Ian Nar­ine

Last week­end (pri­or to the writ­ing of this ar­ti­cle) elec­tions were held in Greece and France with the op­po­si­tion par­ties ex­pect­ed to take the gov­ern­ment. A cou­ple weeks ago, the gov­ern­ment of the Nether­lands re­signed. Egypt, one of the lead­ers of the "Arab Spring" is al­so prepar­ing for elec­tions. In the Unit­ed States, its day is fast ap­proach­ing. Here in T&T, we have the tri­als of coali­tion pol­i­tics to deal with. There is a com­mon thread flow­ing through all these events and that is a break­down in trust. This break­down in trust can broad­ly be seen in terms of vot­er ap­a­thy, but it al­so re­flects spe­cif­ic con­cerns, such as the smooth tran­si­tion of pow­er in Egypt or a shift from one po­lit­i­cal view­point to the oth­er in France and Greece in or­der to make a state­ment against the sta­tus quo. At the end of it all, it comes down to an ex­pec­ta­tions gap and promis­es re­main­ing un­de­liv­ered.

In T&T over the years, we have seen trust be­ing erod­ed across all as­pects of so­ci­ety. The list is long and get­ting longer by the day. The cur­rent po­lit­i­cal land­scape, na­tion­al bud­gets syn­ony­mous with pol­i­cy in­ac­tion, crime, the clash­es be­tween a for­mer chief jus­tice and the po­lit­i­cal di­rec­torate, prob­lems at state boards, is­sues with cor­po­rate gov­er­nance and ac­count­abil­i­ty, lack of reg­u­la­to­ry over­sight and in­ad­e­quate checks and bal­ances, a self-serv­ing trade union move­ment, and I can go on and on, all con­tribute to an ero­sion of trust. We do not have mea­sure­able sta­tis­tics in T&T, but a re­cent poll con­duct­ed in the US shows that con­fi­dence in most in­sti­tu­tions has de­clined over the last decade. I would sug­gest the sit­u­a­tion in T&T is no dif­fer­ent. From the Of­fice of the Pres­i­dent of the US to Con­gress to the Supreme Court Sys­tem, the po­lice ser­vice, banks, or­gan­ised labour, news me­dia, big busi­ness-all have seen a de­cline in peo­ple's con­fi­dence in these in­sti­tu­tions over the past decade. Al­so, as one would ex­pect in try­ing times, con­fi­dence in re­li­gion is up three per cent over the same pe­ri­od.

Trust

Ac­cord­ing to the sur­vey, con­fi­dence in banks have fall­en from 48 per cent ten years ago to a low of 24 per cent. If trust and con­fi­dence go hand in hand, can a bank­ing sys­tem prop­er­ly func­tion where there is a lack of trust? It is my view that this break­down in trust is fa­cil­i­tat­ed by to­day's in­stant com­mu­ni­ca­tion and so­cial me­dia en­vi­ron­ment where noth­ing stays hid­den for long. If pol­i­tics whether on a na­tion­al scale or at the lev­el of in­sti­tu­tions is prac­ticed as the art of ob­fus­ca­tion, so­cial me­dia works to break down the façade and ex­pose any in­ten­tion or ac­tion that is not in the broad­er so­cial in­ter­est. Once this mes­sage gets out, the ex­pec­ta­tions gap re­sults in a breach of trust. The ab­sence of trust in the in­sti­tu­tion­al frame­work that sup­ports West­ern so­ci­ety is be­ing re­flect­ed in the econ­o­my. In the US cor­po­ra­tions are sit­ting on the largest cash hoard in his­to­ry. It is not be­ing de­ployed be­cause there is sim­ply too much un­cer­tain­ty in as­sess­ing out­comes and po­lit­i­cal risk is ram­pant. One way of man­ag­ing risk is to seek in­sur­ance and when trust is lack­ing the trend is to self-in­sure and this in­volves hold­ing on­to cash. This is hap­pen­ing with banks, with cor­po­rates and with in­di­vid­u­als. The irony is that even con­fi­dence in cash is wan­ing as an­oth­er poll in the US sug­gests that Amer­i­can's view gold as the safest long-term as­set with re­al es­tate not far be­hind.

So­cial de­fault

There are many calls in T&T for the Gov­ern­ment to "do things to re­store con­fi­dence in the econ­o­my." It should now be clear that the prob­lem tran­scends most of our in­sti­tu­tions and it should al­so be clear that many of our in­sti­tu­tions are not up to the task. Fi­nal­ly, it is my view that we will re­main in this quag­mire so long as pol­i­tics re­mains a game of "one-up­man­ship" and ob­fus­ca­tion as op­posed to striv­ing for the best pos­si­ble out­come, be­ing ac­count­able and de­liv­er­ing mea­sur­able re­sults to con­stituents, re­gard­less of the con­se­quences. I ar­gue the point that at this junc­ture much of the gov­ern­ments around the world are at some lev­el of de­fault. When one speaks of de­fault at a na­tion­al lev­el, the ob­vi­ous ref­er­ence is to look at the sov­er­eign cred­it to see if the coun­try is pay­ing its debts. In the Caribbean, a num­ber of coun­tries have had to re­struc­ture their debt and this is, of course, a form of de­fault. The same has oc­curred in Greece while Ar­genti­na has seized the as­sets of Rep­sol af­ter hav­ing a cou­ple years ago na­tion­alised its pen­sion sys­tem. These types of sce­nar­ios are like­ly to be­come even more com­mon place go­ing for­ward. The de­fault de­scribed so far are of a con­trac­tu­al na­ture and are easy to recog­nise. How­ev­er, there is an­oth­er lev­el of de­fault that is oc­cur­ring at the so­cial lev­el and this is like­ly to have far-reach­ing con­se­quences. De­fault on the so­cial con­tract oc­curs when the state fails to ho­n­our its promis­es to its cit­i­zens and in the age of aus­ter­i­ty, this is now wide­spread.

When a coun­try such as T&T en­gages in fi­nan­cial re­pres­sion where short-term in­ter­est rates are be­low the lev­el of in­fla­tion, then that is a form of so­cial de­fault. This is be­cause the cur­ren­cy of the state is los­ing val­ue while in the hands of its cit­i­zens and T&T is at least ten years in­to fi­nan­cial re­pres­sion. This is al­so cur­rent­ly the case in the US and much of Eu­rope. Sim­i­lar­ly, when in­ter­est rates are held at low lev­els to the point where there is lit­tle or no re­turn for savers (most­ly in­di­vid­u­als) in or­der to in­cen­tivise cor­po­ra­tions to bor­row, then that is al­so a form of so­cial de­fault. Ho­n­our­ing a con­trac­tu­al fi­nan­cial oblig­a­tion seems like a log­i­cal and prop­er choice for any gov­ern­ment. How­ev­er, when it is be­ing done at the ex­pense of pre­vi­ous promis­es made to cit­i­zens, then it should be clear that a so­cial de­fault has oc­curred in or­der to pre­vent a fi­nan­cial de­fault. The so­cial con­tract is al­so in de­fault when pen­sion oblig­a­tions go un­fund­ed and what was promised can­not be paid. A bit more ob­scure, but still a de­fault is the idea that in­di­vid­u­als must be re­spon­si­ble for their own re­tire­ment in a ze­ro in­ter­est rate en­vi­ron­ment and un­em­ploy­ment amongst the 18 to 35 age group across the US and Eu­rope is at mul­ti-decade highs.

New pop­ulist trends

All these fac­tors are cre­at­ing a so­cial pow­der keg. Since the dawn of the fi­nan­cial cri­sis, there are few po­lit­i­cal in­cum­bents who have man­aged to hold on­to the reigns of pow­er in an elec­tion and, in some in­stances, 30- and 40-year old au­toc­ra­cies have fall­en by the way­side. Giv­en this phe­nom­e­non politi­cians and lead­ers of na­tion­al in­sti­tu­tions are adopt­ing a new pop­ulist trend that growth must take prece­dence over aus­ter­i­ty. If such a no­ble ges­ture were made pure­ly for the ben­e­fit of the cit­i­zen­ry, then one can have no quar­rel. Yet it is quite like­ly that this is seen as the on­ly way to main­tain pow­er in the face of an in­creas­ing­ly dis­il­lu­sioned pub­lic. How will growth be achieved? From bor­row­ing, which places a greater bur­den on fu­ture gen­er­a­tions, from com­pet­i­tive de­val­u­a­tions, which re­duce the cur­rent stan­dard of liv­ing, by in­fla­tion, which rep­re­sents a hid­den tax on sav­ings, as it im­pairs the re­tire­ment nest egg?

Let's be clear, some of these mea­sures may be nec­es­sary in the short term, but they should on­ly be en­act­ed if growth is front-loaded and aus­ter­i­ty is back loaded in­to the equa­tion. In oth­er words, there must be an ir­rev­o­ca­ble and bind­ing pol­i­cy that tran­scends the po­lit­i­cal di­vide so that once growth takes the pres­sure off the de­fault sce­nario, aus­ter­i­ty mea­sures are in­tro­duced to en­sure fis­cal sus­tain­abil­i­ty. Is there a cur­rent op­po­si­tion par­ty or en­ti­ty seek­ing pow­er in the fu­ture that will agree to be­ing con­strained in such a man­ner? If the an­swer is no, then it re­mains a game of ob­fus­ca­tion played by "kick­ing the can down the road." The fi­nan­cial mar­kets will play along, but if 2007/08 is any guide, there will come a time soon when the mar­kets will say enough. At that point we could very well have a mar­ket clear­ing event that is big­ger than any­thing seen so far. Maybe it is time for politi­cians and lead­ers to have some faith and do what is right as op­posed to what is ex­pe­di­ent.

Ian Nar­ine is a bro­ker reg­is­tered with the Se­cu­ri­ties and Ex­change Com­mis­sion.