Cayman may have become a ‘victim of its own success’ with high prices for food, housing and utilities outstripping those expenses in the US or the UK, Caribbean economist Marla Dukharan told the Cayman Compass.
While she believes the islands have the best-run economy in the Caribbean, Dukharan warns that wealth disparity in the face of high prices could have a destabilising impact.
In an interview with the Compass, she discusses the challenges of controlling costs in an island economy and possible solutions including a universal basic income or a Sovereign Wealth Fund that could direct budget surpluses towards addressing inequality.
Is a high cost of living something people in Cayman should even be worried about. Is it just an expected part of living in an economically successful place by the sea, where salaries are higher and taxes are lower?
Yes, I would expect the best-run country in the Caribbean to see its cost of living increase beyond the average, as the Cayman Islands may have become a victim of its own success, attracting robust net inward migration.
And yes, people in the Cayman Islands, particularly the policy makers, should be mindful of how this is affecting residents, and should devise policies to mitigate the impact.
What do you think are the main factors that drive up costs in Cayman compared with the US and UK?
The US and UK are blessed with economies of scale, logistical advantages, natural resources, robust and diversified domestic economies, and many government subsidies on certain goods and sectors – all of which are responsible for maintaining cost advantages over the Cayman Islands and, frankly, any small economy reliant on imports which have to travel over long distances.
We have some wealth disparity in Cayman – are people at the lower end disproportionately impacted by a high cost of living and is there anything to be done about that?
Wealth and income inequality are at their highest levels globally, and such obscene levels of inequality, which affect women disproportionately, should be a policy priority worldwide. I believe that this inequality underpins the political upsets we have been seeing in the last decade, so politicians ignore this problem at their peril.
Fiscal policy is a powerful tool in addressing inequality, and the government of the Cayman Islands has some fiscal space it can leverage in this regard. I have said before, and it is worth repeating, that the Cayman Islands possesses the perfect conditions for a Sovereign Wealth Fund-type arrangement.
In the Turks and Caicos Islands they called it a National Wealth Fund, for example, but the concept is similar.
The Cayman government generates a fiscal surplus typically, but this surplus is spent at the discretion of the Minister of Finance or the Parliament, whereas a fund would have a different governance and operational structure, and would be independent from the Ministry of Finance.
A fund like this could be used to address medium- and long-term socio-economic challenges and to meet development goals.
Reducing or eliminating inequality could be one of these goals, which could be met via improving access to education (early childhood through to tertiary), housing, healthcare, safety nets, etc. to those who don’t currently have adequate access, for example.
The fund could also be used to support, for example, entrepreneurial activity via loans/equity stakes in MSMEs (small business), building climate adaptation and resilience, shifting to carbon neutrality, achieving gender equality, achieving universal financial inclusion, etc. I would be honoured to help the Cayman Islands move in this direction.
Home ownership seems to be the biggest concerns for the middle classes. With overseas buyers driving up prices, how can ordinary people afford a home?
This is an area ripe for meaningful policy intervention, and I believe the government has taken steps to increase access to housing for the middle class. Are these efforts not yielding the desired results? Or perhaps not yet?
Well, there is a general election coming up. This issue should feature highly on the list of issues that constituents raise with their MPs/candidates, and the constituents should hold their elected representatives to account for any promises made in this regard.
The government can also implement policies to give first-time resident homeowners access to concessional mortgage loans, in addition to more housing construction projects.
Anything politicians and policymakers can do to control cost of living in an economy like Cayman’s?
It is difficult, if not impossible, to control prices without causing market distortions and, furthermore, subsidies on food, fuel, utilities etc. usually end up benefitting the rich disproportionately.
I am more in favour of a universal basic income approach, as any intervention like this can be much better targeted, especially in a small society.