An­tho­ny Wil­son

Three things hap­pened on Mon­day that read­ers of the Busi­ness Guardian ought to take note of: Mar­garet Thatch­er died and, as ex­pect­ed, there has been an out­pour­ing of analy­sis of her con­tri­bu­tion to the Unit­ed King­dom; the Gov­ern­ment signed a project de­vel­op­ment agree­ment with a con­sor­tium led by two Japan­ese com­pa­nies and in­clud­ing lo­cal con­glom­er­ate Neal & Massy and there was an in­ter­est­ing in­ter­view with Co­lum­bia Uni­ver­si­ty Pro­fes­sor of Eco­nom­ics, Joseph Stiglitz on Bloomberg's Sur­veil­lance pro­gramme that part­ly ad­dressed the is­sue of in­come in­equal­i­ty in the US.

With­out a doubt, in the on­go­ing and eter­nal de­bate over ap­pro­pri­ate eco­nom­ic poli­cies, one of Thatch­er's most im­por­tant lega­cies was her pro­mul­ga­tion of the con­cept of pri­va­ti­za­tion and how the sale and pub­lic list­ing of state-owned com­pa­nies can con­tribute to the growth in the wealth of the mid­dle class­es.

In the Stiglitz in­ter­view, the re­cip­i­ent of the 2001 No­bel prize for Eco­nom­ics made the point that wealth in the US was tick­ling up and not down, which he de­scribed as "one of the most dis­turb­ing as­pects of what is hap­pen­ing in Amer­i­ca."

Stigliz said: "The idea was that if you gave enough mon­ey to the top, don't com­plain every­body is go­ing to ben­e­fit. In fact, if you look at the mid­dle, me­di­an in­come to­day in the Unit­ed States is as low as it was more than 16 years ago, in 1996.

"And if you look at wealth, its even worse. The wealth of the me­di­an Amer­i­can, the me­di­an wealth, is back to the ear­ly nineties. Twen­ty years in which ef­fec­tive­ly all of the in­crease in wealth has gone to the top. Peo­ple in the mid­dle have not shared."

I have no doubt that Prof Stiglitz's analy­sis is cor­rect large­ly be­cause wealth in the US is a func­tion of share own­er­ship. I would wa­ger that if the Cen­tral Bank or UWI's eco­nom­ic's de­part­ment were to do an analy­sis of in­come and wealth dis­tri­b­u­tion in T&T that their find­ings of mid­dle class wealth ero­sion–es­pe­cial­ly in the last five years–would be sim­i­lar to Stiglitz's.

It is hoped the Cen­tral Bank's chief econ­o­mist Dr Alvin Hi­laire and UWI's Dr Roger Ho­sein take note.

There has been an ero­sion of mid­dle class wealth in T&T in the last five years be­cause the pace of wage in­creas­es has slowed and the pace of in­fla­tion has quick­ened.

By my cal­cu­la­tion, the rate of in­fla­tion av­er­aged 8.8 per cent be­tween 2008 and 2012. This means in sim­ple terms that any wage earn­er whose in­come did not in­crease by at least 9 per cent a year for the five years ex­pe­ri­enced a de­cline in their net wealth over that pe­ri­od.

In the last five years, as well, the rate of in­ter­est paid on com­mer­cial bank de­posits and on mon­ey mar­ket (or in­come) mu­tu­al funds has de­clined to 0.2 per cent and around less than 2 per cent re­spec­tive­ly.

All things be­ing equal, for the salaried mid­dle class, the rate of in­fla­tion is in­creas­ing the in­equal­i­ty of in­come in T&T, es­pe­cial­ly as glob­al eco­nom­ic un­cer­tain­ty and de­clin­ing prof­its do not al­low em­ploy­ers to keep wages up with in­fla­tion.

This means that in rel­a­tive terms the mid­dle class in T&T is be­com­ing poor­er just as it is in the US. But be­cause the in­fla­tion rate in T&T is about four times what it is in the US, the pau­per­iza­tion of the mid­dle class is pro­ceed­ing at a much faster pace here than there.

What are pol­i­cy­mak­ers to do?

Ob­vi­ous­ly, an all-out at­tempt to low­er the rate of in­fla­tion would be very use­ful. But that would in­volve a long-term ef­fort to in­crease the amount of food pro­duced and con­sumed in T&T. And there is no guar­an­tee that droughts or floods would not re­verse ef­forts to in­crease agri­cul­tur­al pro­duc­tion or change the tastes of Trinida­di­ans.

Last Oc­to­ber's in­ter­ven­tion by Prime Min­is­ter Kam­la Per­sad-Bisses­sar to re­move VAT from a large num­ber of food items, while well mean­ing, was a step in the wrong di­rec­tion as it most­ly im­pact­ed im­port­ed food items.

Any at­tempt by the Gov­ern­ment and the state sec­tor–which are the largest em­ploy­ers in the coun­try– to in­crease the salaries of em­ploy­ees in the state sec­tor to keep pace with the rate of in­fla­tion comes up against the is­sue of fis­cal sus­tain­abil­i­ty and the need for the ad­min­is­tra­tion and state en­ter­pris­es to re­strain wage in­creas­es in the face of al­ready high in­fla­tion.

One of the ways in which the mid­dle class­es can en­sure that their wealth is not be­ing erod­ed by in­fla­tion is by buy­ing as­sets that will ap­pre­ci­ate in val­ue over time. Such as­sets in­clude tra­di­tion­al stores of val­ue in­clud­ing prop­er­ty and gold.

But in a 2013 con­text, such as­sets must in­clude shares in some of the more prof­itable, well-run, state-owned en­ter­pris­es.

This is how Thatch­er's lega­cy col­lides with Gov­ern­ment pol­i­cy and the com­ment made by Stiglitz about the in­equity in wealth and in­come dis­tri­b­u­tion in the US.

If the Gov­ern­ment were to em­bark on a sys­tem­at­ic pro­gramme of pri­vati­sa­tion of state-owned com­pa­nies such as Phoenix Park Gas Proces­sors, Methanol Hold­ings Trinidad Ltd (MHTL) and Pow­er­Gen, lo­cal in­vestors would have the op­por­tu­ni­ty to place their sav­ings in as­sets that stand an ex­cel­lent chance of gen­er­at­ing a re­turn on in­vest­ment that is above the rate of in­fla­tion over the long term.

On Mon­day, it was con­firmed that the Gov­ern­ment, through its whol­ly owned state en­ter­prise NGC, was in­ter­est­ed in ac­quir­ing the 39 per cent stake in Phoenix Park Gas Proces­sors held by US transna­tion­al en­er­gy, Cono­coPhillips.

Re­spond­ing to ques­tions on the is­sue on Mon­day, a well-placed source in the en­er­gy sec­tor said the mi­nor­i­ty share­hold­er ap­proached the Gov­ern­ment ear­li­er this year about dis­pos­ing of its stake.

Busi­ness Guardian analy­sis of Phoenix Park's fi­nan­cials in­di­cate that the Cono­coPhillips stake could be worth be­tween US$500 and US$750 mil­lion.

In 2011, Phoenix Park record­ed rev­enue of US$1.172 bil­lion ($7.5 bil­lion) and re­port­ed prof­it af­ter tax of US$322 mil­lion ($2 bil­lion), with a prof­it mar­gin of 27.5 per cent. The Gov­ern­ment is be­ing ad­vised by First Cit­i­zens and Cred­it Su­isse.

Phoenix Park Gas, which process­es nat­ur­al gas in­to propane, bu­tane and nat­ur­al gaso­line, is a joint ven­ture com­pa­ny owned by NGC NGL Com­pa­ny Lim­it­ed of Trinidad and To­ba­go (51 per cent), Cono­coPhillips Inc. (39 per cent) and Pan West En­gi­neers & Con­struc­tors Inc. (10 per cent). Twen­ty per cent of NGC NGL is owned by Na­tion­al En­ter­pris­es Ltd, the pub­licly list­ed com­pa­ny, and 80 per cent is owned by state-owned NGC.

En­er­gy Min­is­ter Kevin Ram­nar­ine and Fi­nance Min­is­ter Lar­ry Howai have the abil­i­ty to en­sure that the shares that Cono­coPhillips is look­ing to sell in what is one of T&T's most prof­itable busi­ness­es end up in the port­fo­lios of lo­cal in­di­vid­u­als and in­sti­tu­tions to al­low for the gen­er­a­tion of wealth, through cap­i­tal gains, and in­come, through the dis­tri­b­u­tion of div­i­dends.

An ini­tial pub­lic of­fer­ings (IPOs) of shares in Phoenix Park would be a suit­able fol­low up to the IPO of First Cit­i­zens, which is now sched­uled to take place in June.

In the same way that the pri­vati­sa­tion of British Tele­com, British Gas and British Air­ways by Mar­garet Thatch­er en­riched the mid­dle class­es in Britain over the last 30 years, the Gov­ern­ment can use the sale of 39 per cent of Phoenix Park and the 56.4 per cent stake in MHTL owned by Cli­co to en­rich the lo­cal mid­dle class­es.

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