Friday, August 22, 2014

Jamaica’s growing crisis

Jamaica Cancer Society (JCS) radiographer Donnett Hyman (left) demonstrates the functions of the organisation's newly acquired mammography machine to JCS Executive Director Yulit Gordon (second left), Health Minister Dr Fenton Ferguson (second right) and JCS Chairman Earl Jarrett. Gordon estimates that being stricken by cancer can cost someone over $4.5 million

WHILE we debate the economic challenges facing Jamaica, there is an emerging crisis that many are not speaking of, but which we must address as a country. This is the health of our population, and as a result the cost it currently has and its continued impact as it worsens. If, of course, we do nothing about it.

Anyone who knows me understands how important health management is to me. In fact, my passion for lifestyle management led me to write a book (Achieving Life's Equilibrium) and one aspect of that is health management, which I also have done a few presentations on.

The data on Jamaica shows that non-communicable diseases (NCDs) account for 56 per cent of all deaths, 20 per cent of which are caused by cancer, and cost approximately US$170 million ($19.2 billion) annually. Much of this cost is avoidable just by changing some aspects of our lifestyle, such as healthier food choices and exercise. What this means is that our failure to make the right lifestyle choices is causing us to spend up to $19 billion per annum on health costs, much of which could be going towards welfare, education, or some other growth inducement spending.

The Lancet Medical Journal recently reported that high body-mass index increases the risk of developing the 10 most common cancers, according to a study conducted on over five million people. Researchers estimate that over 12,000 cases of these 10 cancers each year is attributable to being overweight, or obesity, and estimates that if average BMI continues to increase there could be an extra 3,500 cancer cases annually.

Yulit Gordon, the Executive Director of the Jamaica Cancer Society (JCS), estimates that being stricken by cancer can cost someone over $4.5 million (assuming four chemotherapy treatments) in addition to the costs to visit the doctor and hospital stay and tests. So an individual could easily spend over $6 million in the initial fight against cancer. And I say initial because many times it recurs. The JCS is doing a very good job in the fight against cancer but is in need of greater support to be able to be even more effective.

There are, of course, other significant costs for an individual to deal with NCDs, such as high blood pressure and diabetes. These NCDs are the main reasons for many of us starting to show our age, and all because we make incorrect lifestyle choices; if the proper decisions are made many of these NCDs and associated costs are totally avoidable.

In addition to the cost on the health care system, and ultimately the fiscal accounts and taxes, the fact is that many of the drugs and products used in the treatment of NCDs are imported. So if we assume that 70 per cent of the US$170 million annually is imported, then it means that NCDs are adding US$119 million ($13.4 billion) to our trade deficit annually, which is just under 10 per cent of the current account deficit.

This cost to our fiscal and balance of payments accounts does not include the cost to GDP from productive hours lost due to sick leave or death. If we assume that 40 per cent of our workforce takes their entitled seven days' sick leave per year, then on average this could negatively impact GDP by over $10 billion annually.

Even at the lower estimates, the computations show that the cost of NCDs to Jamaica is an ever growing threat, is totally avoidable, and is a cost that I don't think we emphasise enough. Certainly if you are trying to improve the cost structure (profitability) of a company, one of the first things that you do is to look at the "low-hanging fruit". In other words it is easiest to minimise avoidable costs as a means of improving the financial situation. So while we focus on new taxes, earnings, or wages and salaries, the fact is that if we look carefully at the fiscal accounts there are significant costs that can be avoided by just doing things differently. This is something I remember Ronnie Thwaites stressing when he was on Power 106 for a very long time.

But are we ready to take responsibility and make the necessary lifestyle changes? The truth is that even many of us who promote the idea of lifestyle changes are guilty of poor choices ourselves, and the most effective way to influence people is to ensure that you are a good example. I am always amazed at the way adults, for example, tell children about certain ways they should behave but at the same time do the same things they tell them not to do. So they tell them, "Do not drink and drive, do not text while driving, make sure you eat properly," etc. However, I see many adults setting a bad example for children to follow even in front of the same children that they instruct.

I also notice that many children today are living a lifestyle that will ensure they have health issues earlier, rather than later. Certainly in my teenage days when there was one television station that signed on at 5:00 pm, and there were no video games, we had no option but to go outside and engage in some physical activity like football, cricket, and so on. I also have noticed that when one speaks about the quality of a school we refer to academics and not emphasise the importance of physical education, the result being that many of the children leave school today academically brilliant but without the physical foundation that will ensure that they are healthy enough to enjoy the money they earn from the academic achievements. So many of our children are just ticking time bombs for NCDs.

There is no doubt that if we continue to ignore the necessary lifestyle choices that will improve our health, then we can safely say that Jamaica will face a health crisis in NCDs, similar to developed countries like the US, and this will impact even more on our fiscal accounts and balance of payments.

So while we try to solve our economic circumstances, we should recognise the role that behavioural choices play in our economic challenges, and the significant cost it has, both nationally and individually. In fact, I have heard many people say they cannot afford to eat properly, as proper nutrition costs more. While this may be true in relation to the direct cost of nutrition, they haven't considered the current and future medical expenses from poor nutrition choices, which ends up being significantly more and the negative impact on quality of life.

Apart from the cost, though, we should be encouraging our children to make healthier choices for their own benefit, and my own view is that this has more to do with lack of exercise and consumption of many of the imported processed foods, as our own local brands and produce are a lot healthier. Yet another reason to support Jamaican products.

Friday, August 15, 2014

Social justice and economic development

EVERYONE should know by now that I believe the economic programme is being managed properly, as the fiscal and legislative adjustments being made are definitely the right option for creating a positive environment for economic development. And certainly, more importantly, is that the leadership of the programme, headed by Peter Phillips, has shown the willingness to see it through to a successful end.

Even with this, though, the economy is still in a very fragile state, with unemployment still too high, and despite improvements in the fiscal and other macroeconomic indicators, we still have a very far way to go. Importantly, any letup on the implementation of the programme, or even a natural disaster, could cause us to be back in dire economic circumstances. So it is important for us to stick to it.

On the other hand, we also need to realise that sustainable economic and social development cannot be achieved merely by implementing this programme, or getting in significant foreign investments, as has happened in the past. The only way for us to truly see sustained development is for any such development to be inclusive of the masses of people. In other words, any path that we are on must of necessity provide opportunities for the ordinary Jamaican to excel, and very importantly Government's primary role must be to ensure that the vulnerable are not only protected, through social programmes, but also have equal access to the opportunities for elevation available.

So everyone should have access to the best education, justice, and social welfare protection where needed.

It is with this in mind that it really hurt me when I heard about the Mario Deane situation. Not because it hasn't happened before, and similarly I was outraged, but because he died on the day we were celebrating our 52nd anniversary of independence as a nation. And my perspective is that independence not only means the right to govern your own affairs, but of necessity independence comes with the responsibility to ensure that we treat others right, as well as manage our own affairs properly.

So a child who attains adulthood is not just independent because he/she earns money. Those allowed independence must practise good citizenship and must manage their affairs properly. Any mismanagement of that independence results in it being taken away. So if you are reckless with your finances and have to rely on others to support you, then you are once again dependent, and similarly, if you break the law your independence can be taken away from you.

Similarly, a country that cannot manage the responsibility of Independence will also become dependent. This is our case with the dependence on the international lending agencies, and other countries that we rely on for aid. Even though we attained Independence in 1962, the way we have managed our affairs has resulted in us losing much of that independence. So, to be independent implies being responsible.

One of the responsibilities of Independence is being fair to all; even those you think may offend you. Because it is when we can truly forgive the indiscretions of others that we have really matured as independent people, and a country. Remaining independent also means accepting responsibility.

The Mario Deane case showed both sides of this argument, as first it showed that the response from the police involved demonstrated that they never accepted responsibility of the power to detain persons against their will. I would have expected a statement to the effect: "We regret to inform the people of Jamaica that Mr. Mario Deane was severely beaten by other detained persons. We accept the responsibility for persons in our care, and will be vigorously investigating this matter to see who is directly responsible and will make our findings known in the shortest possible time." Instead the response was to first deny culpability and then charge two persons, with no apology. It took the ministers of Justice and National Security, the acting commissioner, some politicians, INDECOM, and civil society to express outrage and apologise. Still no one from Barnett Street, from what I know, has issued any statement of apology. If so then I stand corrected.

What as a country we have also failed to understand is that in order to have sustained economic development, it is necessary to also have social justice. Whenever there is no social justice, it results in lost opportunities and wasted talent. It also results in wasted productive hours, as instead of cleaning up the mess caused by some functionaries of the state, we could be planning how to increase agricultural and other production. If we were to do an analysis on the amount of time and resources wasted trying to correct social ills I am sure that it could significantly add to GDP.

This means of course ensuring that law and order exists in the country. And this does not only apply to the citizens who should be abiding by the laws of the land, but it also applies to those with the responsibility for creating and enforcing laws.

As Peter Tosh said, everyone is crying out for peace but there can be no peace without justice. I want to go a step further and say that there can be no sustained economic development without social justice and stability. Just look at the Middle East.

As a country we have made strides. I find that the policymakers are more willing today to engage stakeholders. We see that with the response to criticisms of the recent legislative changes, which has been to engage stakeholders. I personally also see improved customer service within the public sector, and improved service delivery. This even extends to the security forces, as the police are a lot more courteous than days gone by.

However, in order to make that next step to sustainable development, and achieving Vision 2030, social justice must be at the top of the agenda.

Friday, August 08, 2014

Role of values and attitudes in development

DAVIES… when he tries to introduce discipline to the transport system, the response is protest and demonstration

Earlier this week I ran into Bunny Goodison, and we got to talking about the demise of values and attitudes in Jamaica. We spoke about the fact that even though we may see growth in the economy, there is still a critical mass of the population that doesn't know what it means to be productive, and sadly, may not easily find a place in a more competitive economy.

So even as we see the employment numbers declining, and GDP growth chugging along, the fact is that there is still a great concern about many of the youths who grew up in a time when the values of working were never a priority. In fact, Bunny said we may have about two generations that fall into that category.

As I thought about this some more over the ensuing days, I reflected on the importance that was placed on this by former PM PJ Patterson, in his Values and Attitudes campaign. He realised how much of a problem the lack of proper attitudes and values was going to be for the proper development of Jamaica.

The reality is that no country can develop in any sustainable way without a foundation of proper values and attitudes. One may argue that this is the reason we have laws, that is, to bring people in line when they deviate. However, this is only effective when the general behaviour of society is aligned with ethical values and attitudes, and the unethical behaviour is in the minority.

Jamaica has, however, developed in such a way that it seems as if the unethical behaviour is challenging ethical behaviour as the acceptable way of life. When this happens, the laws are not as meaningful, because the people who have grown up accepting unethical behaviour are the ones who enforce the laws.

So many of us grew up accepting indiscipline on our roads -- drinking while driving, boorish behaviour by taxis and buses -- children in bars and at betting shops, underage drinking and smoking, evasion of taxes, domestic violence, and the list goes on.

The danger of constant exposure to that sort of behaviour is that we accept it as the norm, therefore when the child that grew up in this culture becomes a police officer, he/she turns a blind eye to indiscipline.

The reasons for this acceptable norm of behaviour are complex, and sociologists may need to explain it, but one reason for it is the attitude we had in the 1970s and 1980s, where even the slogan of our tourism campaign was 'Jamaica, no problem'. So Jamaica was a laid-back place for both locals and tourists. We could consume alcohol and drive, play music at anytime of the night, tourist harassment was seen as hustling, and if the authorities came down on someone for breaking the law, the attitude was "Bwoy, look how dem fighting down the poor man."

The result of all of this was that anyone who wanted to enforce the law was seen as unreasonable, and this was in no small way promoted by the attitude of politics and the politicians.

So when the political parties had rallies, it was okay for the supporters to hang outside of the buses and destroy property as they travelled to meetings. Some will remember when the supporters, under the influence of political fever, would smash the windows of stores and engage in violent confrontations. In fact, there was a time when political meetings were being held that the law-abiding citizen would stay off the road and allow the law breakers to gain acceptance.

Combine all of this breakdown in proper behaviour with the fact that around the end of the 1980s to today, the role model of many young people became the deejay and the area don. As Bunny said, when he was growing up everyone wanted to be a lawyer, doctor, accountant, nurse, teacher, or other professional.

Today, I see some change as people look to become sports personalities or entrepreneurs, but the values and attitudes have still not improved.

By the late 2000s, the politicians, many of whom helped to create the societal indiscipline, decided that out of necessity we needed to change it for the better. By that time there was a serious breakdown in values, and the two generations that Bunny referred to did not know how to be productive contributors, and this is reflected in the type of music we produce.

So the lyrics of music today tell the children -- who are encouraged by their parents to gyrate to it -- that they must take advantage of the other sex or glorify the gun culture. This, of course, didn't start today, as in the late 1960s to 1970s the "rude boy" culture started to find its way into songs, in response to the perceived social oppression of the time. But at that time there was still respect for authority.

So today, the Government is trying to change that lack of disrespect for authority and indiscipline. The problem is that after decades of acceptable social decay, any attempt to change it will meet resistance. So when Dr Omar Davies tries to introduce discipline to the transport system, the response is protest and demonstration.

When the police try to maintain road discipline or deal with night noise, the patrons come down on them as "fighting against" people who want to make a living. When the tax authorities try to deal with tax evasion they face an uphill battle.

If, however, we want to create a country that is the preferred place to live, raise families, work, and invest, then we must create a society where the rule of law and order is paramount. The only way for us to create this is to ensure that engrained in all of us, as law-abiding citizens, is the desire to always do the right thing. This is not something that can be enforced by application of the law only. It must be learned as a way of life.

As I said to Bunny, I grew up learning from my parents that I should always do the right thing, no matter what the immediate consequences, as this is the only way to hold your head high over time. But how many of us have been able to learn that, given that many of the parents -- themselves teenagers -- were not prepared with that knowledge, much more to teach it.

In fact, the school curriculum never taught you, and still doesn't teach you, to be a good parent or a good citizen. I would go as far as to say that some teachers themselves are not good role models for the children they lead, as they themselves lacked the grounding in proper values and attitudes.

So thanks for the conversation, Bunny. Indeed, if we are to develop a society aligned with Vision 2030, then I don't think it is possible without us changing our values and attitudes, as we could end up with a lot of money but an undisciplined society.

Saturday, August 02, 2014

Why private sector-led growth is good for earnings

THE recent Observer report that 7,000 professionals have left Jamaica over the past few years has received much attention. We all know that teachers, nurses, engineers, accountants, and other professionals have been making the trek up north in the hope of either finding employment or seeking better salaries.

This "brain migration" is definitely the best way to exploit the value of these trained minds, primarily through remittances. The greater value is to have them stay in Jamaica and contribute their minds, through ideas and innovation in services and products. You only have to think about the impact of someone like Steve Jobs on the American economy versus any remittances that might have been sent back to another country.

In other words, the value of one idea can be worth much more than the remittances from one million or more people on the economy where the idea is developed.

The question we should ask ourselves is, how can

Canada, or the US, compensate Jamaican-trained professionals more than we can afford to do? Why can't we pay our own professionals more than they can demand in another country? For example, why are Jamaican-trained teachers and nurses able to command higher salaries in North America, and other countries, than they do here? After all, the act of a plane trip doesn't automatically transform them into higher-earning individuals.

It is important to understand this if we are to seriously attack the problem of relatively low wages in Jamaica, and my view is that the reason for this imbalance has to do with the size of the private sector in the economy in relation to the size of government.

In other words, private sector-led economies are always, on the whole, more productive and innovative, and it is productivity and innovation that drive value, which in turn drive financial reward, whether at the organisational or personal level.

This drive for productivity and innovation is, of course, driven by the profit motive, as economics teaches us. In other words, people will always find ways to be more productive and innovate in circumstances where they are rewarded with something they desire. So the motivation doesn't necessarily have to be money.

However, our motivations are driven by

what Organisational Behaviour studies refer to as Maslow's Hierarchy of Needs. In other words, at the basic level man is motivated by food and shelter, but after he acquires enough food and shelter his motivation is more influenced by other things such as clothing style, car, house, education, etc.

At the highest level the motivation is self-actualisation, which is why many billionaires become philanthropists. That is because they are more motivated by being recognised for doing good than for making much more money.

It is this same reasoning that drives the profit motive for companies, that causes economies to grow, value to be added, and similar employees in prosperous countries to be rewarded more than poorer countries.

And it is the absence of this structure that has caused relatively lower wages in Jamaica. In other words, the declining levels of productivity in Jamaica have been the primary problem, which simply means that if your output per hour is declining, then obviously your income per hour must also be declining.

So the key to greater wages, and ultimately sustainable economic growth, is to improve productivity. It is therefore important to understand what causes our declining productivity and the consequence of relatively lower GDP per capita and lower wages.

Arguments are made that the high level of public sector employment is a major problem. However, when you compare Jamaica's percentage of workers in the public sector to other countries like the US and UK, the rates are pretty similar. In fact, some countries that have had significant economic challenges have had a lower rate employed in the public sector.

This is because it is not how many people are employed in the public sector but rather what are the productivity levels in the public sector, in terms of delivering public services and goods. In other words, the efficiency of the bureaucracy is key to determining productivity and explain why bureaucracy is such a big inhibitor to Jamaica's growth.

What is also important for the private sector is that greater facilitation is made for the more innovative ideas to succeed and for workers to be rewarded based on their productivity. And this is the reason that the minimum wage by itself cannot improve living standards, even though a minimum level is important to prevent exploitation. Moving wages by legislation does not guarantee improved living standards; instead, it has the opposite effect of increasing inflation.

So in both the public and private sectors the only real living standard improvements must come from greater productivity and innovation through delivering goods and services that consumers want. Simply increasing productivity and being innovative do not, by themselves, guarantee greater financial returns, but must be coupled with a consumer demand for what is being produced.

How does the private sector address this? If a company produces goods and services which are not in demand, that company will go out of business. On the public sector side, however, this must be carefully looked at by the policy makers to ensure that whatever services are being provided are in demand.

So duplication of effort by public sector bodies or legislating that the public pay for unnecessary services is merely increasing costs and reducing productivity. Also, providing much-needed services inefficiently has the same effect.

This is why the legislative and competitive environment changes being undertaken under the current economic and monetary programme are so important, and welcome. However, it must go further to ensure that the delivery of services by the bureaucracy is as efficient as it can be.

If we can achieve this, and ensure that we facilitate the profit motive of the private sector (ensuring, of course, it is legal, fair, and accessible to all), then we will eventually start seeing greater productivity and wages moving to the levels of other countries.

Friday, July 18, 2014

What "Buy Jamaican" should mean

There are Jamaican hotels like Pegasus that are always buzzing with activity, and Spanish Court Hotel, which has done very well as a small boutique hotel, not because they are 100 per cent Jamaican but because they are of a very high standard.

Earlier this week I attended a forum and was asked to answer some questions from the audience. The forum was about entrepreneurship and one person, an entrepreneur himself, addressed the audience and encouraged everyone that they should buy Jamaican products in preference to imported ones and criticized the Jamaican branded companies that actually manufacture their products abroad, while everyone believed that they were 100 percent Jamaican made products.

You will recall that a recent news report identified products from two well known Jamaican companies as made primarily in other countries and branded as products of the Jamaican companies, and it to this that the reference was made.

The meeting was addressing young entrepreneurs and therefore I felt compelled to respond to the statement about the need for us to buy Jamaican always in preference to imported products.

I made the point to the young entrepreneurs that I do not want them to walk away with the view that we should buy a product just because it is 100 percent made in Jamaica, as what we could end up doing is supporting inefficiency and this could result in us continuing to underachieve as a country. I went on to say that in fact, up until the early 1990s, when the economy was liberalised, Jamaica actually did have a buy Jamaica campaign. This was well voiced in the 1970s, and continued in the 1980s, not as a campaign, but rather in the form of tarrifs that protected Jamaican goods. In other words, we forced persons to buy Jamaican goods by establishing trade barriers and foreign exchange controls to ensure that we kept as much money as possible in Jamaica and spent on Jamaican produce.

Another country that has done that, whether by their own design or the US embargo, is Cuba. The question we must therefore ask ourselves is, has Jamaica benefitted from the Buy Jamaica campaign in the 1970s and protectionist policies up to the 1990s. I clearly remember that we were only allowed to take out US$50 up to the early 1990s, when we were travelling, and all it did in my view was to create cheats of persons who were caught trying to take more than US$50 out of the country. I have not seen any lasting positive economic results from that era.

The point to be made is that if we are to promote the idea that we should buy a product just because it has 100 percent Jamaican input, in preference to one with 30 per cent Jamaican input then we could actually be doing ourselves a disservice by promoting low poductivity and inefficiency. And this is a very important point for us to understand as a country.

Instead I advised the young entrepreneurs there that they should not expect that their produce will be bought just because its Jamaican, but rather because it is of the highest world standard. To otherwise expect that your product will be bought by a Jamaican just because it is made 100 per cent in Jamaica is to expect patronage.

I, for example, do believe that we should buy Jamaican produce and services and do prefer to buy some Jamaican products to imported ones. But my choice is not based on the fact that they are 100 per cent Jamaican produce but because the Jamaican products I buy I think are superior to the foreign ones.

I think of Jamaican brands like Sandals, which as far as I am concerned is a far superior to most other hotels whether in Jamaica or overseas. This is so much recognised by the market that Sandals is able to charge a significant premium, and is one of the reasons why I can't always go there myself but that is good for Jamaica and Sandals. Also Grace, Lasco, National, and Island Grill are strong Jamaican brands that consumers purchase, not because they are 100 per cent Jamaican but because they represent a higher value than many foreign brands.

There are Jamaican hotels like Pegasus and Knutsford Court that are always buzzing with activity, and Spanish Court Hotel, which has done very well as a small boutique hotel, not because they are 100 per cent Jamaican but because they are of a very high standard.

And this does not mean that their prices are the lowest in the market also (as Sandals) but because they provide the best value for the dollar. I only have to think of my preference for local agricultural products, and the reason why I prefer going to Coronation market to get produce than in the supermarkets. This is not because the prices are necessarily cheaper than the imports, or that it is more convenient to go to Coronation market. Rather I prefer to buy the Jamaican produce from Coronation market because they are fresher and closer to organic than the imports.

The above highlights the importance of value and standards in purchase decisions. My word to young entrepreneurs therefore is not to think along the lines that you will succeed just becaue your products are all Jamaican but rather because you produce the highest standard product. This is the only way that you can sustain your business model and grow your business. Else what you are asking for is patronage.

I also would encourage Jamaicans to always purchase Jamaican products also, not because you should patronize Jamaican products, but because I truly believe that many of our Jamaican products are superior to the foreign ones.

This leads me to another point though that their is no Jamaican product that is 100 per cent Jamaican. A significant part of production cost is energy, of which oil is our main import. There is also the cost of packaging, which even if the printing is done here, the paper is not made here. The furniture that many of us use is either imported or the raw material in the furniture is imported. So there is no truly 100 per cent Jamaican product.

We also need to understand that if we are to develop then we must create global brands, such as Sandals, Grace, Jamaica Producers, etc. What this means also is that these global brands, in order to compete and grow must produce where it is in their best interest to do so, from a financial and supply chain management perspective.

Therefore when we see that a company is not using mostly Jamaican inputs we must not criticise themfor doing so but rather must ask what can we do as a country to ensure that they increase Jamaican inputs. So is it that they can't get consistent supplies; labour productivity is low in Jamaica; bureaucracy stifles productivity; or our tax rates are not competitive.

In other words if we want to create brands with more Jamaican inputs (including foreign brands that want Jamaican inputs) then we must encourage our entrepreneurs to meet global standards and must also ensure that our policy makers create a very friendly doing business environment.

Practising the Law of Priorities

I have just completed reading a book by John C. Maxwell, titled the 21 Irrefutable Laws of Leadership, which was kindly given to me by Everton Bryan from IAS, who was recently recognized as the CEO of the year for Action Coach International. The book is about the characteristics that good leaders possess, and is something that we all know but what it does is lay it out in a very structured way. And I would certainly recommend it to anyone who wants to work on developing their leadership ability.

One of the laws (principles) that I thought is very important for us to understand as a country, and could be extended to the region, as we seek to develop our economy with limited resources (financial and HR) is the law of priorities.

What this law says is that leaders must understand that activity is not necessarily accomplishment. In other words, as I wrote in my last book, working efficiently is much more important than working hard. It is not as important how much you do as it is what you do in a day at work.

Many of us will know people who are always busy and always working late. But at the end of the day it seems like they always have a lot of work piled on their desks with little accomplishment. When I say accomplishment I don’t mean just doing various tasks but doing something that adds value to the organization or people around them. So just working hard and not seeing any “value added” at the end of it means that the organization will stand still as you are doing the same thing everyday and hence you will get the same result, which most times means not creating a competitive edge.

What it means therefore is that when we are faced with a lot of work and limited resources then in order to accomplish any value added what we must do is observe the law of priorities, or put another way focus on what will add value, given the resource constraint.

So using the example of people exercising to get fit, or just have a healthy lifestyle, many persons do not organize their exercise so that it is as efficient as possible. So they spend two hours each day walking or running leisurely and can’t understand why they can’t get results. While if they spent 20 minutes on much more intense exercise, which would not allow them to talk, then they would get far better results. Or in an organization some people always cry out for more resources to get things done, while the more organized person first recognizes the limitation of the resources and prioritizes within that limitation. Guess who ends up getting the results.

I think this lack of prioritizing is also one of the root causes of the challenges we face in Jamaica, and one could maybe extend it to the region. Too many times, especially at the political level over the years, we want to be all things to all people and end up being nothing to all people. In other words in our quest to please everyone we end up making everyone worse off. This of course is because we do not apply the law of priorities to our actions.

So everyone recognizes that the country has a fiscal challenge, a high debt-GDP ratio, and spend more than we earn, among many other challenges. And we recognize that we cannot try to do everything we would like to do because of limited resources. In fact one of the things that is clear is that the maybe the most fundamental reason why the country has not developed is that we have promoted labour and capital unproductivity, through government policies and fiscal welfare, which we have funded with debt in the past.

We also recognize that in order to change this paradigm that we have to change this culture of low productivity, and place capital, which includes the limited fiscal resources, in the places that returns the highest value. In other words we must make a list of what the actions that will bring greatest value and help us to achieve the goal of economic and social development. Put another way if we continue to try to stretch our meagre resources and support spending that discourages productivity then we will be “Back at One” as Brian McKnight sings.

So what we must do is adopt the law of priorities, as well as the law of sacrifice, in our quest for real economic and social development. So we can’t continue to use our meagre resources to promote practices that discourage productivity, which simply means we can’t use fiscal expenditure to support persons who do not intend to become productive or competitive. Otherwise called handouts. It also means that we need to prioritize what our reform areas should be. That is those that will have the greatest impact on the agenda going forward. This is what the documented economic programme schedule is supposed to do and it means that we must ensure that we do not “waiver” from it.

This need to prioritize the right actions also means that when we are setting policy, that we must also ensure that the policies are done with the longer term objective of sustainable development, rather than short term gains to meet a target only.

This is the same thing that businesses must do everyday. They would like to have unlimited resources to do everything they want to do but must consider the capital, projected business, the limitation of the human resources, market conditions etc. and then prioritize the strategies and match them with the available resources. You then do what will bring the greatest long term value to the business.

It seems to me that this is something that we need to understand as a country. As we get nearer to the “political silly season”, a.k.a. elections, let us apply this law of priorities and not get sidetracked with unrealistically trying to be all things to all people, and end up pleasing no one.

This is the challenge that we face as we continue to manage our meagre resources, and while it is possible to achieve the elusive development we have always wanted, even with our much more limited resources. It can only happen with the application of the laws of priorities and sacrifice. The reward for this will be prosperity for all.

Friday, June 20, 2014

What are the opportunities for the Caribbean?

OVER the past two weeks I did some travelling within the Caribbean, first to Suriname and then to St Kitts. In between I was also asked to go to a South American country, but decided against it because of the amount of travelling time it would take. The itinerary would look something like, leave Jamaica at 2:30 pm and get to Suriname at 1:30 am (11:30 am Jamaica time), or 11 hours travelling time; leave Suriname to Curacao then up to Miami (three hours) and then an eight hour flight to South America; then leave South America to Miami and back to Jamaica; and then leave Jamaica to Miami (1.5 hours) and then to St Kitts (three hours) and then reverse the trip on the way home. Not to mention that it is more expensive to get to a location the same distance away in the Caribbean than it is to get to somewhere in North America.

Usually when you do a trip down to Trinidad or Barbados you curse the time it takes to get there, but don’t usually do much reflection on how much of a challenge it is for development within the region. The fact is that it is easier to get to Europe and North America than it is to travel within the region.

It occurred to me also that this is a significant reason why intraregional trade is not maximised, and the region has not developed to its full potential.

Our tourism officials have worked tirelessly over the years to ensure that we have most if not all the North American airlines coming to Jamaica.

The first issue of the lack of progress with intraregional trade and synergy is obvious. The fact is that unless we are able to improve the ease of travelling throughout the region, then regionalism, at the trade and other levels will suffer. In my view it is therefore necessary for the regional governments to get together and look at regional travel if we are serious about developing Caricom. In addition to this though, if we are truly serious about developing Caricom, then it is very important for there to be free movement of goods and people throughout the region.

It is, in my view, because of the lack of this freedom of movement and ease of travel why countries in the region prefer to look towards North America for trade and labour movement. This is evidenced by the size of the Caribbean diaspora in North America and the trade with North America.

The examples of Suriname and St Kitts show the opportunities that are available to us for development, if only we could address the structural issues of transport and movement of people and goods.

Both countries are excellent tourist destinations, and I think Suriname in particular has a lot of opportunities for development because it not only has good tourism potential, but also has other industries such as gold, bauxite, agriculture etc. St Kitts, on the other hand, because of its size can’t take advantage of industries like agriculture but has vast potential for tourism and international services, which I gather they are trying to develop. The Marriot Hotel in St Kitts in particular is an excellent product, as I was very much impressed with the service and the food. And my comparison is based on the service levels at Sandals, which is at the highest standard globally.

The disadvantage for both countries, however, is the ability to get there. This is certainly one of the advantages that Jamaica has, which we don’t realise enough. Our tourism officials have worked tirelessly over the years to ensure that we have most if not all the North American airlines coming to Jamaica, and have been opening up routes from South America, Europe, and Asia. It helps, of course, that we have an excellent geographic location and brand, but one could argue that the travel connectivity has some responsibility for our brand recognition.

It is this connectivity to the world, through airline travel primarily, why our people are able to visit and open up markets with other countries. The ability to travel easily between Jamaica and those countries has created an identification with the cultures that is essential for business. This is a challenge we have to deal with if we want to get into the South American market in a big way. It is a big market, with many opportunities, but unless we can understand and infiltrate the culture, then it is going to prove difficult to access the markets.

If we look, for example, at trade within the region, Jamaica does relatively more trade with Trinidad than any other Caribbean country, and also has strong ties with Barbados in terms of people movement. We also have Trinidadian and Barbadian companies invested in Jamaica, more so than other Caribbean nationals. The main reason for this I think is because of the connections made through the UWI, as students travel to the various campuses to complete their studies, and at the same time make lifelong connections. In other words, there is an infusion of the cultural aspects.

This trade and business relationship between Jamaica, Trinidad, and Barbados proves that as a region we can do much more together, than we are doing today, particularly with the smaller islands. Again using Suriname and St Kitts as examples, if we had easier travel arrangements with them then they would be much better vacation destinations than just travelling to Florida to spend time in the shopping mall.

My own view is that there are a lot of opportunities to be had by the region being more accessible to other countries, including the Caribbean; and if we also promoted easier movement of people. Because our primary areas of comparative advantage are tourism, added value services, and agriculture, it is even more important for our markets to be accessible. So for example, it would be foolhardy of us to try and promote tourism while at the same time having strict visa requirements. Why then do we create a perception that there is a problem with movement of nationals and goods within the region and expect that Caricom will prosper?

Therefore before we start talking about growing CARICOM as a unit, shouldn’t we address the challenges of market accessibility? That is, of course, if we are serious about it.

Understanding the path to development — part 2

The social entrepreneur uses business/economic strategies to solve social problems. The end product is wealth produced by persons at the base of the economic pyramid and living in harmonious, sustainable but economically integrated communities

LAST week I ended by speaking about the risk taken by many private sector investors, which is the story of many successful entrepreneurs I have spoken with, who at some point in time questioned if what they were doing was the right thing, or should they just be satisfied with the safety of a job. The truth, however, is that a real entrepreneur is not one who is driven by money as much as he/she is driven by the need to accomplish something different. If you speak to many of the successful entrepreneurs you will find this trait amongst them.

If you examine the current economic programme, what you will see is that there is a real effort to remove the structural impediments to the entrepreneurial drive. This is very important for sustainability, as what this will do is cause the private individual (entrepreneur) to develop the confidence to invest his savings in starting a business, and by so doing create jobs, and income, which will then result in even further economic activity and growth. And so the cycle continues with further confidence and growth.

So we can all agree that the only sustainable way for economic growth to occur is through private (entrepreneurs and individuals) spending and investing.

The questions that we should be asking, therefore, are what are the inhibitors to the private sector having enough confidence to invest, and also, have we created enough areas of opportunities, again by removing the barriers, for investments to happen. It is important to understand that government policy can have the effect of both creating and also reducing areas of comparative advantage, and so the one of the primary features of government policy should be to create a business-friendly environment in as many areas of opportunity as possible.

It is for this reason that the fiscal and legislative adjustments under the current IMF agreement are beneficial for economic growth. Contrast this to the previous IMF agreements where the primary adjustment was devaluation with no adjustment to the "doing business" environment, which was really just making it more difficult for persons to make purchases, but not give them the opportunity to earn more income. This is because the classical argument for devaluation is that it is supposed to make your goods cheaper, and thus more competitive globally. However, what was not considered is that if you are hampered with the inability to produce (inhibitors), then no matter how much your income is reduced, and how hungry you get, without the ability to earn income then you will not be able to earn your way out of the problem.

What this programme is aiming to do, with the adjustments being made, is to make for an easier path to production for those who are innovative and productive.

However, legislative and fiscal changes are not enough to ensure sustained economic growth. Or put another way, competitive production, or increased productivity does not result from only tightening on government expenditure and putting the legislation in place to aid the business environment.

As examples, government cannot continue to make adjustments just on the expenditure side, or increase taxes, and expect that the fiscal situation will improve. This is because, at best, government services and effectiveness will remain stagnant, or non-existent. Also, we have had many sound pieces of legislation in place that are not enforced.

Therefore, the fiscal situation, and effective government service, can only improve if the fiscal revenues improve and that can only happen sustainably if economic activity and net incomes improve. Definitely not through new tax measures, which have been in the past the only solution we have taken to improving the fiscal budget, which has always failed. And the only way that legislative changes can be effective is if they are enforced without preference or delay.

This speaks to two requirements for development. First, we must improve the "doing business" environment for investment and income growth (economic growth). Second, we must improve the discipline of enforcing legislation and justice for social development. When these two things come together, then what we will see is development, as opposed to just improving social justice or growth separately.

So then we come back to the question of what are the impediments to increased investment and employment, AND similarly, the impediments to social equity and justice? Note that social equity and justice does not mean welfare only, or distributing capital to persons who are unproductive, but rather, it means providing equal and available opportunity to all irrespective of social or income standing.

So for me the solution to development is simple.

Firstly, we need to focus our efforts on creating a "doing business" environment that encourages investments and employment, particularly in export industries. Secondly, it means creating a social environment where everyone has the same opportunity and will succeed based on talent and productivity.

These inhibitors include (i) an efficient and accountable public sector bureaucracy; (ii) ease of paying taxes and greater tax compliance to reduce tax burden across the board; (iii) increased societal discipline and reduced incidence of crime; (iv) lower energy costs; and (v) improved citizen-police relations.

If we remove these obstacles, in addition to the reforms under the IMF programme, then the result will be (i) increased business and consumer confidence leading to (ii) increased consumer spending, investments, and employment leading to (iii) increased production and exports / import substitution leading to (iv) increased income levels leading to (v) increased fiscal revenues. And so the cycle will continue, each time leading to expanded growth and developmental opportunities for all.

This is because the effect of removing the inhibitors will be the exploitation of our best talent and most productive resources. It is for this reason that I am somewhat optimistic about the current economic programme. But while necessary it is far from sufficient for sustainable development.

Tuesday, June 03, 2014

Understanding the path to development (Part 1)

Dennis Chung says, much more than economic growth, development means the general improvement in opportunities and standard of living of the average citizen, which can be summed up in the Jamaica 2030 vision as “the place to live, work, and raise families”.

ALMOST daily I get questions on what will happen to the Jamaican economy and whether or not we are moving in the right direction. Or sometimes, get a comment that my expressed cautious optimism is misguided, as things are difficult in the economy. I can understand the frustration of many persons as we have been promised prosperity if we tightened our belts for the past 40 years, and we have not seen the results of the belt tightening. So, many Jamaicans are understandably cynical about the expressed optimism.

Some persons even ask why I am cautiously optimistic when in the past I have been very critical of the policies, to the point where persons have seen some of us (including Ralston Hyman) as pessimists, and today even he seems to be cautiously optimistic.

Could it be that we are just getting old and can't bother anymore, is there something wrong with us mentally, or are we able to see something that many others don't see? I remember that on many occasions we were chastised similarly for saying things like there was a need to go to the IMF or that debt restructuring seemed like the only way. But that is history, so let's look at a reasoned approach as to what may lie ahead for the economy, and what is an appropriate path for development.

Being in darkness, or a painful position, can mean that either you are about to see daybreak (or a better result, as darkness and pain can come before light and progress) or it can mean that you are falling deeper into a hole.

How then do you determine if you are actually in the darkest hour before the dawn or if you are plunging further into an abyss? The answer lies in understanding the context of the darkness. So the sophisticated investor knows that the best time to buy is when everyone is selling (or panic) and the best time to sell is when everyone is buying (or too much optimism).

The fact is that it is the analysis of the context, and understanding when there is further value, or losses ahead, that determine if one buys or sells. Analysis is something many seem to be short on, especially with the advent of instant media, as much of the debate is sometimes driven by emotions rather than reason. And this emotion is on both sides of the argument for optimism and pessimism, as arguments go overboard on either side sometimes.

I will attempt to then put forward a reasoned approach to understanding what is needed for Jamaica's economy to develop, in summary, as one or two articles can never do enough justice.

The first thing we need to do is understand what the objective of development is. In my view, development is much more than economic growth, or even increase in per capita GDP, but means the general improvement in opportunities and standard of living of the average citizen, which can be summed up in the Jamaica 2030 vision as "the place to live, work, and raise families". If we can achieve this vision for the average person, then we can truly say that we have developed as a country.

Once we have defined that vision though, then we need to assess whether we are there, and if not then what is preventing us from getting there. In other words, if we understand where the finish line is (objective), where we are in the race (200 metres in a 400 metre race), and what is preventing us from finishing the race, and we can remove the obstacle then maybe we can complete the race. But of course this assumes that we possess the capacity to do a 400 metre run instead of a 200 metre run, which we have had a better advantage in.

Therefore in removing the obstacles to the objectives, we needed to understand what our potential was. So it makes no sense saying that we want to be as well off as Canadian citizens in 20 years, if our realistic potential is that in 20 years we can only achieve what they have in Barbados. This translates to understanding our comparative advantage and what value can be realistically had.

So when I look at Jamaica, I think that we have a potential to be much better off than we are today in terms of Tourism, Agriculture, ICT, Energy, and Manufacturing. I think that we have the potential to grow in excess of the elusive three per cent, that since 1972 we only saw between 1987 and 1990. And the fact is that if we could have done it between 1987 and 1990, what is stopping us from doing so now that we have a much better brand, athletes, more accepted music, and we are more interlinked with the global marketplace.

This leads us to the question then, if we are capable of growing in excess of three per cent, or the world average, then what prevents us from doing so.

The first thing to do is understand what are the drivers that will cause us to grow beyond three per cent, because even if we remove the obstacles and we do not empower the drivers of growth then we will still not have the growth. So if I provide a clear path for a car but not have a working battery in the car then even with the path cleared the car still won't be able to go, simply because it may have been sitting in a still position so long that the battery is dead.

So while moving the obstacles I also have to ensure that the engine of growth is ready to go. And we have to find out what is required for that growth engine to go. So many have said that now that the obstacles to growth have been removed that the private sector must now come forward and start to grow the economy. I remember someone saying that to me at a seminar, and when I asked if he didn't consider himself the private sector, and if he would invest his pension in a business and start the growth, he said no that he wouldn't risk his life savings. This is exactly what the private sector does, particularly at the SME level.

So the question is, what do we have to do to make people feel safe to risk their hard earned savings, which is what will result in growth. In other words, what would motivate them to have the confidence to invest money that otherwise could have gone to provide for their family, and in particular future income, or pension? The fact is that this is the decision that many entrepreneurs face, and it is therefore not a matter of just saying that some of the obstacles are being removed so now the private sector must invest, as much of the "abstract" private sector many persons love to speak of are ordinary individuals who take extraordinary risks, which amounts to a gamble of their family's well-being.