Friday, July 25, 2003

The Necessity for Established Rules

I have often thought of the potential Jamaica has for meaningful development. This idea has consistently been echoed by various commentaries. Ever since my awareness of current affairs, I have always heard references to Jamaica’s potential for tourism, agricultural crops, reggae music, etc. This has led me to think about why we have not been able to realize this “much talked about” potential and why we always seem to be on the brink of a breakthrough but never attaining it. There is no denying that Jamaica is truly blessed with natural resources and a resilient people and could easily be first class in areas of natural competitive advantage.

In my experience, the development of a country can be easily related to that of a company. Why do some companies succeed to become large national or multinationals and yet there are others that are not able to expand beyond medium to large size? The development of a company to national or multinational status depends primarily on two things:

1) People and
2) Established rules and procedures.

Multinationals usually have strict policies and procedures that must be adhered to and rewards are usually based on set performance criteria and not left to the subjectivity of any one person. Companies that always seem to be on the brink of national growth but never attaining it, usually have a dominant personality who seeks to direct everything and stifles the initiative of others. This dominant personality is usually instrumental in the start and initial development of the company but restricts the company from growing further because no action can be taken without his/her input.

Similarly with a country, established laws and rules are needed to allow the players to exercise their initiative in their own areas. Importantly, however, the rules must be stable. In other words, the players must be able to make long-term projections without fear of any changes to the rules of the game while they are playing. The consequences of actions also need to be predetermined so that the potential outcomes are evident. In addition, rules must be relevant to the objectives that one is trying to achieve.

It seems to me that this is one of the primary problems we face as a country. This problem did not begin with this Government but has always been in existence. In fact, in my opinion, the present Government has made a far greater effort to update the antiquated colonial laws than any other but still faces an uphill task because of the long period of inaction in this area. In short, the problem that we have suffered from is that our antiquated laws have no relation to the objectives that we are trying to achieve as a country.
Many of our laws still refer to the discretion of ‘the Minister’ and so the development of industries usually relies on the mood or will of an individual. Many years ago, this was acceptable but today this reliance on an individual leads to a bottleneck for progress.

It is for this very reason that multinationals and first world countries have established rules that apply to everyone. It would be impossible for their own control and survival to rely on anything less. This is a consequence of development, that is, less reliance on individuals and more on systems and controls, which is the only way to monitor and reward progress.

Jamaica suffers immensely from this problem. On the one hand, we desire economic growth and ever so often it seems as if we are about to but we are restricted because we do not allow private sector initiative to flourish. Too often, the rules change at the drop of a hat. There is no certainty about what will happen after its occurrence and so we plan for the short-term aware of the fact that we could be playing by different rules later. The consequence is that many companies experience a difficulty in making long-term plans and commitments.

No one will invest seriously in Jamaica unless they are assured of stability. For that reason we will attract persons seeking to make quick profits in the services or trade industries or seeking to make a quick return from our relatively high interest rates but no serious investments in capital goods.

The present regime has sought to provide some form of stability in the market and has been fairly successful in doing so in the areas of inflation and exchange rates. The Government must be applauded, as these are very important to corporate planning. The problem, however, has been that this has been achieved at the expense of maintaining relatively higher interest rates than our international competitors.

The effect of the high interest rate policy is two-fold:

1. High interest rates prevent entrants with little or no capital, which either comes from equity or debt, as they will not be able to afford debt financing. The result is a restriction of the entrepreneurial initiative; and
2. High interest rates encourage low risk interest bearing deposits, thus discouraging productive investment.

These two factors have combined to cause the erosion of our productive sector and made us primarily a service and trade-oriented economy. These factors have been compounded by the uncertainty of the legislative and social environment, resulting in uncertainty in the economic environment. This is the primary reason for the continued decline in investments in capital goods by private entrepreneurs.

Businesses already have to grapple with the uncertainty of markets and consumers and so will shy away from countries with high political and economic risk. The political and economic risk can only be minimized by assuring investors of the relevance and stability of the rules by which they will be governed. In today’s global environment, we cannot afford the luxury of this type of uncertainty. We must conform to global practices and ensure that we develop and maintain a business environment that will provide the type of long-term stability that investors require.

Friday, July 04, 2003

Defining Third World

Interacting with government agencies is one of the most frustrating activities one can face. Every time I face this ordeal it reminds me immediately of our third world status. The definition of third world in my mind does not have to do with the type of industries we have but the way we execute our socialization and business processes. We can be financially successful in any activity we choose but this depends significantly on the method of execution.

I had a recent experience with the tax office, which demonstrated only too clearly this concept. I went to replace a motor vehicle title that had been lost. The process started with a trip to the Half Way Tree police station to make a report. This was a rather pleasant experience. I was directed to the office responsible for this. On entering I was asked immediately by a lady what the problem was, who expeditiously dealt with my report. A few weeks after I made a trip to the tax office to complete the transaction and was told that the other person named on the title had to be there in person to sign the application. This of course meant waiting a few more weeks as it was difficult for the both of us to find the time. When this was finally possible, it was discovered that the person’s name had to be changed on the motor vehicle registration as the tax office had mistakenly left off the hyphenated extension to the person’s name. I was then sent to another desk to correct the error. On completion I was directed to another point to get a substitute document. On arriving there I was told that I had to pay a fee to correct a mistake made by the tax office. I protested on a point of principle as the documents were correctly presented to them and it was therefore their error, only to be told that the error was made by the Cross Roads office, which was separate from Constant Spring and if I didn’t want to pay I had to go back to Cross Roads. For your information, these are branches of the same agency.

After protest I eventually got the replacement done without being charged. I then had to go back to the original desk to have the documents stamped in order to pay the replacement fee at the cashier. When I got back to the cashier I was told that I needed to be in possession of the insurance certificate for the car, which did not exist because the insurance had been up on the car for a while. A supervisor came to my rescue and allowed the transaction to go through after much explanation. The end result of all of this is that a transaction that should have taken 15 minutes ended up lasting for one hour during which time I went though various emotional stages.

This experience prompted me to think that this is the reason why we are a third world country. The difference between a first and third world country has everything to do with the ease of carrying out transactions and daily living. How can we as a nation be serious about development when so much time is wasted with experiences such as these? At the same time I was there I heard a man cursing that he was just trying to pay some money to close down a business, as he was frustrated with the process, and even the act of paying much needed revenue to the government was difficult.

It is this bureaucracy that it helping to stifle our development. The problem I find is not necessarily with the people who carry out the daily functions at the government agencies. There has evidently been a wide scale introduction of people trained in customer service in the various government agencies. The problem is that these very same persons are restricted in what they can do by the rules and processes that act as a noose around their necks. They obviously do try to assist and the frustration is also evident on their faces. Very soon these people will fall into the mode of inefficiency and we will have to start all over again.

Customer service does not change because new computers and policy manuals are introduced. The most important part of any system or technological improvement depends on people. If we set up a system where the natural talent and discretion of employees are restricted by the rules then the system will be as inefficient as before the change. The problem in many instances is because the same administrators that existed before the changes are the same ones retained, with the same mind set in many cases. System improvement emanates primarily from a change in the way of thinking and skills. Our present government bureaucracy is based on the principle of “guilty until proven innocent”.

The same is true for the private sector. There are many companies that do not understand what service is. When you call them you get this new and improved telephone answering system that provides a grand tour of the office extensions and after you have wasted 15 minutes trying to get someone you are then placed on hold for another 5 minutes. At the end of it you feel as if you have just been afforded a privilege to spend your money.

This is the main distinction between today’s large organization and tomorrow’s international corporation, and is at the heart of our inability to compete internationally. The cumulative effect of the bureaucracy of government agencies and the internal inefficiencies of companies result in very high cost structures.

How then do companies such as Grace Kennedy and Jamaica Producers Group compete so effectively on an international scale? Only recently these companies were facing challenging times and have made remarkable recoveries. I also remember that it was on the basis of human capital that IBM saved itself from extinction. I know because I was working at IBM at the time of the reorganization.

The difference with these companies is that they hire and reward good human resources. This is the same model that can be found in the Fortune 500 companies around the globe. In today’s world it is the quality of the human resources that is going to give any company a competitive edge. If you can think of one good employee within your own company, think how difficult it is to replace that person and what it would be like if you could not rely on that person. The cost of sub-standard human resources is much higher than properly rewarding good people. Most persons will realize this only after the person has left the company.

The next time you think about why Jamaica is a third world country, it is because of the long approval process to start business, the dependence on personalities to complete transactions, the corruption that exists, the lack of service within private companies, the need to be aggressive on the roads, the frustration to pay taxes and the preference of a friend over expertise for a job. In short it is the lack of productive human capital and the resistances to properly reward excellence and build our organizations on human resource talent that make us third world.