Today I was listening to This American Life podcasts while vacuuming (uh huh, my Sunday mornings are fun!).
The episode titled “Social Contract” (no. 410) was teased by Ira Glass as being about two different governments in financial crisis. The first is about the current one in New York state, how Richard Ravitch tried to fix it, and how politics and politicians as usual not only trashed Ravitch’s plan (which has worked in the past) but have gone on to do almost nothing to help remedy the problem. It’s a story about frustration, incompetence, and the difficulties of doing the right things financially if it means doing the wrong thing politically.
To juxtapose this tale of woe, Ira Glass and team chose to tell the story of Barbados’ financial crisis in the early 1990s and how the Bajan citizens banded together to get themselves out of it.
I was thrilled to learn something about modern-day Barbados. THRILLED. And it is a truly amazing story. Told by Alex Blumberg (of NPR’s Planet Money), who went to both Jamaica and Barbados, it explains why Barbados is thriving these days while Jamaica is not, even though the two have a nearly identical history up through the last few decades.
I encourage you to 1) start downloading This American Life podcasts and 2) to listen to this episode yourself (the streaming is here, the transcript is here). But I do want to give you a sense of what was happening to Barbados in 1991 and a hint at what got them out of crisis. I am going to simply quote from the transcript of the show.
Some quick statistics for comparison. Five decades after independence, median income in Barbados is twice what it is in Jamaica. Literacy rate in Barbados, over 95% … in Jamaica, it’s estimated that a fifth of the population is functionally illiterate. And Jamaica has one of the highest murder rates in the world, while Barbados is near the bottom.
So what did Barbados do so right? Come with me now to the 1990s … [..]
This is a problem a lot of countries get into … you may have heard the term “foreign exchange crisis” – that’s what this is. And in 1991, Barbados was facing one. The first people who knew this were the employees of the Barbados central bank, where the supply of American dollars (and all those other foreign currencies) had been steadily dwindling. […]
And so the Barbadian government did what almost every government in this situation does: It went to the IMF – the International Monetary Fund – and asked for a foreign currency loan. The idea being, we’ll borrow a couple hundred million dollars US now, and then when Americans start coming back to our beaches, we’ll pay you back in dollars.
The IMF did what IT always does. it said, sure, we’ll give you the money, but there are strings attached … so you don’t get into this situation again.
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.
So here’s how you do that: You can devalue your currency … so if it costs 5 Barbados dollars to import a C&C music factory CD now it would cost 10. Ditto for bread, toothpaste, prices for everything go up.
Or you can cut government services … which – think about it – means all kinds of people have less money in their pockets.
Neither of course is very popular. […]
But the unions knew that they’d need help resisting the IMF. And so, they hatched what seems like a fairly strange plan for a trade union. They decided to band together not just with other unions, but with management as well. With the business councils, and chambers of commerce on Barbados. To join together, to confront the IMF and set the terms of the loan. […]
“We told the IMF for example that we would not agree to an enlarging of the size of classrooms. They wanted to double the size of classrooms. They wanted to have people going to the hospital and have to pay for services. And our position was that we were going to be under an IMF program for a while, but we were go to come up from it. And when we came back up from it, our people had to be healthy and they had to be educated and ready to take on the job of building the country again. And the IMF was persuaded by us. I think the government was also persuaded by us. The employers were side by side with us in these arguments.”
The arguments stretched on for months, the employers and employees on one side, the IMF on the other, the government sort of in between. The main sticking point, wage cuts. Lower wages would mean people would buy less from abroad, which would mean they’d need fewer US dollars. So the government was proposing a big wage cut. The unions and the employers together tried to fight it. […]
But in the end the speeches, the general strike, the 30,000 marchers on the street could not contradict the basic reality … that the country of Barbados would run out of money, unless it figured out a way to get its people to spend less. And so the government under pressure from the IMF, insisted on an 8% pay cut for all public sector workers, across the board.
And it’s at this point, that things departed from the usual script, where each side digs in for a brutal war of attrition. Sir Roy and the leaders of the other unions knew that fighting on – more strikes, more demonstrations, which might get out of hand and lead to violence – all that could kill an already fragile tourist industry. And so they went back to their members and in meeting hall after meeting hall, all over Barbados, explained to the union rank and file, we’re sorry, this is the deal.