n the ongoing rethinking of approaches to
economic development and poverty reduction,
the role of the state has come under critical
analysis. Accountability, responsiveness to public
concerns, efficiency and development and management
policies are receiving greater attention in situations where
governments are under pressure to deliver higher quality
services and encourage private-sector growth. Additionally,
the role of political systems in encouraging or retarding
growth and development is also influencing public policy.
A widely held view in light of the post-war economic
experience is that natural resources have little to do with
performance and that the difference between rich and poor
countries rests not so much on resource endowment, as
on efficiency and policies. Countries that have invested
heavily in education, health and the use of modern
technology have moved forward at a faster pace than those
that have not.
All societies have their own peculiar features and
institutions, and some states are subjected to greater
challenges than others. The depth of poverty and the extent
of inequality, ethnic and class rivalries, control by special
interest groups, regional disparities and corruption can,
and do exert an influence in the way a government
transacts its business. The way governments function and
the public policies put in place have broad implications
for the society and the economy. Governments not only
define the parameters for the macro-economic environ-2 / Ramesh Ramsaran
ment, but also play an active role in the economy, influencing
key aggregates in the system. Experience has shown
that governments using state institutions and mechanisms
can stimulate growth, but can also wreck an economy and
precipitate social and economic crises when policies are
not carefully thought out. Economic gains easily dissipate
in the face of political chaos. Public finance and social
instability are not unrelated. The tendency for knee-jerk
or ad hoc re-actions, or the adoption of measures to satisfy
populist pressures does not only wreak havoc with tax
systems but can lead to spending with no social value.
Expenditure often drives revenue, and in the absence of
an elastic or buoyant tax structure, governments will
borrow or create money. Improperly managed, both
processes have social costs. Higher debt service payments
pull resources away from other uses. The unwarranted
expansion of the money supply can lead to inflation,
reduction in competitiveness and loss of foreign reserves.
Frequent changes in the exchange rate may not only
discourage saving and lead to capital flight, but increase
the burden of the foreign debt. When government finances
are under pressure the capital programme often suffers
most, leading to a deterioration of the social and economic
infrastructure.
Increasingly, the need for a more serious approach to
fiscal management is being recognized in many countries.
Some governments, however, tend to act only under
duress. Tax systems are often tampered with for political
rather than economic reasons, and already irrational
systems become even more irrational. There are situations
where outdated government structures and institutions
are delivering less and less, while the cost of keeping them
increases steadily. Government savings are low or nonexistent
in most developing countries, not only because of
the inelasticity of the revenue systems, but also because
of the poor returns on expenditure. Spending money Introduction / 3
without undertaking the necessary reforms in institutional
structures and delivery systems does not necessarily result
in a higher quality of service.
Since the attainment of political independence, the
English-speaking Caribbean countries have made progress
in a number of areas. Despite departures from the norm
in certain cases, this has been accomplished within the
framework of political systems based on democratic
principles of governments, which allow for the expression
of the popular will. Total production has tended to fluctuate
over time, but there has been an increase in the standard
of living in the majority of countries (see Table 1). The
economies, however, remain vulnerable and fragile, still
relying on a narrow range of activities for foreign exchange
earnings. Though most of the countries enjoy a per capita
income that is higher than that of a large number of
countries in the developing world, poverty remains a major
issue. In most cases over 20% of the population live below
the poverty line. Unemployment rates remain at
unacceptable levels. Crime has emerged as a major issue
in all the countries of the region, not only impacting on
tourism and investment, but leading to the emigration of
skilled nationals, entrepreneurs and capital. With the
increase in social instability questions are being raised
not only about the efficacy of prevailing economic and social
policies, but of the systems of governance themselves,
which need to be modified in light of experience and
emerging circumstances. Decision-making structures have
become bogged down in archaic rules, regulations and
practice. Many institutions have also become unwieldy and
ineffective, performing poorly and gobbling up greater and
greater resources. Change has been slow and stuttering,
raising questions about the ability of these societies not
only to govern themselves but to survive in a world where
countries are striving for greater efficiency.