The only viable route to salvation is to raise island’s productivity

Today, governments around the world can only dream of achieving anything like the success that Guernsey enjoyed back then – the States’ actions overshadow even what Roosevelt was to achieve in his New Deal a century later.

Fast forward two hundred years and Guernsey faces another productivity crisis. Since 2010, Guernsey’s level of productivity has increased on average by only around half a percent a year, and even this may be too optimistic an estimate. Despite this being the author’s day job for the last thirty years, data issues make it difficult to be exact and my sense is that the real number may be closer to zero. However, we can also calculate that, since 2010, the relative cost of doing business in the Bailiwick has increased by more than a third.

Quite simply, the economy has a competitiveness problem that discourages new investment and wealth creation, while encouraging stagnation. Moreover, the lack of competitiveness implies that the economy’s external balance has become – like it or not – dependent on ‘millionaires’ moving their money here. Clearly, the situation is not sustainable over the long term on many levels.

Of course, as the underlying economy has struggled to grow, not only has the number of empty shops increased but the States can only fund the higher expenditure that they – and many of the population – want by either borrowing money or taxing us more. Borrowing more in a world of rising interest rates could be problematic, but higher tax rates may well discourage future investment and growth. Certainly, they will do little for competitiveness.

In a sense, the current furore over GST etc. is a debate over the symptoms of the malaise, and not the underlying problem. Since Guernsey cannot devalue its pound or materially raise its population (if that were to be deemed desirable), the only way in which growth can be restored, which would then allow us to afford more government expenditure, is either by lowering the costs of doing business here or by raising productivity. While some might welcome lower property prices as a way of doing business, we doubt that many would want the lower wages that would also be required to lower costs. Therefore, the only viable route to salvation is to raise productivity.

Raising productivity is not always easy and it certainly is not done through grandiose and probably inflationary projects such as building tunnels and the like. There is however ‘low hanging fruit’ that could be harvested by improving education and training, infrastructure planning, a streamlining of the regulatory environment, and the elimination of waste in parts of the system. Even adding 5% to productivity levels would make a huge difference to the island’s prosperity – and potentially to its income equality.

Two centuries ago, the States wrote themselves into the economic history books with a bold strategy that treated the underlying disease and not just the symptoms. Today, the authorities should look to their own history and attempt the same feat. To do so would not be an impossible task, but it will take application.

ANDREW HUNT

Consultant Economist