Home' Trinidad and Tobago Guardian : May 2nd 2013 Contents BG18 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt MAY 2013 • WEEK ONE
Are we doomed to waste our
oil and gas largesse? I ask
this question after reviewing
the underlying economic
philosophy across the polit-
ical divide in T&T.
During the discussion on the 2013 budget
last year, I wrote under the heading, A Crisis
of the Political Economy, the following: "After
50 years of debate, no clear consensus emerges
for how our country should be developed and
what are our priorities."
On one side there is a party that has more
often than not sacrificed sustainable economic
development on the alter of political expedi-
ency. In the process creating a dependency
syndrome that positions this country for a
level of social instability if the majority of sub-
sidies and transfers were to be removed.
On the other side of the aisle stands a group
with no clear philosophical underpinning
regarding its approach to sustainable economic
development. The end result is that T&T seems
to be in a perpetual trap between the proverbial
rock and a hard place.
Contrast this to the US where, at least in
broad terms, there are clear economic differ-
ences between the Republican and Democratic
parties. My point is that to govern, there must
be an economic anchor across which one
makes policy decisions, as this should guide
the process through which competing demands
are met and resources are allocated.
A clear example of our path to nowhere is
the recent announcement of low interest loans
for home purchases.
The programme, as I understand it, is for
citizens earning less than $8,000 per month.
It comes with a zero downpayment and a two
per cent rate of interest that is reviewed every
five years to purchase a state-constructed
house for up to $450,000.
At the time of this recent announcement
by the Prime Minister (back on April 8), we
went no further than the childish debate as
to whose idea this really was.
The current administration lay claim to the
plan based on the announcement, a noted
political activist claimed credit via the social
media space and, of course, it should have
been common knowledge that this proposal
was made by the Patrick Manning adminis-
tration during a budget presentation.
Whose idea it is as opposed to whether it
makes sense and what are the alternatives is
the subject of debate and we wonder why, for
all our oil and gas riches, Barbados scores
higher than us on many of the human and
social indices associated with national devel-
opment. Clearly, we don t get it and our gov-
ernments are a reflection of us as a people.
On July 26, 2012, I wrote for the second
time and will now repeat for the third time
the views of noted economist the late Milton
Friedman on how money is spent.
1. All of us have experience with spending
our own money and spending it on ourselves.
According to Friedman, in this situation, you
are most likely to be interested in getting the
best quality at the best price (value) as you
are spending money that you have earned on
2. The second way is to spend your money
on someone else, for example, in the form of
a gift. Here you are still concerned about price,
but may not be as concerned about quality
since you are not the ultimate consumer.
3. Next is using other people s money on
yourself. Friedman gave the example of a com-
pany expense account. You may not be too
concerned about the price as it is not your
money, but you will ensure that you get value
as you are the consumer.
4. The fourth and final way to spend money
is when people spend other people s money
on other people. This is essentially the way
that government spends money and it is con-
sidered the most inefficient form of spending
because the spender of the funds have no
interest in ensuring it is being spent efficiently
and the good or service is being received after
the funds have been spent, so the recipient
has no input into what constitutes quality.
Sub-standard quality housing
So we have a housing programme in T&T
spanning both sides of the political divide
where the State constructs houses and then
provides a subsidised loan for persons to pur-
chase these same houses. If you juxtapose this
scenario against item number four above, you
are likely to get houses that are constructed
in a sub-standard manner and persons unwill-
ing to at any time pay a commercial price for
something that is sub-standard.
Now reflect on the issues surrounding State
housing from the 1970s to today and see if it
is not painfully obvious why we are where we
are as far as this issue is concerned.
Further in the realm of personal financial
planning, people are advised not to put all
their eggs in one basket, but to diversify their
risk across a broad range of assets in order to
ensure some measure of financial stability. Yet
the reality is that purchasing a house goes
against every personal finance principle as it
is a single large investment using huge amounts
of debt spanning much of a person s working
Purchasing a house on standard terms and
conditions is, therefore, a huge risk and while
it may be one that can be tolerated by more
affluent people, it should not be a risk taken
by lower income people all other things being
The problem is that in trying to bring relief
to those who are less able to afford, we do so
via transfers and subsidies, essentially invoking
point four above, which leads to inefficiency
and waste. Yet, if we were really interested in
getting value for money and a sustainable
approach to development, our focus should
be on policies attuned to points one and three
One example of how this can be accom-
plished in a housing context is via the shared
Here the borrower (home owner) is offered
a lower rate of interest, but there is a contin-
gency where the lender participates in the
capital appreciation on the property when it
is sold. If, therefore, a $500,000 home is sold
for $1,000,000 in 15 years, then under this
plan with a 20 per cent contingent profit, the
home owner pays over to the lender 20 per
cent of $500,000 (profit) or $100,000 when
the property is sold.
Under this approach, a few things begin to
Firstly, the State as the entity constructing
the house has a vested interest in ensuring
quality workmanship since this will impact
the resale value in times to come.
Secondly, the low income home owner is
incentivised to utilise the difference between
the low interest and market interest rates to
maintain the property in order to realise their
benefit from the sale.
Thirdly, at a social level, the home owner
would also be interested in ensuring the neigh-
bourhood remains intact and improves as this
will have an impact on the value of the property
in years to come.
The last point deals with some of the issues
associated with crime and community policing,
etc. When a community has a collective eco-
nomic interest in keeping criminals out and
preventing its constituents from turning to
crime, then a huge bridge is crossed. Overall,
people come to understand what a true own-
ership stake really means and are likely to act
For the lower middle class, this programme
can be modified where the person actually
builds their house and then enters in the shared
appreciation mortgage. This takes us to point
one above and is the most efficient way of
Overall, the State now mandated to manage
the economy, so that there are no huge boom-
and-bust cycles as these will affect property
prices with no profits to be earned in the bust
cycles if houses are sold at a loss, negatively
impacting potential voters. Then, of course,
there is the issue of sustainable employment
to ensure payments are properly made and
I am not in any way suggesting a shared
appreciation mortgage is some magic bullet
on the path to economic prosperity. What it
does is to illustrate the point that when we
have more people in our society with common
economic interests, then we are more likely
to get people working together towards the
common outcome of nation building.
Consistent policy anchored to market forces
is a better approach to governance than the
knee-jerk economics of the past 50 years
where, often times, economic policy is crafted
by a speech writer the night before a statement
on a political platform.
Will we ever get it?
Ian Narine is a broker registered with the
Securities and Exchange Commission.
Will we ever get it?
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