Monday, November 28, 2016

Relevance of local government — if we can get it to work

Last week I was driving around Montego Bay with the NSWMA regional manager and stopped by the Retirement dumpsite. As I drove around, I thought to myself that much of the challenges we continue to face — at the NSWMA, and nationally — have so much more to do with the lack of order, discipline, and civic pride (or I should just say how people are brought up), than it has to do with resource availability.

As I visited the Retirement dump, it was clear to me that not only does it need a lot of work, but that many of the environmental conditions as it relates to the people and children have been ignored. People are allowed to live around and on the dump, including children, which is a major health hazard waiting to happen. In fact, children there play at the dump as our own children play in our yards or parks.

This, I think, speaks to the ineffective way in which we have sought to enforce environmental standards – by focusing on it after events happen, than being proactive and ensuring that people do not live in these conditions.

But then again, can we blame the people who are to enforce environmental standards when people are allowed all over the country to squat where they please? Maybe this is just another squatting community in the eyes of our local and central government.

As I drove around Montego Bay (in order to view the numerous complaints we get about garbage pile up in the city), it became very clear to me that: (1) the problem of garbage pile-up has less to do with the NSWMA and more to do with our means of disposal; and (2) that based on how garbage is disposed of, we can never afford enough trucks to keep the city clean.

All around the town I spotted people just dumping garbage in piles on the roadside outside of shopping centres, and even where skips were visible, more garbage was thrown outside of the skip than in it.

I was also told, and saw for myself, that NSWMA trucks were picking up the garbage. Then by the time we drove past a few hours later, more garbage was piled up. So, in fact the truck sometimes must make two trips per day.

Based on what I saw, there is no way that NSWMA can provide enough trucks to manage this situation.

The way we dispose of our garbage requires significantly more resources for the NSWMA, which eventually means that Government inevitably has to raise taxes as the cost of providing the service is much more than anticipated.

I hope everyone sees this link.

The main problem, as I see it, is the lack of enforcement of order and discipline in the city, which is not peculiar to Montego Bay. The maintenance of public order is the main responsibility of local government, and this is where I think local government has failed. This responsibility also must rest with local and not central government.

The problem we have with local government is not that it is irrelevant, but that it is dysfunctional. So, in my view, what we need to do is to get local government to work and we would see a significant improvement in our economic and social development. This is because no economy or society can move forward without law and order.

The question, therefore, is why can’t this be done by central government and just get rid of local government? This is the argument that many people make, but this again can lead to greater inefficiency and facilitate corruption. This would be because the other advantage of local government should be a check and control of central government. But this has not worked, as many times it seems as if local government is nothing more than an arm of central government, especially when they are both run by the same party, and it seems impotent when controlled by the Opposition.

The reason for this ineffectiveness is because there is no independence of local government. So when both branches of government are controlled by the same party, the fact that it is the ruling party that appoints candidates for local government makes it an extension of central government.

And when they are both controlled by opposing parties, the central government many times starves local government of resources because the local government funds are controlled by the former.

This is the challenge that local government faces in Jamaica and why it is ineffective.

What we need to do, therefore, is carry out proper reform which would then make local government more effective and accountable to the people, such as direct election of mayors by the people rather than “the chosen one” from the political councillors. In that case, it wouldn’t matter to people who controls the councils, as the mayor would be independently elected by the people.
If this were so, then local government would be much more effective in things such as proper zoning, enforcement of order (such as removal of illegal vending), and clean commercial areas.

This lack of any autonomy for local government is evident in the debates, where much of the debate has centred around things being done at the central government level, rather than anything to be done at the local government level.

The reason for this is simply that parish councils are basically impotent on their own as all the action happens at central government.

Until this is addressed, we will continue to have weak and ineffective local government, lack of public order, and possibly the continuation of improper waste disposal — partly because of lack of effective local government and partly because of the lack of pride by our people.

Monday, November 07, 2016

Analysis of Jamaica’s competitiveness and development challenges (Part 2)

Last week, I ended by speaking on the point that if we are to see true economic and social development in Jamaica, this can only come through increasing our competitiveness as a country. The only way for us to do that is to target the categories of Efficiency Enhancers and Innovation in the Global Competitiveness Report (GCR) ranking, as our improvement has been in the category of Basic Infrastructure primarily.

In other words, what we have been doing over the past four years is creating capacity (such as through institutions and infrastructure development) and macroeconomic and fiscal stability.

This has caused us to see improved confidence and thus increased investments and a return to growth. (It is reported that in the September 2016 quarter, year over year growth was 2.3 per cent annualised. This, however, reflects the bounce back from the drought that affected agriculture and so a more normalised growth may be under two per cent — still a significant development.)

So if we look back at the areas of Basic Infrastructure, we would have seen significant five-year improvement in the pillars of Macroeconomic Environment (17 per cent improvement) and Health & Primary Education (38 per cent).

However, when it comes to our Institutions and Infrastructure, we have only seen five-year improvements of eight per cent and three per cent respectively. A further analysis shows that of these four basic infrastructure pillars, only Health & Primary Education is in the top 50 rankings, with Macroeconomic Environment at 112, Institutions at 73, and Infrastructure at 77.

So even though our overall improvement has come from the basic infrastructure category primarily, the fact is that the improvement does not mean that we are where we should be as our institutions and infrastructure primarily remain serious impediments to development. In fact, the recent occurrences in the “X6 court case” and the unacceptable situation at the Firearm Licensing Authority prove that our institutions remain a problem.

In the area of Efficiency Enhancers, we even have a more serious issue, as in the pillars of Higher Education & Training, Technological Readiness, and Market Size, we have seen five-year declines of 13 per cent, five per cent, and 17 per cent respectively, and rankings of 90, 77, and 119. These are pillars that are essential for improved competitiveness and are therefore a serious concern, and they must be targeted if we are to improve our international competitiveness to create sustainable growth and development.

In fact, the area of Higher Education is of primary concern, as there is no rich country that has a relatively undereducated labour force. I was just this week having a conversation with someone about the future of driverless cars and robots doing most of the menial tasks which Jamaica embraces as job creation. Our labour laws, for example, have helped to impoverish our labour force by creating greater informality in the labour force and lowering productivity. This has all been done with good intentions (and to get votes), but it has had a distortionary effect on the labour market and created less value.

Under Efficiency Enhancers we have seen five-year improvements in the pillars of Goods Market Efficiency, Labour Market Efficiency, and Financial Market Development of 11 per cent, 10 per cent, and 16 per cent respectively. However, the rankings for Goods Market Efficiency (61) and Labour Market Efficiency (60) are still out of the top 50 countries, and show that much work needs to be done, primarily from the regulatory side to improve.

The Innovation and Sophistication category shows five-year improvement in both pillars of Business Sophistication and innovation of 14 per cent and nine per cent respectively. This, in my view, reflects the natural improvement in the private sector, which controls the movement in these pillars. The problem with these is that they are both out of the top 50 countries, at 57 and 70 respectively. Even though they are not where we want them to be in the rankings, my own view is that if we were to create a friendlier and less inhibiting environment, through better regulations and lower entry barriers, we could see a more significant improvement in the Innovation category.

The table shows us the lowest ranked areas from the 2016/17 GCR report (over 100). What it shows us is that the challenges we face for competitiveness, which negatively affects our economic and social development, is primarily because of crime and justice, fiscal management, and government policy.

We all know about the deficiencies in the justice system, and the crime challenges, but as an example, the approach of tax policy in past years has been to raise the taxes every year on people who are compliant, largely ignoring the non-compliant and the fact that higher tax rates drive capital away from the country. The recent successes of the Employment Tax Credit and moves by Tax Administration Jamaica at compliance and ease of paying taxes, show that lower tax rates and easier tax systems do increase compliance and collections.

There is a lot more that could be done in terms of a detailed analysis of Jamaica’s lack of competitiveness, and hence lack of development, but space does not permit. Suffice it to say that what we must do is not just celebrate the headlines but take a strategic and surgical approach, to look at what are the factors that prevent us from achieving the growth and development we need — and then implement policies specifically to improve those areas.

This is the only way for us to get to where we need to be as a country to ensure prosperity for all Jamaicans.

Thursday, November 03, 2016

Analysis of Jamaica’s competitiveness and development challenges

Recently the World Economic Forum released the Global Competitiveness Report 2016/17, which showed Jamaica improving its ranking from 86 of 140 to 75 of 138 countries. This was an improvement from 67 per cent to 54 per cent in the ranking.

A few days later the World Bank released the Doing Business Report (DBR), which shows Jamaica falling two places, in the ranking, from 65th of 189 to 67th of 190 countries. This is a marginal slipping in the rankings.

Of course what we normally do, when these reports are published, is to look at and comment on the overall ranking primarily, and most times do not take the opportunity to look at the details to determine what must be done from a strategic point of view to address these issues.

A part of that deficiency may be that we don’t seem to set any real targets to improve in these ranking — as we always have discussions without any real understanding of the details behind the rankings and what must be done to improve in the rankings.

So we don’t, as a country, set ourselves targets in terms of where we want to be in say five years in the ranking of both the GCR and DBR reports.

As an example, I haven’t heard any real talk about an objective of being in the top 50 countries in the ranking in both reports. So a strategic goal could be to say that in three years our objective will be to be in the top 50 countries, and what that will mean for Jamaica. And then we may go further to say that within 10 years we want to get to the top 25 countries.

This would naturally be what private sector organisations do, as do individuals in their own life plan. But as a country it seems we never create a vision of where we want to be in a defined timeline, and get the population to buy into it. One may say that we have the Vision 2030 objectives — but the truth is that it is a well-kept secret from the general population.

To properly understand where we need to go, we must of necessity understand in greater detail what the current status of our economy is. And this can helped by looking at both the GCR and DBR reports, instead of just looking at the headline ranking. Because if one looks behind the overall ranking I think it gives a very good indication of what areas we must focus on if we are to realise Vision 2030, which is just about 14 years away.

One of the questions I always get is: if Jamaica is touted as doing so well, under the just- ended IMF agreement, then why are we still grappling with economic growth? In fact, even though we have seen a return to growth, the fact is that the average is still not much more than the average growth rate over the past 40 years. The reason for this, I think, can be answered by further analysis of both the GCR and DBR.

If one looks at some of the details behind both reports, you will see that the challenges highlighted are similar in both reports. Both the DBR and GCR reports identify that inefficient government bureaucracy is a major issue, and the GCR report goes on to highlight significant deficiencies in the justice system and crime as issues.

Both crime and inefficient government bureaucracy have been the two most problematic factors to doing business in Jamaica for years, and yet we have been unable to address these challenges.

If one were to really think about it then, the real challenge we face is a lack of proper governance, as both crime and bureaucracy are consequences of poor governance.

This is a conclusion I had come to in my book,Charting Jamaica’s Economic and Social Development, where it became clear that the real challenges of social and economic development stem from our constitutional politic arrangements.

It is not practical, however, to address it by trying to change our constitutional arrangements, as neither political party will want to do that, as they want to preserve power. So the next best thing to do, which has been the trend, is to strengthen the institutions around our current political systems, and in so doing remove some of the stranglehold of our political system (read the book Why Nations Fail).

It is this strengthening of our institutions (as depicted in the table showing the five- year trend in the GCR) that in my view has resulted in greater confidence leading to enhanced macro-environment and market conditions. In other words if we did not move to develop institutions like the OCG, public defender, INDECOM, Charter of Rights, and more recently EPOC and ESET, then we would have had worsening social and economic conditions. This would in turn lead to loss of confidence, lack of investments, and further impoverishment.

So what the table clearly shows is that Jamaica has been improving steadily in the GCR ranking, moving over the five years from the 67th to 54th percentile.

But even with this steady improvement, Jamaica has still struggled to find any significant economic improvement. What should also be noted is that the more significant improvements over the period occurred when we started the IMF agreement in 2013, which saw the strengthening of institutions (mentioned above) and more oversight by the private sector and civil society.

If we are to see economic and social development in Jamaica, then we must fiercely go behind the overall ranking and, secondly, put action in place to bring us into at least the top 50 per cent of countries for doing business.

Even though we have seen continuous improvement in the GCR ranking, it should be noted that the improvement primarily takes place in the Basic Requirements category — where over the five-year period we have improved 24 per cent from 114 of 144 to 75 of 138 countries measured. However, in the categories of Efficiency Enhancers and Innovation, over the period we have seen a decline of one per cent and improvement of 11 per cent respectively. The problem being of course that global competitiveness means that we have to do well with Efficacy Enhancers and Innovation.

It is this lack of development in these areas that, in my view, has caused us not to grow at acceptable rates.
(Continued next week)

Wednesday, October 12, 2016

Jamaica’s growth – same problems, same solutions

The World Economic Forum has just published the 2016/17 Global Competitiveness Report (GCR), and it shows that Jamaica has improved its ranking from 86 of 140 countries to 75 of 138 countries. This is an improvement of some seven per cent on the ranking when the number of countries surveyed are considered.

In the 2012/13 report, Jamaica ranked 97 out of 144 countries surveyed. This means that on a percentile basis, in just four years we have improved by 13 per cent. This, in my view, is in no small measure due to the partnership between all stakeholders that saw us successfully manoeuvring through the International Monetary Fund programme to date, which started in 2013. It shows us what we can achieve as a country if we all work together, and what it also shows me is that progress in Jamaica will only come through advocacy and involvement from private sector and civil society.

As a result of this, we have seen a significant recovery from the 2008/9 recession which hit Jamaica, and a significant increase in business and consumer confidence. We have also started to grow the economy at marginal rates, and growth for this fiscal year is expect to be just under two per cent.

Although we should realise the improvements we have achieved — which includes being the number one place in the Caribbean to do business — the fact is that we are still a very far way from where we should be. In fact, one of the primary challenges we face is that even as we grow the economy, there is the very real danger that if we do not ensure equitable growth, that it will not be sustainable.

Sustainable growth and development only comes about when growth is evenly spread across all sectors and the entire population. This is how countries like the US and Switzerland have experienced growth. We could also say that the rise of Trump in the US can be attributed to the reports that many middle- and lower-class people in the US say that they are not benefiting from growth in the economy. On the other hand, in Switzerland the benefits are widespread and they don’t have a “Trump” as yet. What is happening in the US as well as the recent Brexit vote show that growth without inclusiveness is not sustainable.

This has been recognised in the report from the Economic Growth Council (EGC), which speaks to the need for “Citizen Security and Public Safety” and “Social Inclusion” as fundamental pillars for any sustainable economic growth. As part of the suggested solutions to these challenges, the EGC refers to much-needed improvement in the delivery of justice, proper housing solutions, and improvement in the education facilities.

In August 2009, I wrote an article titled ‘Are Jamaica’s economic problems also social’. This for me was obvious then and it is also obvious now, as is highlighted in the EGC’s report. The fact is that economics is based on the behaviour of people; that is, their social interaction with each other. So when we speak about macroeconomic solutions and ignore the impact on social behaviour, then we only fool ourselves about economic progress – as we have consistently done with failed fiscal policy and tax measures in particular.

When I look at the latest GCR, it is obvious that we have failed to do anything about the challenges we have always had. And so the problems we face today are the same ones we have always faced and failed to do anything about.

So the top four challenges to doing business remain the same year over year, which are in order (1) Crime and theft (was number two previously); (2) Inefficient government bureaucracy (previously one); (3) Tax rates; and (4) Corruption. Just focusing on solving these issues addresses over 50 per cent of the challenges to doing business. So why have we not done anything to remove them as business challenges?

We have made some progress with corruption (from 10.5 per cent to 8 per cent) and government bureaucracy (from 16.4 per cent to 14.4 per cent), but the challenges of crime and tax rates have worsened. Even though we have made some progress in these areas, they still remain significant challenges.

If we drill further in the report, we see that the main areas of challenges centre around bureaucracy, crime, and tax. So areas such as wastefulness of government expenditure, burden of government regulation, cost of crime and violence, government debt, effect of tax on incentives, trade tariff percentage, and government procurement remain significant challenges and hold back the ultimate progress of the country.

The irony is that these challenges that we speak about today are the same ones that have always been with us, and to date we have failed to address them. So as the chairman of the EGC, Michael Lee-Chin, said, we all know what the problem is and what we must ensure this time is that we implement solutions.

The irony also is that we all know, and have known, what the solution is, but we have never been able to get them done. That for me is a straight failure in our governance at the government and bureaucratic levels.

In other words, we all know what the problems are and we know what the solutions are, but we have just not been able to implement them for decades. And that is what management (governance) is responsible for.

So, as we ponder the latest GCR (2016/17) and also the EGC report, let us not make them just another report, as usual, which we read, analyse and not do anything about.

We must concede that we have made strides in Jamaica, from an economic and institutional perspective. The problem for me is that we could have done much better as a country and do have the potential to easily grow at five per cent per annum.

We already know what the problems are and we know what the solutions are. What we must now do is focus on implementation, which is what has gotten us some gains since 2013.

Friday, September 16, 2016

Government policy’s role in development

Two Saturdays ago, as I drove through Spanish Town, I thought to myself that the disorder I was seeing was nothing but the result of how we have governed ourselves over the years.

Obvious illegal vending was intertwined with cars trying to make it through the intersection before the other car ahead of them; pedestrians were competing for road space with the cars and walked across the road as they pleased. In addition, garbage from some of the vendors littered the streets, and the narrow space between the front of some buildings and the street was just not wide enough to absorb the flow of pedestrians going through the town.

In other words, it was pure chaos.

I then thought to myself, if this is the type of environment that we leave persons to exist in, then what sort of behaviour do we expect from them? I went even further into thought, and reflected on the fact that many of these people grew up in these very same conditions, and in some communities violence was either at the door- step or had entered the house.

Just around that time the entire Jamaica was saddened by the drive-by killing of a two-year-old, only to be followed days later by the killing of a six-month-old. My mind reflected on my own children and I wondered what, possibly, could those two children have done to meet such a horrific death at that age. More telling was what could have happened to those adults who killed those children, to have changed them from innocent youngsters into barbarians.

My mind then went further to think about what causes non-communicable diseases (NCDs), such as diabetes, etc, and the fact that these NCDs are caused by the environment we create for ourselves. So if, for example, we consume a diet high in processed foods, with no exercise, then there is an increased probability of getting diabetes, cancer, and heart disease.
So isn’t human behaviour and, by extension, economic and social development, not also a result of the environment we create? In other words, the innocent child that grows up in an environment of chaos, loud music, lack of proper garbage disposal, violence, and surrounded by music that speaks to the disrespect of women and the promotion of gun violence; isn’t he going to grow up to practise what he knows?

If he grows up understanding violence as the best tool of negotiation, because he might have seen his father or brother being killed by a gunman or the police; or if he grows up with his parents (who at that age he thinks know best) placing a greater emphasis on the latest dancehall fashion over his school fee, or even allows him at his young age to go to the dance or drink alcohol; or if he grows up thinking that the open lot across the road is for dumping garbage, do we expect that he will grow up to be a very productive citizen that will contribute in any significant way to GDP growth?

And if we create an environment where this young man represents a significant number of people in the country, then what do we expect will be the effect on GDP growth, indiscipline and crime?

Would the result be declining labour productivity since 1972, GDP growth averaging 0.8 per cent for the last 40 years, and/or lack of order and high crime rates?

The problem with that young man, of course, is lack of proper parental guidance, as parents have the primary responsibility to provide a proper learning environment for their children. But those parents may also have grown up under the same circumstances, and so are really just victims like their son.

So shouldn’t it ultimately be the responsibility of Government to keep the rules and order in place to ensure that parents and private citizens practise certain behaviours to foster long-term development?

What then happens when the Government, from in the 1970s, starts to tell people that “don’t you worry about a thing” because Government will ensure that your child’s school fee is paid and you never have to pay another cent for hospital fees, even though the country is broke and can’t afford it?

Or what happens when politicians, because they see votes, encourage squatter settlements and do not come down on persons who steal electricity? Instead the people vent their anger on companies like JPS who can’t even collect the money for street lights from Government.

What happens when politicians support music blaring at all hours of night into the morning, depriving working people of sleep, and express surprise when labour productivity is low? Or when we expect that crime will be solved by the police but don’t give them the resources to fight crime, or they are faced with a justice system that places a stop on the speedy resolution of trials?
What do we expect when our fiscal policy over decades is to borrow money, or tax productivity to transfer the wealth to lower productivity areas, and when it doesn’t work we borrow and tax more, expecting a different result, or we create a culture where success is seen as the big man oppressing the poor man, because we love the poor?

As a result, we see GDP growth averaging 0.8 per cent over 40 years, labour productivity declining from 1972, and general indiscipline and crime.

The problem we have is that Government policy over the years has been the catalyst that has created impoverishment of the people and the country. It is not one set of people who have caused hardship on the other. We got political Independence in 1962 and can no longer blame our colonial masters. In other words, where we are today is a direct result of policy creating an inhibiting environment. We reap what we sow, or what policies we put in place.

Monday, August 15, 2016

The problem with Jamaica’s hustler mentality

The last Global Entrepreneurship Monitoring report, showed that Jamaicans are one of the most entrepreneurial in the region. It, however, goes on to state that even though this is the case, most business startups happen out of necessity. In other words, most Jamaican businesses start because people are trying to fill a gap, for example because of loss of employment.

So, as a friend of mine said, most Jamaicans are “doing a business” and are not “in business”. What this basically means is that many of us are really just trying to earn money through “hustling”.

This is not only restricted to business startups, but it seems as if Jamaica has a culture of “hustling”. So the youngsters who start off selling or wiping the car glass, is doing it for a hustle. Or the politician, or public sector worker, who engages in corrupt practices thinks it is ok because they are just doing a “hustle”. Or the university student who applies for a job and when you ask them what their career goal is they say they don’t know yet but just want the job as something to do and make a money.

What is even more frightening, is the Jamaican culture, and our governance, supports the “hustler mentality”. When for example, I posted on social media that we need to get the men and boys removed from the stoplights, who are harassing drivers, the response from some persons is that they are just trying to make a living and what else will the government do for them. Those in authority also refuse to do anything about the situation, and we even have formal government programmes that promise job creation through mass employment. These are nothing more than programmes that give people a fish rather than teach them to fish. That is nothing more than an election promise of a “hustle”.

So it seems that in every sphere of Jamaican life, everything is a just a hustle. The persons who sets up a business, which he/she has no previous experience in, to benefit from his political party being in power; the student with no career path but just want “any” job that they can make some money; the boy who grows up on the street hustling every day to make a dollar; and the authorities who support the hustling by refusing to address the children on the street, or turns a blind eye to informal settlements.

Because of this hustler mentality we have created today a huge problem of a large informal economy, numerous informal settlements, and a set of persons who are unable to create any value for themselves, because they have for example grown up learning how to sell on the streets or wipe car glasses.

Effectively, the lack of action by the authorities, and the support of this “hustler” mentality has ended up creating greater poverty. This is because governance has been about giving someone a fish rather than teaching them how to fish. So we have a significant part of our people today who rely on hand outs from either government or others to survive, because we have failed to teach them how to create their own value. And the persons/businesses who are serious about creating value for all are scared away by bureaucracy or taxes that always seem to extract more out of the productive and give it to those who are less productive.

In other words, we have created more and more poverty amongst the Jamaican people.

The spin-off of that, of course, is crime, lack of law and order, and declining productivity and compensation. And as productivity and compensation decreases, political expediency means that we need to promise more handouts, which lead to greater poverty, as the only way the government can get more to give is through loans (which the IMF agreement has restricted) and/or taxing the productive more, which results in the productive becoming unproductive, thereby leading to even more stringent tax measures in the current IMF environment.

The problem we face now is that because of the IMF measurements, government must ensure fiscal discipline. But doing so means also that less money is available for handouts to those who have been taught to “beg” for a fish rather than learn how to fish. The dilemma is that increasing taxes will reduce investments, so the only practical option now is for the compensation levels to match productivity levels. The result being that “real incomes” will decline, as generally we have been seeing declining labour productivity since the 1970s.

And not much can be done to address that situation also, as any attempts for government or the private sector to address the productivity issues are met with stern resistance from our labour laws, which don’t care much for productivity. We can’t do much to improve productivity by improved processes and execution also, because the inefficient government bureaucracy, which includes the procurement rules, ensure that any implementation of private sector investments or greater public sector efficiency is held to ransom.

Examples include the building approval process or I know of investments (hundreds of US$ millions) waiting to happen but because of public sector bureaucracy we delay thousands of jobs, and GDP growth. Even when we talk about people losing their lives on the roads there is no urgency as the new Road Traffic Act may more than likely not be passed until 2017. And when you speak about trying to prevent road carnage by bringing discipline and accountability to the private taxis and buses, you hear that you are trying to stop their “hustling”.

One of the major challenges we face today is that Jamaicans are so dependent on “hustling” to make a money, that any attempt to bring order to the society is going to be faced with strong opposition and can result in hardship for many Jamaicans. This has not been by accident, however, as the government policies over the years have ensured that we find ourselves in this position today.

This is going to be one of the most difficult things to change in Jamaica, but unless we start to reverse it then we will sink further. The economy will grow of course, but the problem is that participation in that growth will be minimal, and the majority of persons can end up being left out.

Jamaica lacking a strategic long term vision

Recently someone said to me that the reason why our politics has not been able to solve our challenges and have sunk us further into economic and social problems is because either politicians don’t understand what to do or just don’t care. After reflection, I thought to myself, that I do know many politicians who care about Jamaica and are also quite competent. And so the problem could not be explained away as simply as that.

After giving it some thought, and a recent experience, I thought to myself that the real reason why our governments have not been able to bring us to the “prosperity” being talked about now, is that the objective of politics is many times different from the objective of long term economic and social development.

In other words, because of our political system, and the needs of the supporters, the expediency of politics (and ultimately governments) have been at variance with the much needed economic and social development. So if you think of economic and social development as going to Montego Bay, the problem is that the objective of politics has been either going to St. Thomas, or at best going to Ocho Rios and stopping there. In the latter case going in the correct direction, but stopping short of the long term objective.

So in my view, politicians are very competent at achieving the objectives they set. The problem is that the objectives are different from what we as Jamaicans want for economic and social development. Maybe I shouldn’t include all Jamaicans, because many, as a result of ignorance, party colour blindness, or personal goals, also don’t mind the political objectives being different from the needed economic and social ones.

Because of this, the policy directions are geared towards the political objectives in many respects. And because we have had too many bureaucrats who are willing to accommodate political, over economic and social objectives, we end up with the political objectives being implemented in preference to long term developmental objectives. This also results in the systems and processes of government bureaucracy being set up to really do nothing but push a lot of paper.

It is for this reason why persons from the private sector will find it difficult to work in the public sector because in the private sector we are used to things happening, and the achievement of organizational growth. The problem with government bureaucracy is that it doesn’t need prosperity or effectiveness of itself to survive, as all government has to do to make up for the revenue loss from being unproductive is raise taxes on the productive persons (private citizens). The problem is that sooner or later you end up with significantly fewer productive persons to tax, and then you end up in a situation as we are in Jamaica, where debt to GDP ratio goes to 150% before we realize we have a problem.

Even our well talked about Vision 2030 is nothing but a pipe dream, because our political objectives are at variant with its objectives. The result is that the Vision 2030 objectives (which were well thought out) flies under the radar, and may be soon forgotten when 2030 finally arrives.

So while we talk about a long term developmental objective, the truth is that the preference of political objectives will always ensure that these are not met. The only way for that to happen is for the political objectives to align with our “Vision 2030” developmental objectives.

The irony is that this is easily possible, and can result in very real economic and social development in Jamaica. However, the probability of Jamaica achieving its full potential in the near future though is maybe less than 50%, primarily because the existing institutional infrastructures do not allow it. It is still early days for this administration, however, and if the desire is real prosperity then we may very well see the structural issues being addressed. Up to this point though the probability of that happening anytime soon seems to be less than 50%.

The reason I say so is because for that to happen, then political objectives would need to be sacrificed for long term development plans. The political objectives I speak of does not include remaining in office, as any government that achieves real economic and social development in Jamaica will, in my view guarantee office for years to come. The objectives I speak of include (1) short term benefits for the party and constituents; (2) power benefits; and (3) the need to make out the opposition as doing the worst things in the past 5 years when the problem is the accumulation of the past 54 years.

So we continue to put the right framework in place to address these serious structural issues like the OCG, INDECOM, Public Defender, Auditor General, and the new Corporate Governance Framework. But we also underfund or ignore their recommendations, and expect that they will work. For example, we say we are serious about solving crime, but we continue to underfund the security forces and refuse to address a very inefficient and underfunded justice system. Never mind that crime robs us of 4 to 6 percent of GDP, as the longer term benefit of solving crime never seems to get preference over the shorter term political objectives mentioned above.

One of the major problems also are the supporters, who as I said in a recent social media post, even if a political party put Hitler to represent them against Obama, they would still be voted in because many Jamaicans vote based on colour and not objective reasoning. Obviously this is the theory of the effect of crowds, as individually they will be very rational but put them in a group and the reasoning changes.

So after my many years commenting on Jamaica’s economy, and seeing events like the current rise of Donald Trump, I am convinced that the reason why the world (and Jamaica) is in economic and social decline for most persons is because of our failure to ensure that political objectives align with development objectives. We only have to look to Singapore to see the positive effect the alignment of those objectives can have on a country.

Friday, July 29, 2016

We need a serious approach to development

The current government has economic growth as its main thrust. The phrase coined by the Growth Council — “Five in four” — refers to the objective to have five per cent growth in four years. If this is achieved this would be a significant boost to our economic fortunes, and already we are seeing increased economic activity and higher levels of business and consumer confidence.

As a part of the boost to economic activity, the government has started to implement it’s $1.5 million tax threshold promise, made in the run-up to the general elections.

So far we have seen the threshold move from $592,000 to approximately $1 million, with the final move to $1.5 million slated for April 1, 2017.

In addition, the government has indicated that the aim is to move completely from direct to indirect taxes — a very good move, and Finance Minister Audley Shaw indicated on the On Point discussion programme on Business Access TV, that the aim is for this to be done before the end of the current five-year term.

Shaw also indicated that there was the possibility of a small tax package next fiscal year to accommodate the threshold increase, but that this would be on the consumption side.

The fact, however, is that while this tax threshold increase will result in short-term stimulus to the economy, and the move to indirect taxes will assist with greater tax compliance, this by itself will not give us the much-needed development. And without certain other actions or policies being implemented, it will be improbable that we will see the consistent 4.0 to 5.0 per cent growth rates needed.

Further, even if we are to see improved growth rates, this does not equate to the economic and social development needed. Economic growth is one part of the equation — but by itself is insufficient.

Economic and social development means an improvement generally in earning capacity and living conditions for most Jamaicans. This means that the increased capacity of persons to earn, infrastructure development, and personal safety must be at the core of government policy.

The challenge that we have is that our politics, and government policies, have been too much focused on handing out a fish rather than teaching Jamaicans how to fish.

And the reality is that Jamaica will not see true economic and social development unless we build the capacity of everyone to improve their income, and create opportunities for them to earn — instead of policies that seek to increase income without increasing productivity.

We may think that we are doing good for “poor” Jamaicans by “giving” them more — but what we have effectively done by applying those policies is actually caused greater poverty.

The welfare type policies that we have applied over the last 40 to 45 years in Jamaica have done nothing more than cause more long-term impoverishment, as is shown by the devaluation of the Jamaican dollar.

Whenever our governments have talked about improving the lives of Jamaicans, we have spoken in terms of specially created job programmes, housing for the poor, land distribution, tax breaks etc. Instead we should be talking about greater educational opportunities, facilitating more private sector investments (particularly SMEs), and tax incentives for investments (such as the Junior Stock Exchange).

The effect of what we have created can be considered in the example of raising a child.

If every time a child says they want money or a car etc you give it to them — without insisting that they develop the ability to earn it for themselves — then what happens is that you create a child that becomes totally dependent on you to live and maintain the lifestyle he has become accustomed to.

If on the other hand you insist that the child goes and gets an education or starts a business, and puts what he has learned to work, and earns his own money, then the child would eventually be able to earn much more than you can give to him.

And in the end there will be two incomes in the household rather than one income supporting two persons.

So what our policies have done over time is create a dependency syndrome: which we have not only shared what we have earned, but in order to maintain a “high” lifestyle for everyone we have gone out and borrowed to supplement the income.

And because our government policies support more and more dependents, we have continuously increased taxes on those who are more productive — the result being that overall productivity declines, as capital stops working to escape the increased taxes and bureaucracy by becoming dormant or going overseas.

One person recently said to me that every time something starts to do well in Jamaica the policy is to tax it in order to earn more income for the voracious fiscal appetite. In other words, we always kill the goose that lays the golden egg and then when we end up with no goose we wonder why there is no egg.

Because of this approach to policy, and the need to “please” every five years, then we not only create a dependency syndrome, but we also fail to focus on the important issues that hold back development. These include law and order (as this is seen as fighting against the small man who wants to set up his house or business anywhere — squatting, illegal vending, tourist harassment), infrastructure development, and the creation of rules such as the procurement process because we don’t want to face the real monster of accountability and corruption.

So while we strive for much-needed economic growth, we must also support the Growth Council by ensuring that we have policies that support the development of the average citizen of Jamaica, through increasing his capacity, opportunities, and safety.

Adopting a serious approach to economic and social development is the only way to sustainable “prosperity”. This should be the primary focus of the Government and its Economic Growth Ministry.