods.
The concept of economics also seeks to understand how certain economies operate and how economic variables interact with each other. Its two major subdivisions are macroeconomics and microeconomics. The first is about the economy in general, a country’s wealth, unemployment and so on. The second is concerned with smaller, more specific things such as how families and households spend their money.
There are several branches of economics: behavior, constitutional, development, labor, urban and so on. Although related, accounting and economics differ in the following aspects: the first utilizes certain principles to support its actions, while the other makes use of assumptions that will tend to make certain situations simpler. Small wonder that many experts regard some of the more popular economic concepts as “too unrealistic and unverifiable.”
In recent times local politicians have abandoned the 80s god of economics Allan Greenspan, once courted by both Democrats and Republicans alike. Three years after he stepped down as chairman of the U.S. Federal Reserve, Greenspan admitted before a Congressional hearing that he had put too much faith in the self-correcting power of free markets and had “failed to anticipate the self-destructive power of wanton mortgage lending.”
According to the Times of March 28, this is what the then 82-year-old Greenspan told the House Committee on Oversight and Government Reform: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” In one of the harshest grillings of his life, the paper observed, Democrats had asked the humbled Greenspan time and time again “whether he had been wrong, why he had been wrong—and whether he was sorry.”
Representative Henry A. Waxman of California, chairman of the committee, went for the jugular: “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
“Yes,” Greenspan conceded, “I’ve found a flaw. I don’t know how significant or permanent it is, but I’ve been distressed by that fact.” However, he stopped short of taking blame for the rising home foreclosures and slumping unemployment. He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of ongoing crisis.
As far as 1994, observed the Times, Mr Greenspan had “staunchly and successfully opposed tougher regulation on derivatives.” He agreed that the multi-trillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, “needed to be restrained.”
I offer the above to disprove the popular belief in these parts that economists are close to infallible, especially when the principles they espouse appear to coincide with our own. As I say, having famously helped to put the U.S. economy en rouge, Allan Greenspan is no longer en vogue. At first sight of an opportunity to show off, the common practice these days is for local politicians to invoke Paul Krugman, who won the Nobel in 2008 for his work on international trade and economic geography. Krugman philosophy insists that in periods of high unemployment austerity policies are counter-productive because deficit cutting reduces GDP, and that short-term stimulus is necessary to deal with deficits in the long-term.
The local attachment to the Princeton University professor has everything to do with his austerity-averse prescriptions that appear to justify the endless mindless borrowing and spending for which our politicians are especially notorious. But even if Krugman’s assumptions make sense for Greece and Spain and France, does that mean they would be automatically efficacious to the economic problems of Saint Lucia where for most citizens austerity—which is to say an existence without comforts or luxuries—is the way of life and borrowing to pay the interest on loans the sole means of survival?
It is a question that neither our abruptly oracular (not to say omniscient), politicians, elected and selected, nor the accountants who at Budget time cockily pass themselves off as economists are ready to entertain. Certainly there is precious little in the panaceas proffered by Paul Krugman or the economic historian and business professor Niall Ferguson or Alberto Alesina, a former chairman of the Department of Economics at Harvard, that is obviously relevant to Saint Lucia. The cited renowned economists talk about interest rates, private sector inspiration, international trade, capacity utilization, austerity policies and their worldwide audience knows precisely what they mean. But what about when such terms are spoken in the local context, where a person can have “too much pride” and “self-confidence” is indiscernible from palpable arrogance, and to talk about “human rights” is to risk being labeled an endorser of egregious criminality?
Our local experts talk . . . well, talk about what? They talk about better days ahead; ever “successful,” never profitable jazz festivals with unreliable programs featuring now-they’re-coming, now-they’re-not passé American performers incapable of drawing flies. They talk about government money as if from a limitless source, and about the need for larger subsidies for carnivals that profit Trinidad a whole lot more than they do us. And races featuring mega yachts from everywhere else but home. Oh, and something called “the creative arts industry.”
As if their whole raison d’etre was to confuse their audiences, our experts talk in the argot of medicine men, by which I mean, they talk of economic recovery based on miracles: of dead industries soon to be resurrected; of obviously unsustainable government programs with cutie-pie names like NICE and LEAP and YUP . . . well, you get my point, all either debt-financed or to be paid for with revenue hopefully extracted from one of the world’s lowest tax bases.
Undeniably, our survival has always depended on the kindness of strangers—a source of revenue not considered by any of the several branches of economics I’ve researched for this piece. Yes, the kindness of strangers. Feel free to call it what you like: grants, aid, “dirty” Taiwanese money.
But please also consider this reality: we have no reliable means of transportation from the very countries our tourist industry has traditionally depended on, countries now barely able to sustain themselves without increasingly contentious bail-outs. Neither can we guarantee the safety of those who make it here thanks to subsidized flights and our discounted hotel rates. We are among the most expensive tourist destinations, with relatively little to offer fun seekers below the age of geriatric. What little temptation there might be to purchase the not-made-in-Saint Lucia trinkets at our one-item vendor arcades, quickly dissipates upon the salesperson’s grumpy announcement of the price.
But don’t take my word for it when it comes to tourism. Trust instead the president of the St Lucia Hotels and Tourism Association as she addresses their 48th AGM: “Prognostications predicated on small island developing states and an unwillingness to truly collaborate in the implementation of
solutions leave us ill-prepared to deal with surmounting challenges. The cosmetic growth in visitor arrivals, the seasonal buzz in business activity and general misconceptions of global economic recovery are misleading many to think we are out of the woods. This could not be further from the truth . . .”
What, then, to make of the prime minister’s bold prediction that our barely breathing tourism industry will return “to buoyancy in a year or two?” He is equally confident that a soon-to-occur construction boom will deliver his election promise of jobs, job, jobs. If he neglected to reveal how the imminent resurrection of tourism will come to pass despite the worsening world economy, he certainly explained why he is counting on already debt-overburdened citizens rushing to negotiate with the Saint Lucia Development Bank for housing loans: drastically reduced interest rates.
Of course, near-zero interest rates in the U.S. had not resulted in a construction boom. And while Cricket World Cup may have delivered a fair number of construction jobs, the figure never rose to what regular people might consider a building boom. Many people profited the opportunity, it is true, to expand and refurbish their existing premises, in the hope of turn them into temporary shelter for the envisaged untold thousands of cricket lovers who would converge on Saint Lucia. Alas, the particular dream had died on the vine. As, I fear, will the prime minister’s housing fantasy.
So, putting aside the fantasies of local voodoo economists, why have we abandoned the lessons of native son Sir Arthur Lewis who, like Paul Krugman, won a Nobel for economics, albeit the branch most relevant to our condition: development economics? But first a definition: “A branch of economics which deals with economic aspects of the development process in low-income countries. Its focus is not only on methods of promoting economic
growth and structural
change but also on improving the potential for the mass of the population, for example, through health and education and workplace conditions, whether through public or private channels.”
Sir Arthur famously advised countries such as Saint Lucia to invite foreign investors to take advantage of attractive incentives put in place by the government, among them 15-year tax holidays. In the meantime, and this is important to remember, we were supposed to educate our citizens and afford them the skills that one day would “place them at the commanding heights of our economy,” to quote the day’s political heroes.
Sir Arthur envisioned locally-owned-and-operated hotels that fed off local agriculture. He imagined factories for canning our surplus fruit and fish, to say nothing of a private sector dominated by native Saint Lucians. Alas, for the most part we attracted to our shores what John Compton described in his time as “footloose, fly-by-night industries” that soon took flight to more conducive zones where the labor was far cheaper, with next to no union interference and the number of bank holidays could be counted on the fingers of one hand.
Little has changed since Sir Arthur’s time of writing, at any rate, for the better. We are as ever dependent on others for employment and our food—even as the escalating price of doing business here ranks among the world’s highest, whether in relation to wages or electricity or imported supplies for our manufacturing sector. Our public service remains the nation’s premier employer, swallowing up almost half of government revenue,
with our alleged best brains receiving every encouragement to
desert the so-called
“engine of growth” in
favor of more secure, less demanding desk jobs in the public sector.
As in the time of the failed Federation that inspired Sir Arthur’s The Agony of the Eight, our self-centered politicians continue to pander to whatever might get them elected and reelected, regardless of how counterproductive to our national aspirations. All manner of unsustainable promises are made in the name of “the more vulnerable among us,” the cost to be paid by the presumed less vulnerable—as if indeed the national ambition were that all citizens be rendered equally vulnerable. With the people’s tacit endorsement, our nation is fast turning into a welfare state without resources but with a debt-GDP ratio of around 70 percent, and this close to the abyss.
“Speaking from an economic historian’s point of view, we’re kind of at a crossroads,” said Niall Fergusson referencing America’s current economic climate. “We could get it right, they [China] could get it wrong. Of course it could go the other way. They could keep on getting it right and we wrong. It’s not a certainty that the United States is down and out. But right now or biggest obstacle is not economic. It is political. If only in Washington they were prepared to think radically about fiscal reform, entitlement reform, tax reform, I think the United States could do what it did in the 1980s and bounce back after a decade of underperformance.”
Alas, it evidence suggest our own “biggest obstacle” to growth is both economic and political. If only our nation’s alleged best brains would take the trouble to re-examine and update where necessary the economic principles advocated half a century ago by our first Nobel winner. Alas a long time ago we lost our appetite for things local, including food and native talent. And that, I fear, may explain our current love affair with an economic geography specialist who quite likely never heard of Saint Lucia, despite his reportedly expressed reverence for fellow Nobel winner Arthur Lewis.
I am at this point reminded of the following from a recent article in this newspaper, submitted by a regular contributor to our columns: “We wake up each morning in our made-in-India pajamas, tune in our favorite foreign-news program while eating our milk and cereal from the United States, take a shower with soap manufactured in
England, drive to work
in our gas-guzzling Japanese SUVs that roll on made-in-Malaysia tires, to earn the money to pay for our
imported lifestyle” that
some have described as “a recipe for disaster”—as if indeed the curse were not already upon us!
Putting aside the fantasies of local voodoo economists, why have we abandoned the lessons of native son
Sir Arthur Lewis who, like Paul Krugman, won a Nobel for economics, albeit the branch most relevant to our condition: development economics?