Editor’s note: This is the final of a two-part column on political culture influencing economic development.
Looking back over the last 50 years, an immediate question would be how well our predominately one-party democracy has served us?
The following questions can and should be asked. Of course, we are abstracting away the political status and constitutional rights issues associated with being an unincorporated territory.
1. How has the quality of economic management and employment performance improved?
2. Has the local government become more effective, efficient, transparent and accountable?
3. Has access to and the quality of basic social services, (public education, health care systems, public utilities, waste management and policing), improved?
4. Has the business climate improved? Has the number of businesses increased? Has the economy diversified from tourism, rum and oil?
5. Is the V.I. ready to be fully integrated into the United States as a well-functioning state, or is it prepared to become an independent, sovereign nation?
The answers are generally not affirming.
The quality of economic management and growth performance has been less than idyllic. Compared to the mid-2000s, the Gross Domestic Product or GDP has shrunk from $4.8 billion in 2007 to $ 4.1 billion in 2019 (most recent official statistic available). The non-agricultural workforce has shrunk from about 45,000 to 35,000; the number and diversity of business establishments have shrunk — 2,419 business establishments in 2017 Economic Census v. 2,583 in 2007 Economic Census; the population has declined; cruise-tourism market shares have shrunk vis a vis other Caribbean destinations.
The last budget surplus reported was 2007. The territory is heavily indebted and has lost its credit rating. Real economic growth has become more volatile in the last 15 years due to vulnerability to external natural disasters, public health and macroeconomic shocks.
The territory’s public employee pension fund is heading to insolvency because of inaction over three decades. Even in the best of years, real economic growth has been anemic ranging from 1% to 3% .
The Virgin Islands does not contribute data to Institutional Effectiveness Indexes compiled by the World Bank or U.S. Local Government Indices. Still, anecdotally, much evidence suggests that improvements over the last 50 years have been modest. The quality of basic services including education, health, waste disposal and electrical generation and distribution leaves much to be desired. E-government is just in its infancy, and progress is uneven. You can fill out a juror questionnaire online, but cannot pay taxes online.
The territory does not participate in Ease of Doing Business surveys. Still, anecdotal evidence suggests that the V.I. has had persistent weaknesses in permitting/licensing/ accessing credit/ and the cost and reliability of electricity over a prolonged period.
The typical indicators measured by the International Finance Corporation index are 1) how much time, cost and minimum capital does it take to start a business; 2) how long does it take to get a construction permit; 3) how long does it take to obtain an electric business connection and what is the average cost; 4) how long does it take to register property; 5) how difficult is it to access credit; 6) how well are investors protected; 7) how easy is it to pay taxes; 8) how easy is it to trade across borders; 9) how easy it is to enforce a contract, and 10) how easy is it to resolve insolvency?
Materially, the standard of life has improved markedly. Nonetheless, poverty and inequality are high, and resilience is relatively low. Life expectancy in the U.S. Virgin Islands has improved from 69.05 years in 1970 to 79.6 years in 2019. The under-five child mortality rates dropped from 223 per 1,000 live births to 38 between 1950 and 2019. According to the U.S. Census, the poverty rate has decreased, from 27% in 1990 to 22% in 2010. The median family income improved from 2002 to 2015.
The level of childhood poverty is extraordinarily high 37%, according to the 2016 Kids Count Report, suggesting severe inter-generational transmission of poverty will occur. Moreover, a reduction in growth performance seems to have happened in the last decade and a half. The GDP per capita peaked in 2007 at $44,334, and the territory has not regained that level after a series of successive shocks since then, suggesting a lack of resilience. The per capita income level is about $5,000 less than in 2007, albeit still one of the highest in the Caribbean.
The V.I. has pursued a tax incentive-led business attraction model, exchanging generous tax holidays for local employment generation and a mass-market tourism model based on cruise ship arrivals. The models worked well between 1961 and 1980, creating a “boom,” but the returns seem to be diminishing. Some big box stores and telecommunication beneficiaries have generated jobs in recent times. Still, it is not well-advised to have gross receipt taxes, a turnover tax, be a more important source of tax revenue than corporate income tax.
Over the long haul, little substantive diversification has occurred. Diversification is less now than in the late 1960s when there was oil production and watch factories. The public sector remains the leading employer, accounting for about 28% of the non agricultural workforce.
In summary, the one-party system has created a sizable middle-class based on government employment and guided the development of a mature tourism economy. Still, the one-party political system has not been able to deliver good governance, build strong public institutions, or forge a dynamic, sustainable economic development model with broad-based equity. In the last two decades, the territory has been drifting from one external shock to the other, going backwards, starting a period of recovery, just to be hit by another shock, and depend on the federal government for a rescue. The weaknesses in public institutions and lack of economic diversification have exacerbated these external shocks’ disruptions and made recovery processes slower.
To change the model of economic development to one that seeks to accelerate pro-poor, inclusive, environmentally sustainable growth led by a dynamic private sector, the political culture and the one-party political system will have to change. The new question becomes what has to occur to improve the situation? Either the political parties become more competitive, or the Revised Organic Act of 1954 must be changed to diminish the chief executive’s power and change the Legislature from multi-member districts to a single-member districts. Currently, the incentive is for the chief executive to preside over a fiefdom of patronage.
At present, an elected senator’s motivation is to seek individual limelight by pushing minor, noncontroversial symbolic measures more often than not and constantly pandering to a small set of “super loyal bullet voters” to win reelection. It would be much better if a senator represented a single constituency district and had incentives to work to resolve constituents’ complaints and cooperatively with other senators on substantive legislation.
What will have to change to make the 51,000 registered voters demand better governance and accountability from their leaders? First, they have to stop seeing themselves as powerless and commit to doing better at all levels. That means not littering, calling out family members and friends who are doing wrong things, and stop voting for politicians with the best fish fry instead of the best proposals for making government more effective. Second, campaign finance needs to be more transparent and limited. People should know who is contributing to which campaigns and how much. Politicians tend to be accountable more to donors than voters. Politicians need to be treated like NASCAR and Formula 1 Race Drivers. Demand that their sponsorship logos be visible at all times. Third, people and the media have to demand accountability and judge politicians on results and performance. People have to think deeply ask deep questions, and care deeply, about the community at large, not expect that Junie will get a “government job” because they “friend, friend with politician X.”
— Mark Wenner, St. Thomas