“…the truth is that employment and production are based on a delicate balance between investment and consumption, where interest rates and entrepreneurship play a vital role” – Excerpt from an article ‘Correction, Please!’ by Mark Skousen under the auspices of The Foundation for Economic Education – www.fee.org

The Monday June 13, 2005 issue of the Barbados Business Authority Newspaper had some interesting discussion in its centre pages which related to the issue, ‘Was the Recent Interest Rate Hike Necessary?’ A businessman, the President of the Bankers Association of Barbados, the Governor of the Central Bank of Barbados, the Caribbean Money Market Brokers and the Barbados Economic Society, all had something to say.

The Barbados Economic Society observed that the two primary objectives of monetary policy, as enshrined in the Central Bank of Barbados Act, are to ‘foster credit and exchange conditions conducive to orderly and sustained economic development’ and to ‘maintain reserves of external assets adequate to purchase goods and services from overseas’.

If there is no sustained economic development, then we get an increase in the wealth divide and poverty becomes entrenched in the society along with a myriad of social ills. If there is a significant depletion in our foreign reserves, then we become insecure, which plays havoc with our socio-economic well-being. These are therefore two laudable objectives.

An upward change in the interest rate, therefore, is used to signal to the public that there is need for more careful budgeting. This may result in a reduction in the demand for both domestically produced goods and imports as firms and consumers cut back on their planned expenditure. A reduction in the demand for imported goods implies that less foreign exchange is now required to purchase these items and should result in a level of improvement in the foreign reserves. Unfortunately, the reduction in demand may also lead to a contraction in gross domestic output (the total level of spending in the economy) due to declines in expenditure by consumers and businesses which, historically accounts for more than 70% of the GDP.

The businessman described the recent interest rate hike as ill-conceived ,and a major error which could lead to lay-offs, cutbacks in planned capital expenditure and an increase in retail prices. The banking community, whereas they respected the ‘change of interest rate’ as an instrument of control, did not expect the hikes to be collectively as high as 1.5%. The CMMB commentator referred to the Central Bank Governor’s sobering thought ‘our current level of spending is not sustainable unless Barbados earns more foreign exchange’.

Why then do we not focus on strategies to earn more foreign exchange? A successful foreign exchange earning strategy (my focus of course is on legal means of doing this), will increase employment, increase production, attract greater investment and reduce the need to focus on controlling consumption. The ‘change of interest rate’ instrument policy will then be invoked more as an exception than a rule.

What do we do to focus on strategies to earn more foreign exchange? We must aggressively pursue innovative enterprise development, think outside of the box, benefit from the synergies of interaction in brainstorming sessions and put the ‘money and management’ tools in place and in the right combination and quantity to mitigate business failure and foster economic growth.

My argument is that, if one is successful in expanding entrepreneurial activity in projects which have the “DNA of an elephant” (which means that they have the potential to capture significant niches in the global marketplace) this could contribute significantly to sustained economic development.

The Barbados Investment & Development Corporation (BIDC) is the government agency which is responsible for promoting entrepreneurial development in many sectors of the economy. The CBET “shepherding” model is one which mitigates the risk of business failure by tending carefully to those under its care. Indeed, the BIDC is partnering with CBET to mount a CBET High Impact Growth Strategy (HIGS) Workshop on July 05 & 06, 2005 to generate a set of new Business Opportunity Profiles (BOPs).

HIGS is a two-day dialogue event aimed at generating innovative ideas among participants with diverse backgrounds who engage in an interactive brainstorming session. The output from this instrument is a Business Opportunity Profile (BOP).

The participants are organised in six, say, round tables and one idea is produced at each table. The participants at each table sign a document agreeing to place their BOP in the hands of CBET, in return for which, CBET assigns to each group a share in its subsidiary, Caribbean Intellectual Property Corporation (CIPC). The intellectual property of each group is, therefore, protected as the idea is converted from concept to commercial reality, and an appropriate reward (cash/shares/both) is given when an investment is made in a resulting company.

BIDC and CBET will then work together as BOPs which are deemed to have potential for commercialisation are put through the CBET Business Plan development process. In this process, CBET partners with the promoter of the BOP and jointly owns the Business Plan.

The social partners should put their collective energies proactively behind an entrepreneurial development thrust in the interest of sustained economic development and socio-economic well- being.