I’d wager that when most of us try to think of a development success story, Barbados is not a country that comes to mind. However, while catching up on This American Life podcasts, I came across an interesting story about how the citizens of Barbados pulled together to overcome a period of economic crisis. I encourage you to listen to the second half of Social Contract called “If you were stranded on a desert island and could only bring one economic plan…” or read the transcript. The gist is this:
When Barbados was facing a foreign exchange reserve crisis in 1991, the government turned to the IMF for loans. But as per usual, the IMF would agree only under certain conditionalities and pushed for currency devaluation or cuts in public spending:
Host Ira Glass explains: “You need to rearrange your economy so you don't need as many foreign dollars. Which means basically, want your citizens to spend less money on stuff from abroad. But since almost everything in Barbados comes from abroad, that basically amounts to, the entire nation of Barbados just needs to spend less. And the way you keep people from spending, is sort of dreadful. You need them to get poorer.”
Unions partnered with managers and business owners to protest fiercely against cuts, but in the end the government had little choice but to slash the pay of all public sector works by 8%. But this is where it gets interesting.
“We had to choose between the lesser of two evils -- either taking a pay cut or having many Barbadians on the street, without a job, to put it in a simplistic way. All we say is, 'save Barbados poorest.' We had the interest of country paramount,” said Dennis De pieza, a union leader.
So labor union leaders went to their members and explained the reality in order to get them to accept, albeit grudgingly, the cuts. They convinced managers to lessen their profit margins. Employers attempted to reduce the ramification of inevitable lay-offs by instituting rules that at least one worker per household had to retain employment. Virtually all major actors tightened their belts.
And “within 5 years, Barbados had paid back its loan to the IMF, and real wages were higher than they were before the 8% cut. And Barbados society seemed permanently altered.” This cooperation entrenched the idea of social partnership where new initiatives try to encourage managers and employers to see from one another’s perspective in order to improve productivity via such things as bonuses and financial transparency.
Just compare Barbados with neighboring Jamaica—while Barbados’ GDP per capita hovers at $14,425, Jamaica’s reaches only $5,438. The countries started off with similar characteristics and institutions, so what can explain this divergence? Peter Blair Henry and Conrad Miller argue that macroeconomic policy has made the real difference in how the nations have evolved.
Granted, Barbados is a small country with a population of 300,000, so integrating social cooperation in larger nations would assuredly be a much more difficult task. But the importance of the social capital ingredient is clear. Civil society in Barbados recognized the importance of short term negative consequences for a longer term good—something that we rarely witness. Though Barbados is not a perfect model, many other nations possess small, open economies so this example of cooperation, good policy, and smart economic management is interestingly relevant in the search for development solutions.