Greater productivity, increased production and good governance are the panacea needed to lower the cost of living and increase living standards.
For all the efforts of governments to manage living standards by lowering living costs, history has revealed that the marketplace is the final arbiter for deciding on the cost of living. In other words, the market and not the desk of the minister decides shop prices and wages. Governments can only attempt to increase output by adopting appropriate policy and public investment.
Countries where governments have attempted to intervene in the marketplace through government policy — such as attempting to manage tariffs and import duties or establish a minimum wage and price controls — have discovered that these policies do not influence prices or living conditions.
The cost and standard of living are a result of the interplay of demand and supply. Consumers and producers in the marketplace — not governments — decide shop prices and national wages.
Upping production
The single thing that a country or territory can do to influence national prices is increase production. This can be the result of identifying factor endowments and then increasing output in specific local markets, especially in the production of food and drink that every consumer needs.
The world is a village, and financial players such as the United States Federal Reserve, the European Central Bank, the International Monetary Fund and the World Bank decide international price levels, including the value of the currency within a country’s borders. This takes place through currency management and regulation and the selling of global debt through various mechanisms. In other words, global finance, capital and commodity markets decide the value of the bread on our tables.
The power of the international financial system filters into the operations of local banks and businesses in countries and territories that use, or peg their currencies to, global currencies such as the dollar and euro.
In the Virgin Islands
Caribbean jurisdictions are subject to the dictates of western financial and capital markets. There is not a lot that governments in the region can do to lessen the power of the global banking system on the local marketplace apart from increasing the local output of homemade products and services.
The value of the dollar, for example, decides the standard of living in the Virgin Islands. Consumers can groan about prices in supermarkets, but there is little that the government can do to reduce prices that are set outside the territory.
In an import economy, the situation is even more acute. Prices in VI shops are set abroad by alien markets after the interplay of market activity in London, New York, various European capitals, and Asian cities like Shanghai.
In the VI, importers pay the duties and shipping costs and then decide the price they need to set to make a profit with the capital they own. Reducing prices with government intervention in that series of events is near impossible. Still, governments can try.