I thought we were supposed to be a liberal, democratic,
capitalist, non-racist, egalitarian, religious society, ruled mostly by commonsense and logic. All right, I'll make an exception for the matter of skin pigmentation, in which we are ruled by emotion, illogicality and political
advantage. And where capitalism is concerned surely the ideas of Adam Smith, that absent-minded son of Edinburgh, coupled with the notion of the free market, should reign supreme. Are not Marx and his ideas both dead?
So I was
surprised to hear loud applause for the recent article by Nick Kelly on the subject of VAT. He pointed out, surely to nobody's amazement, that if the cost of an imported (or locally manufactured) item is reduced, then, if the
mark-up remains the same, the profit on the sale of the item is reduced.
His good example is an importing business where the CIF (that's first-Cost, Insurance and Freight) of last year's goods was $1 000 000, which, with a
mark-up of 35%, gave a gross profit of $350 000. Expenses were $300 000, with a net profit of $50 000. If this year's imports cost $850 000, the same mark-up gives a gross profit of $297 500. Expenses being unchanged, the firm must
then bear a loss of $2 500.
What can they do? Try to sell more, increase the mark-up, or reduce staff. Or possibly (though Nick doesn't consider this) increase the efficiency of the business, by carrying less stock and
hoping things will turn up in Barbados when they are supposed to. Some hope!
Am I being foolish to think that buying something cheap and selling it dear is the basis of business? Certainly if you buy 100 Rolls-Royces and
sell them 35% dearer you'll make a more useful profit than if your trade is in 100 Volkswagens. But it would hardly be sensible for Government to help the motor-car trade by allowing only the importation of Rollers.
It must be a
matter for each business to decide their own tactics:- raise or lower their mark-ups, reduce or retain their staff, borrow more or get more equity capital, risk reducing their stock. And if they end up in the Barings-in-Singapore
Syndrome it's nobody's fault but their own. Surely that is the pattern of the free market.
But my experience has been that, with the exception of the thirties and forties (around the time of World War II ) everything always
gets more expensive as inflation continues inexorably on its inevitable path. I'm sure that the introduction of VAT will be no exception. One thing is a present difference. It was the last government which began the march
toward the introduction of VAT and the present government which completed it. So the B's and the D's can scarcely quarrel about it. I bet that they will try.
Nobody seems to have mentioned, or at least not in public, one change
which is creeping in. The USA can raise or lower their tariffs as they please, and does just that. However that great democratic country gets distinctly narked when other countries raise theirs or do naughty things like setting
quotas. Little West Indian islands like Barbados are supposed to expose ourselves bare naked to the icy winds of competition from countries with huge internal markets and/or Government subsidies for industries which provide jobs
for lots of terribly important voters. Look no further than sugar-beet production in Europe.
At least when we had Stamp Duties and Consumption Taxes and Surcharges we could muck about with them to give occasional discreet
protection to some of our struggling industries and keep up our employment levels. With VAT we are going to lose that freedom of action. Maybe Mrs. Consumer will be able to buy a few things a bit cheaper at the supermarket, but if
Mr. Consumer is out of work there will be be but little advantage.
Let us look first at our own prospects of employment rather than aiming at getting imported goods cheaper into our markets.
Wrong idea, say the Free Traders.
Let us concentrate on those things where we can compete in the world market, like our marvellous climate which allows us to offer year-round sunny beaches and warm sea-water to tourists who can understand our almost universal
language. Like fiddling more or less legal tax avoidance arrangements for people in other countries ( it's called overseas banking, investment and insurance). Like employing Bajan girls who can more or less read and write to
transfer excruciatingly boring information between paper and computer (the informatics business). The last two being areas which may be bankrupted by small changes in the laws of other countries, or by advances in technology. Or
our tourism may be ruined by an oil spill or a rise in sea level.
No, not just that, say the Protectionists. Let's encourage industries where we can produce those things we need and can actually make here, like biscuits, beef,
mutton, pork, vegetables, bread, shirts, beach wear, rum, sandals, clay tiles, dogs, horses, even motor-cars made in St. Philip. Encourage them by protecting them against foreign dumping of over-produced inventories at rock-bottom
prices, dumping sometimes done with the hope of putting our small, poor, black-and-white business-men out of their black-and-white businesses. I think that aggressive dumping to ruin your competitor is wicked, evil, sinful and to
be discouraged. Other people tell me it's only good business.
Some Bajans get indignant when northern countries make it difficult for our unemployed young people to emigrate there. Do they forget how difficult we make it
for Guyanese and St. Lucians to come here to work? Or is that different?
And then we must never forget the unions. If a business is making a profit, along will come the unions, doing their proper job to make labour more
expensive. If the business fails it is nothing to do with them, it's all due to bad management, of course. But if management sacks, or even fails to promote someone the union likes, then it's a General Strike tomorrow if they
don't climb down, and climb down damn quick, too.
Should we then pity the poor, rich business-man? Not always, I think. There are, and always have been, brilliant business-men in Barbados, whose touch turns almost anything to
gold, whatever may be the colour of their skin. Being rich and able to prove it, they may choose a domicile almost anywhere advantageous in the world.
Another way that VAT is bound to cause inflation is that many firms
will have to pay VAT to government and then try to reclaim it later from the same inefficient, heartless organisation. Not only must the firm employ more staff for the paperwork, but it's likely to be years before the cash gets
back where it started. Meanwhile the government gets free use of the money, while the firm must borrow it dear from the bank. Two reasons to increase the mark-up.
Relax. Have a rum punch. Lie back, think of England or Barbados,
and enjoy it. I mean inflation.
