Wednesday, March 10, 2010Developing a Consensus

Colin O'NealIt's Time We Look Toward Developing A Concensus

The debate over development versus preservation, development versus conservation, development versus the old values, is as old as the concept of ‘development’ itself. Nostalgia for things past, the old ways, the old order, is a powerful conservative force. However, when pressed, few would really want to go back to the life and times of their parents or grandparents, or even their childhoods. Having said that, I love to wax nostalgic. I was born in the 60’s and came of age in the 70’s. I am old enough to know a British Virgin Islands vastly different from the one that we live in today. I am old enough to recall the days before direct dialing telephones – calling my mother at her office through the old Cable & Wireless telephone exchange and asking for “12A please”. I recall Road Town before Wickham’s Cay was reclaimed – old Main Street with two way traffic twisting along the water’s edge from Government House to the foot of Joe’s Hill. I remember the functioning Agricultural Station at Lower Estate. I remember dirt roads in the countryside and British Virgin Islanders still working the fields as subsistence farmers and when many did without the basic necessities even for that era, and when donkeys were transportation and not photography props. I am old enough to have been witness to the starting point of radical change. These were the 1960s, the start of modern development in the British Virgin Islands.

The Early Days
The birth of the modern British Virgin Islands was signaled by the start of the tourism industry as we know it today, which is often considered to have begun with the construction by Laurence Rockefeller of Little Dix Bay Hotel on Virgin Gorda. The contractor was the English construction company, Taylor Woodrow Limited. Many prominent local builders and tradesmen got their start on that project and grew their businesses on the base of the exposure they received on that first major commercial development in the BVI. The economic boom that followed in the 1970s including the construction of the deep water harbour at Port Purcell, expansion of Long Bay Hotel, the development of Peter Island Resort, Prospect Reef Hotel and home construction throughout the islands resulted in the growth in numbers of people earning good wages in construction, tourism commerce and the civil service and led to the influx of vast numbers of foreign labour from the islands of the Eastern Caribbean and Guyana. This took place alongside the entry into the BVI market of international commercial banks which provided the capital for growth.

The growth that took place fostered a new economy, moving forever from subsistence agriculture to small enterprise and mid-scale tourism development. This was made possible by the entrepreneurial spirit of British Virgin Islanders determined to better their condition and that of the territory and through direct foreign investment and British grant-in-aid. A positive embrace of change and modernization prevailed as most everybody could see the benefits – a move from subsistence towards a wage-earning population, rising income levels and rising levels of consumption of goods and services. The British Virgin Islands was changing, or one might say it was ‘developing’.

What do we mean by ‘development’?
We may refer to ‘development’ in terms of quality of life benchmarks – such as literacy, infant mortality, per capita income, and, for example the eight Millennium Development Goals set out in the United Nations Millennium Declaration, which the UN hopes will be achieved by 2015 or 2020. For the purposes of this article, I identify broader, more aspirational development goals such as the following: World class infrastructure including reliable public utilities, roads, etc; First rate health care services through modern hospitals and public health clinics; Education through good schools and technical training and scholarship availability for study abroad; Innovation and competitiveness; Environmental protection and sustainability.

These aspirational goals build upon those elemental moral benchmarks or indicators. In most instances, I refer to the process of ‘development’, which I take to mean the continuous economic expansion required to support and promote improved living standards signified by those development goals.

In terms of the British Virgin Islands, rising government revenues from import duties, income tax on rising salaries, and transfer taxes on the sale of real property enabled government to expand public services in the British Virgin Islands to areas relatively untouched before – a modern secondary school and modern primary schools in every district, public health clinics, library services, an ever-expanding road network to open up lands that were practically inaccessible to their owners. The revenue base that provided the means to provide these services which are the basic requirements of modern living was private investment.

The early growth spurt in BVI development took place before there was a significant trade and investment policy infrastructure in place in the British Virgin Islands. Typically, entrepreneurs saw a niche for enterprise and pursued it without active input from government as facilitator. Thus were born the first supermarkets, hardware stores, travel agencies, trucking and transportation businesses, construction companies and many others. Tourism was the exception, as for many years legislation offering tax and import duty concessions to hotel and resort developers were available, though never used as tools to attract inward investment. These concessions were usually sought by potential developers in tourism and in most instances they were granted once the relevant criteria were met.

Interestingly, there was no similar incentive or concession legislation incentivizing local developers and entrepreneurs with the exception of the Encouragement of Industries Act which gave import duty concessions to so-called “pioneers” in certain classes of business although the concession has been expanded to new businesses in existing fields who could not be regarded as pioneers in any sense of the word.

In all instances, the enabling of enterprise had been mostly through concessions rather than incentives. Concessions are merely deviations from the norm. Incentive involves encouragement and facilitation. To this day, the British Virgin Islands has not provided much in the way of incentives properly so-called to entrepreneurs be they local or foreign.

Incentives for Growth and Development
In a global economy, incentives must be offered in order to attract direct foreign investment. Similarly, in order to stimulate innovation and risk-taking among the domestic entrepreneurial class, incentives must be offered. In the United States for example, states actively offer incentives and assistance in establishing businesses in competition with one another. In Michigan, for example, the Michigan Economic Development Corporation website states: “For any company already in Michigan or considering a location in the state, the Michigan Economic Development CorporationSM (MEDC) offers one-stop business assistance. Our business development managers work with consultants, utilities, associations and local economic development agencies to best match businesses’ needs with Michigan’s opportunities. From attractive financing through our $2 billion 21st Century Jobs Fund to significant and long-term tax abatements, few places can offer a more attractive financial package. The MEDC is also the channel for continuous improvement of the state’s business climate.” To take another example, the state of Ohio established a program called “Ohio Means Business” to provide a clearinghouse of information about the incentives available to those considering a location for their business. Still further afield, similar programs are to be found in Ireland, Singapore, Dubai and many other countries.

In all instances, governments at local and national levels recognize that the revenue stream needed to finance government services that affect quality of life, require a tax base and a labor market that must constantly adapt and grow, and such growth relies on an expanding economy built on businesses that can take advantage of investment incentives to facilitate growth. Just as important, there must be a shared belief that economic expansion is a necessary condition for sustaining and improving our quality of life.

Goals and Buy-in
If a development consensus is to be achieved, there needs to be a society-wide buy-in to the aims of development. That is to say the development goals must be clearly articulated. This should not be difficult as development goals are almost universal. For example the United Nations Millennium Goals could be regarded as a moral baseline. To these, I have suggested that the British Virgin Islands may realistically include the goals of world class utilities and transportation infrastructure, first class health care, universal education, innovation and competitiveness and a safe, healthy, physical environment.

It is important for goals to be effectively articulated if there is to be the necessary buy-in. However, there has been little in the way of a national political debate as to what the development aspirations of the British Virgin Islands should entail. The British Virgin Islands has been characterized by politics conducted at the micro-level, the level of the individual or the electoral district. Political considerations aimed at building support at the local level have led to policy decisions which ignore the national interest. Added to this is the fact that the political landscape has been made up of political parties which historically have been mostly groups formed on a more or less ad hoc basis for the purpose of fighting and winning elections on the understanding that each representative would be more or less free to carry out a narrow clientelist agenda at the district level. There are those who argue that the one significant departure came about in the 2003 elections when a political party came to power with a clear pro-development agenda. Once in power, they articulated relatively clear development goals and the means to achieve them: enhancing the business environment, attracting foreign investment, transparency in government, streamlined and efficient government delivery systems, and eradication of corruption in public life. Having radically changed the way politics and business were played in the British Virgin Islands, they were voted out of office after one term largely because they failed to achieve the buy-in from a population long accustomed to politics at the local and personal level.

Establishing the Development Consensus
While most governments have similar development goals, some succeed while others fail to achieve their goals. Some countries such as Singapore and Dubai for instance, may achieve their goals more easily because there is an entrenched ruling elite which has the authority (howsoever derived) to virtually impose policies in pursuit of the goals. Other countries, the liberal democracies, have a harder task. They must convince their populace of the need to pursue development objectives and this vision must be more or less shared across the political spectrum. The task will be impossible if the general vision changes as political winds shift from left to right. At the most basic level, the population must be convinced that development will result in all boats floating on a rising tide.

Rather than having a shared vision, there appears to be a polarizing of opinion in the British Virgin Islands among those desiring to facilitate the expansion of business enterprise and those who want to protect narrow parochial interests. This trend is ultimately self-defeating of the development goals. There must be a willingness to exercise a political leadership that vetoes make-work projects in favour of investment in national infrastructure, that ensures competitive bidding on all major projects in the interest of fiscal responsibility, that enables us to invest more in public utilities, public works, education and the other areas which build capacity for sustained improvement of the quality of life.

The development debate is beginning but reason is often drowned out by shouting. Further, into the development debate has been thrown a bogeyman – the “small man” a term with various meanings – the “man on the street”, the small businessperson, the local as opposed to foreign businessperson or investor. It was a term that was also used as a red herring to distract from the fact that some of the so-called “small men” were millionaires. In reality, it was mostly used as a political slur by cynical individuals promoting and protecting parochial interests against national priorities whose pursuit was potentially inimical to their interests or which could not be easily turned to economic advantage or political influence. It has been perhaps the most pernicious and cynical means of dividing the country by the politicians who exploit it and which was given birth by those other politicians whose blind eyes and deaf ears laid the seeds for its emergence.

The British Virgin Islands today and tomorrow
In two generations, the British Virgin Islands has grown from Caribbean backwater to one of the leading offshore financial centers of the world whose importance in global finance and commerce is little understood outside a narrow coterie of regulators and industry professionals. Its tourism has developed to put it among tourism leaders in the Caribbean and in sailing, we are world class. The result has been an improvement in living standards almost without parallel in the Caribbean. To maintain this position, much less improve on it we must take concerted action. In a globalized economy, competition is fierce and there are real winners and real losers. The British Virgin Islands must compete to win. We must compete. There is no alternative, despite what the protesters may say. We are competing on a regional and a global stage and this fact is as real as gravity. There is no opting out as many public commentators in the British Virgin Islands who rail against globalization would like the public to believe. We are competing with our Caribbean neighbors for tourism dollars. We are competing with Bermuda, Bahamas, Cayman, Channel Islands, Dubai and others for offshore financial services revenue, and new players with competitive advantages are on the horizon aiming to take what we have: Jamaica and Trinidad for example have both taken concrete steps to establish offshore financial centers and with relatively large educated labour pools and determined governments, it would be foolish to write them off.

What should we be doing differently?
What needs to be done to turn a development consensus into development results? It takes planning and execution – long term planning and follow through, which requires a semi-autonomous body in the form of a statutory corporation that will span the lives of successive governments while carrying out the mandate of the country to achieve the overarching development goals. This corporation; a national development corporation needs to include in its directorate trade professionals, physical planners, tourism and financial services industry leaders, and key government technical staff. It should serve as the British Virgin Islands investment, trade and export promotion agency, providing a range of business oriented services to the public, including attracting foreign investment to the British Virgin Islands and identifying and assisting with procuring technical assistance for local and foreign businesses and entrepreneurs. It should also function as the British Virgin Islands official representative to regional and international trade missions, all aimed at assisting the government to meet development goals through revenue enhancement. In addition, it must promote the British Virgin Islands as a business friendly environment and work with the public and private sectors to streamline bureaucracy and improve delivery of services. Finally it must do this in an environment of openness and transparency and become a facilitator of enterprise, rather than a gatekeeper protecting entrenched interests.

Examples of established and successful development corporations are found worldwide: the Barbados Development Corporation and the National Development Corporation of St. Lucia are good examples close to home, while the Singapore Economic Development Board and IDA Ireland are examples of successful corporations which have attracted global enterprises to those countries through incentive legislation and enabling delivery systems.

The same approach of positive outreach is needed in the British Virgin Islands if it is to hold its place much less continue to move up the ranks of successful countries. We will have to embrace the outside world and encourage it to come in while at the same time opening the doors of opportunity to our own people and providing the impetus and encouragement to local entrepreneurs and investors to compete locally and regionally. On the other hand, if we view globalization and inward investment with suspicion and hostility and declare foreign investors to be “invaders” we will sow the seeds of our own economic decline. If we let xenophobia prevent us from seeking to attract talented labour to our shores on the one hand and continue to have no clear policy on immigration and the acquisition of naturalization on the other, we will deprive ourselves and the generations of British Virgin Islanders yet unborn of their future.

What is clear is that a laissez faire or ad hoc approach to development is not a viable option. As the global economy turns the corner and emerges from recession in late 2009 to early 2010, it is by no means certain that the same players will resume their places in the standings in the world economy. Those countries that have invested in capacity building by using stimulus funding for transportation and other infrastructure, for example, are more likely to emerge stronger than those who spent a great deal of capital on bank bailouts. Those small economies like the British Virgin Islands which invested in tourism infrastructure and granted incentives to foreign capital are more likely to fare better than those that didn’t. Where the British Virgin Islands ends up in this reckoning will depend to a great extent on our commitment to a vision of growth and the means of providing a fertile ground and business environment upon which economic activity will take root and produce the basis of continued improvement in our standard of living.

Oyster Publications Inc, PO box 3369, Road Town Tortola, British Virgin Islands, VG1110