"What could happen to our beloved Caribbean if we blithely saunter down the low road and let others deliver our future?," asks Avinash Persaud, Chairman of Elara Capital in London & Barbados.
I have a repetitive nightmare. It is a vision of what could happen to our beloved Caribbean if we blithely saunter down the low road and let others deliver our future. It is what might happen if we stand idly by as others dismantle the international business sector, if we allow drugs to take control, if we squander our natural resources, and if we turn the asset of our racial and cultural diversities into a liability.
There are other paths the region could take. To find the high road, we need to envision what success looks like. If we don’t, we will not know whether we are headed towards it or away from it. To help us picture success, I would like to invite you to step into my time machine. In 1895, Heineman published a novella called ‘The Time Machine’ by H. G. Wells. The protagonist travels forward 800,000 years. We do not have to go that far into the future to a time when our Caribbean countries could be amongst the richest in the world. What would that future look like when we step off the time machine?
Will we see that our children’s children have become wealthy by cutting sugar cane or waiting on tables? Will we see that they have become wealthy by assembling cars? Did they get rich weaving baskets? Did they get rich from donors and foreign debt? I do not need to tell you the answers to these questions. There are not many likely paths to success for small islands. There is not one path either. There is a role for hydroponics, specialty rums and sugars and bespoke furniture. But the main route to prosperity is one where our children’s’ children arrive at the top table by world-class education and skills, by exporting knowledge and creative services to the world. And they do so from a place that in its natural, built and social environment, is the envy of the rest of the world. Incidentally, this is a world well suited to the pursuit of international finance and business.
But let me describe this world differently. Accepting more qualifications, with less quality; paying high wages for low productivity; favouring investments in low-wage sectors and hoping that our natural environment will magically look after itself, is walking away from success, not towards it. Our long-term future lies with exporting expensive, weightless products, such as professional services that have a small environmental footprint, not products where export success depends on our manual labour being cheaper than elsewhere. When Caribbean nations are prosperous, our workforce will not be based on physical toil, head down, under the hot sun, but on knowledge and creative work carried out in breath-taking locations.
Professionals internationally are increasingly choosing to relocate their work for lifestyle reasons. US fund managers may, for example, move from downtown Manhattan to Denver, Colorado, for the skiing; to New Port Beach, California, for the surfing; to Fort Lauderdale for the golf; and to Greenwich, Connecticut, for the schools. If you could choose to locate your work anywhere in the world without it causing any constraints on your business, why would you not pick the Caribbean? That is why I returned after a 33-year career in London.
Caribbean islands will find success by exploiting comparative advantages in the knowledge and creative industries to sell such things as design services, research services, diagnostic services, legal and accounting services, educational services and, of course, business and financial services. These may be industries that we have and need to build on, or industries that we do not yet have. The people who lose from change are those with the most entrenched interests and the loudest voices; those who gain are not even born, or have not started their businesses, or they have not yet formed their business associations. I am concerned about the region’s lethargy towards putting in place policies that facilitate the growth of industries that do not yet exist. This is not about picking winners (though there may be value in doing so in micro-states) – it is about sowing the seeds and creating an environment conducive to growth.
If a Caribbean professional was to bring home a successful international business, the expense and time of establishing residence, setting up the business and employing the right staff would be tall obstacles. I have been there myself. In many of these areas, what governments lack is, not know-how, but political capital and courage. We know what to do to improve the efficiency of government licensing regimes, such as setting up a business online. We do not do it because we fear the political consequences of doing it, of making the public sector leaner and meaner. To export knowledge services we need to have better ICT, which is partly about more active regulation of a monopolistic sector and maybse some limited government subsidies in certain areas. The challenges here are not, however, technological, but political. It is how we manage the relationship with international carriers.
Professional closed shops, which use educational or residency qualifications, not to establish high standards, but to keep down competition need to be challenged and broken down. If the day comes when there are a disproportionate number of lawyers on welfare, we may need to think again, but this is not the day. Having some of the highest educational standards in the world across a wide range of different disciplines will not be easy. Commentators lament that to do the things we want to do in education, public health, public transport and other public goods, we need more money than we have. However, this constraint may be over-emphasised. Managing the liberalization of our education markets will require more political capital than financial capital. We can better allocate the existing public spend on education. There is more social value in teaching primary school students literacy and numeracy than subsidizing them to pursue qualifications that will enable them to earn more than their teachers in a few years. Education is a vital area of public policy. It is the gateway to social, economic and individual development. We cannot address it glibly by merely saying we need more of it or better forms.
It makes good economic sense that small states should be centres of international finance. They have a comparative advantage in the sector, while big states have a comparative disadvantage. It is an industry in which you can scale up without land and labour. The combination of a substantial financial sector in a small state means tax rates can be low. The Caribbean has become the fourth largest banking sector in the world, led primarily by Bermuda, Cayman, The Bahamas and the BVI. Even in the case of Barbados, a hefty proportion of corporate tax receipts comes from the international business sector. Many jurisdictions wish to follow. It should, therefore, be of continued grave concern that the dogs of war continue to be let loose on Caribbean international financial centres. The 2017 EU blacklist is the most recent attack. Caribbean countries have been investing heavily to comply with goal posts that shift each time they do. On objective measures of the difficulty of conducting financial crime, such as requirements for beneficial ownership information, most Caribbean jurisdictions are better than the EU countries doing the accusing. But however much Caribbean countries do, the ad hoc nature of the attack diverts both genuine and not-so genuine business to the major EU and OECD financial centres which never appear on lists, even though they are the biggest centres of money laundering. And it causes banks in these major centres to curtail correspondent banking relationships in the Caribbean.
The political nature of the pressure on the Caribbean financial centres will be the weak link that will be the way this pressure is eventually lowered. Although the Chinese courts indicate that there may be as much money laundering taking place in China as elsewhere, Chinese banks are not losing correspondent banking relationships and China is never blacklisted. China is politically too powerful and the political nature of the attack is revealed. By politicising the dollar payments system to attack non-Western international financial centres, the EU and OECD will end up driving the rest of the world to Chinese-centred payments systems. The eventual fall guy will not be Caribbean centres of international business, but the US dollar as the world’s reserve currency – except for those Caribbean centres too slow to forge the links with Chinese banks. Many Caribbean countries have been slow to recognise this opportunity because their officials have been persuaded that the attack on them is about compliance when it is about politics.
I have discussed the path the Caribbean needs to follow to get rich, and of course, that sounds crude and unsophisticated for some who would rather the Caribbean remains natural and quaint. They secretly hanker after rum shops, palm trees, beach cricket and a bit of expatriate run off-shore finance. But getting rich is about eliminating poverty which has risen across the region. It is about ensuring that people live a fulfilling life. It is about empowering people to discover their true abilities and affording real independence. Forty-odd years ago, we thought that independence would secure economic development. We must now see that it is economic development that will deliver independence. The Caribbean has arrived at a plateau, after a significant hike. It is looking up at a mountainous climb ahead. The path is clear, but now the heavy lifting begins.
Avinash D. Persaud is Emeritus Professor, Gresham College; Senior Fellow, London Business School, Visiting Fellow, CFAP, Judge Institute, Cambridge University; 2010 President, British Association for the Advancement of Science (Section F) and formerly a Governor, London School of Economics. Professor Persaud was ranked as the #2 public intellectual in the world on the financial crisis by an expert panel for ‘Prospect Magazine’ at the end of 2009. He is currently Chairman, Elara Capital PLC; Chairman, PBL; Chairman, Intelligence Capital Limited and Board Director of RBC Latin America & the Caribbean and Beacon Insurance. He was Chairman, Warwick Commission; Chairman, regulatory sub-committee of the UN High Level task Force on Financial Reform; Co-Chair, OECD EmNet; Member, UK Treasury's Audit and Risk Committee; Member, Intergovernmental task force on financial taxes and Member, Pew Task Force to the US Senate Banking Committee.