Friday, August 01, 2003

Problems with inner cities

Recently during a workday, I was driving along Spanish Town Road, from Three Miles to Downtown. As I was traveling, I noticed several empty buildings that once boasted some of Jamaica’s most successful/productive entertainment centres and businesses. In addition to the wasted real estate, I noticed many young men and women loitering on street corners, evidently searching for something to occupy their time. A conversation I had with one person revealed that most, if not all, would love to have the opportunity of employment.

WASTED RESOURCES
It suddenly hit me that this is one of the reasons for our current economic condition. The real problem of the inner city emanates from the extensive idle resources they contain. These resources are potential business establishments and productive labour that are going to waste. What’s more, the situation worsens with each passing day. How can any nation or company survive in a competitive environment, if it does not fully utilise all of its available assets? Yet, we have been trying to compete with other countries that fully utilise their productive resources.

The problems facing us as a nation are primarily:

1. Idle real estate that lies in many inner city areas because of crime, as well as neglect by the relevant authorities over the decades. These properties, potentially, are thriving businesses that could be employing thousands of persons; and
2. Increasing idleness of our human resources, particularly, in the inner city.

Both these factors are wasted resources, which, as long as they are idle place a greater requirement on the productive sector, as the wants and needs to be satisfied remain relatively inelastic.

In my opinion, the productive employment of these resources is certainly one way of more evenly distributing the tax burden. For example, take two companies with assets valued at $100. If company A invests the whole $100 at 20% per annum it will earn $20 over a year. If company B invests only $70 and leaves $30 unused, it will have to realise a return of approximately 28.5% to earn that $20. Similarly, in our situation, we are competing against countries using a higher percentage of their productive base, both in terms of real assets and labour. In order for us to compete effectively, we, therefore, must realise a higher rate of return on our assets.

DECREASE IN PRODUCTIVE POPULATION
A review of statistics on the population and the economy reveals some interesting points. Our total population has increased while our labour force in absolute numbers and as a percent of total population has decreased, moving from 44.52% in 1997 to 42.86% in 2002.

The implication of this is that we have less persons working to support an increasing population. Over this same period, there has been an increase in the average US$ weekly earnings from US$145.50 to US$173.08 - a 19% increase. Similarly, the total earnings over the total population has increased from US$64.78 to US$74.18, a 14.5% increase, over the same period. The implication is that the work force was, on average, earning more in real terms in 2002 than in 1997. Other implications include a growing young population, increased dependence on the breadwinner and, more importantly, a greater concentration of wealth in the hands of the working class. Whatever the fundamentals are, it translates to a decrease in the productive population.

EFFECT OF THE DEBT
I deliberately neglected to imply an increase in productivity, as while earnings per capita has been increasing, there has been a decrease in real GDP growth. How is this possible since greater earnings should imply more productivity? I would propose that the increased earnings have more to do with increased debt levels rather than productivity. Over the same period of declining GDP, we have seen significant increases in the debt, moving from J$196 Billion in 1997 to J$497 Billion in 2002.

The implication is that increased earnings are stimulated through the injection of borrowed money. It is only recently that we have seen any growth in GDP and, even so, it has been marginal and equivalent to earlier declines. This means that debt is being used to create earnings without any productive assets to support it. Thus, the debt is being channeled significantly towards consumption, rather than capital investments. On the other hand, it could be argued that the debt was necessary to spurn consumption and positively affect growth, which will inevitably feed on itself.

This situation again follows the argument above regarding the underutilisation of property and human resources. Here, we are again underutilising financial assets. In all areas, we seem not to be using our resources in the most productive manner. This problem may be as prevalent in the private as in the public sector and it may do well to do some research in this regard. The Government seems to have recognised this, and is attempting to address it through its public sector modernisation programme, but is already at a disadvantage as decades of cultural and infrastructural acceptance of waste is difficult to overcome.

UNPRODUCTIVE ASSETS
Apart from the non-use of assets, we also have been placing emphasis on industries that have long become unproductive and uncompetitive, thereby not using our assets in the most effective and productive way.

Whatever the approach, we must put to productive use the many idle and unproductive resources existing in the inner city. This necessitates a shift in the social and economic paradigm of the country. If we are not able to fully leverage our assets and make them productive, then we are already at a disadvantage in a global environment.
It is within this context that the work of the Kingston Restoration Company is critical to the future of our country and the Government and private sector must be applauded for the effort being placed on this venture. The Government has also shown its intention to focus on the renewal of the inner cities, which can only be beneficial for the country and should be supported by all. If we can address this, focus effectively, then many of our economic and social problems will be resolved.

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