Doing it again for the first time

Greece gets a bailout but Portugal is not Greece. Portugal gets a bailout, but Portugal and Greece are not Ireland. Ireland gets a bailout but Greece, Portugal and Ireland are not Spain. Now Spain gets a bailout, but Greece, Portugal, Ireland and Spain are not Italy. Soon, of course, it will be Italy’s turn, then France, either that or the entire Euro system implodes before the slow painful façade of multiple bailouts are exhausted. We are told the United States is not Japan, a country still suffering from a burst property bubble of 20 years ago. We are also told Saudi Arabia is not Syria or Egypt or Lybia. Here at home, we are told in no uncertain manner T&T is not Jamaica. All of these arguments points to the fact that the circumstances of each of these countries as it relates to the others mentioned are different. That reality is beyond dispute: the problems in Spain are different to the problems in Greece, despite the fact that both have now been bailed out by the European authorities. The problems in Japan are different to the problems in the US.  What is not recognised is there are different paths to the same outcome, so while individual circumstances may differ, they can still be the manifestation of a similar underlying problem which, if not properly addressed, leads to the same outcome. In the end, the focus on the different symptoms rather than the similar causes means that whether the issue is economic distress or social and political dysfunction, we end up going through the problems again and again each time for the first time.

 

 

Guessing game

Let’s now play a game. I am going to give you a scenario and you try to figure out which country I am talking about. Which country was in a recent uproar over attempts to collect property taxes? The Government of which country subsequently decided it would no longer seek to collect property taxes? I am thinking of a country where fraud and corruption is endemic, where professionals often fail to disclose and pay their fair share of taxes and where medicines are in short supply in the hospitals. Can you guess which country I am thinking about? How about a country where the legal system is log jammed for years on end and where unions are threatening to go on strike once again? Did you guess that I am talking about Greece or did your mind happen to wander and think, even just for a moment, that it was T&T I was describing? We will find any number of reasons to highlight why T&T is not Greece. For starters, T&T is an A-rated investment grade credit, while Greece credit is rated as “junk”. Yet, it was only a few short years ago that Greece with access to cheap Euro financing was a “nice” place to live and the country was also an A-rated credit at the time.

 

 

Productive performance

A recent poll conducted by Pew Research in Britain, France, Germany, Spain, Italy, Greece, Poland and the Czech Republic asked people in each country to identify the hardest working population from the countries surveyed. Every country chose Germany except Greece, who chose themselves. The truth is that Greece has the longest working hours in all of Europe and is the third highest amongst the 34 countries of the Organisation for Economic Cooperation and Development (OECD) behind South Korea and Chile. For reference, Germany is 33rd out of 34, and the US somewhere in the middle. Appreciate that there is a difference between working hours and productivity. Germany would be close to the top of the list in terms of productivity with Greece near the bottom. Chile and T&T are the two highest rated countries in this region as per the international rating agencies. We know why Chile is up there, but where would T&T be were it not for oil and gas? Even with 20 vacation days and 16 public holidays, we in T&T still work 74 hours a year more than the OECD average based on a standard 40-hour work week. The question is: are we productive with the work that we do? Many factors impact on productivity, not least of which is a system based on meritocracy. If you accept that there is an inverse relationship between a society based on merit and corruption, then the Pew Survey has another interesting finding. Every country in the survey considered Germany to be the least corrupt while Italy was found to be the most corrupt followed by Greece.

Economic measures are the basis for determining whether we are on the right path or not. However, these measures are at a point in time. The softer data, such as those referenced above, suggest we are closer to the likes of Spain, Italy and Greece than to say Germany.

 

 

Illusion of safety

To move to the other end of the scale, there must be a system that rewards productivity. The current administration spoke a lot about T&T’s falling productivity while in Opposition, but what has happened since? The Cepep programme has been expanded and supplemented with other programmes and overall subsidies and transfers have increased rather than decreased. These are not programmes that engineer productivity.  Gasoline is subsidised so people buy cars they cannot afford instead of using public transport. Public transport remains inefficient partly because the lack of consistent demand through the day makes it unprofitable, so this, too, is subsidised. Housing is subsidised in a number of ways.  Either they are provided free, the interest is subsidised or a portion of the interest is tax deductible. Education is also subsidised with free tertiary education. All of these are welcome, but they also contribute to systemic flaws in our economy similar to troubled Europe that are difficult to rectify. There was a time when it was normal and proper for a country to spend less than it collected in taxes. Those days are long gone.  Today, expenditure that matches revenue is referred to as austerity and governments are chastised for not doing enough to stimulate growth. Deficit spending is simply an attempt to bring forward demand. When deficits are combined with subsidises, it is then likely that the demand brought forward is misallocated into non-productive activities. 

 

 

If your population is stagnant or declining, as is the case with much of Europe and in T&T, there will be less people in the future to engineer the productive output to satisfy not just the demand at the time, but to be able to pay for the demand created today that must be paid for tomorrow. With deficit spending, yesterday’s consumption is today’s debt and an inability to pay for yesterday is the story of Europe today. I dare say this is where T&T is headed. We need to recognise we are on a dangerous path and do so quickly. We have become desensitised to the billions and trillions being spent to prop up a lifestyle that because it is financed by unsustainable debts, represent more illusion than reality. To create some perspective, it is good to look at these numbers in the context of nature. When next you read about the trillion dollars in bailout money thrown at this financial crisis, recognise that one trillion barrels of oil will fuel the world for 30 years at current consumption. One trillion seconds is 32,000 years. Those types of numbers are unusual in nature, but it is now common place in finance. On the weekend, the Spanish banking system was bailed out when just days before the Spanish Prime Minister said it was not needed. 

This may well be a precursor to a full bailout of Spain itself. I am confident the markets will go after Italy next. In T&T we carry a false sense of security because we are untested by the global markets in the same way as the troubled European countries. However, a critical appraisal would suggest that our economy is no less dysfunctional than those in Europe. There will be many more economies in trouble going forward. Italy, France, Japan, China and the US all carry different symptoms of similar problems. Each crisis will seem like the first of its kind. Let us wake up to this reality and do what is required so that T&T does not end up on that list.

 

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