Why is economic growth in The Bahamas so anaemic?

First Published: 2010-08-14

Obviously the world, and more specifically the US economic downturn, has serious consequences for The Bahamas, and if you listen to all the tea leaf readers there will be continued slow growth in the medium and long term.

But what can be done to help inject some enthusiasm into the entrepreneurial class?

For starters, a government should not be destabilising the business community with excessive taxation nor blind siding them with rule/regulation changes that do not seem to be well thought out. Yet The Bahamas economy has certainly had an abundance of new taxation and regulation in recent months.

The government, while finally realising their profligate borrowing and spending must be brought under control, it should also accept that investor confidence is rattled when they are not sure what public policies to expect next. So there is a delicate balance between "reasonable" taxes and rules/regulations and over taxing and over burdensome rules/regulations.

As Dr. Robert Higgs wrote recently: ( http://bit.ly/bUEcuB )

"Genuine economic recovery requires the one thing we are least likely to see: a substantial reduction of government expenditure, taxes and regulations, along with a credible government commitment to stay this less burdensome course. This would give private entrepreneurs the confidence and time to generate the prosperity only they can create."

"Unfortunately, anemic private employment tempts politicians to intervene even more in the economy, heightening the uncertainty and discouraging investors further in a vicious cycle."

There is more and more intervention here at home as well, and these are disturbing signs.

The public sector is now beginning to experience the devastating effects of these very tough economic times that the private sector has been under for two years now, and there are no easy political answers. But, Dr. Higgs is right. Recovery depends on private sector growth and shrinking the size of a government (expenditure, borrowing, taxes, regulation) that is now beyond the capacity of the private sector to support.

The Nassau Institute 

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