Thursday, December 25, 2008

Confidence – key to growth


On March 30, 2007 I wrote about how important consumerism was for growth. Before and since then I have always discussed how important consumer confidence is to the development of economies, and capital markets in particular. Over the past few months we have seen where the global markets and economies have been collapsing. This also is as a result of confidence. It was being overly optimistic (confident) in the first place that led capital markets and economies to expand beyond the support of the productive bases, and it was the rapid loss of confidence that caused the faster decline in capital markets and economies globally.


Confidence and GDP
The table shows two confidence measures for the US compared to the quarterly real GDP outturn. It clearly shows that preceding the downturn in US GDP in 2009 there were significant declines occurring in confidence measures. The state street investor confidence index is a measure of confidence by looking at actual levels of risk in portfolios and the University of Michigan index measures the financial conditions and attitudes of households in the US.

This comparison is not surprising as it is confidence levels that drive spending habits and investments. Consequently if spending and investments are subdued because of a lack of confidence then naturally GDP levels will as a result decline. In order for economies to grow therefore confidence levels are important ingredients. No where is this more true than in the US where 70 percent of the economy is made up of consumer spending, and the US economy accounts for 25 percent of world consumption.

Even in an economy like Jamaica, where the state has been guiding resource allocation for many years, confidence is of utmost importance. Even more important than consumer confidence in Jamaica is investor confidence. This is because a significant part of our economy is not driven by the market but rather by paper pushing of financial institutions.

The fact is that Jamaica’s economy has been structured since the 1990s to be one based on trading of paper rather than economic activity. This is why it is so important that the management of the macro economy is far more important than the stimulus to the real economy, because we do not have much of a real economy in Jamaica. This means that even if the consumer were to spend much less this year than last year, the effect on the economy would be small compared to any fall off in trading of paper in the economy.

In any case this reveals that in both the case of the US and Jamaica confidence is key in driving the economy forward. The difference is that in the US the confidence of consumers are most important. In our case, however, the confidence of investors is most important. Understanding these differences will allow us to understand what policies are to be put in place in order to keep our economy afloat.

Regulatory need

It is this understanding of the importance of confidence in the sustainability of markets and economies that lead us to conclude that regulations and policies to drive confidence are utmost to economic development. So when people say to me that the era of the market economy is dead, this type of argument is only a representation of their limited sense of understanding what drives market economies. The need for regulation, especially as it relates to the financial sector, is not to introduce a socialist way of running economies, but to engender the necessary confidence to drive the market economy. The need for a fiscal stimulus package to drive the economy in times of recession is not to move away from the capitalist model (that has served this world so well) but to bring back the necessary confidence in order to allow the market economy to once again start growing.

The problem that we have when we start thinking about the demise of capitalism and the need to go to a more socialist type model is that we tend to over-regulate and over-control, which ultimately leads to a lack of market led growth. It is this very same situation that has led to the lackluster economic development that Jamaica has seen since the 1970s. Some persons have expressed to me recently that my view that agriculture can be the driving force behind Jamaica’s development is unfounded, as it has failed this country over the years and the way to go is high end services.

The reason why agriculture has failed is not because it does not have the potential necessary to drive Jamaica’s development. It has failed because there has been too much state intervention in the allocation of our agricultural resources and too little in terms of dealing with the very serious problem of praedial larceny. Imagine if we had policies that were geared towards (i) ensuring good roads for transporting agricultural produce, (ii) eliminating praedial larceny, and (iii) designating lands for agriculture instead of houses. This would engender the necessary confidence in investors so that they would make a business out of agriculture.

I always tell the true story of a well known Montego Bay businessman that invested 100 acres in mango production for export. As is expected in Jamaica he began having a serious problem with praedial larceny and finally caught the perpetrators on camera. Armed with the visual evidence he carried them to court and after a year the case was thrown out as the tape recording was not allowed as evidence in the courts. As you can well imagine he changed the use of the land from the planting of mangoes for export to building houses for consumption. The fact is that he no longer had the confidence that the system would protect him.

So as we move into 2009 I believe the most important policies are going to be those that are geared towards rebuilding the confidence of investors. This is especially true in a global environment that is going to pose serious economic challenges. The US is yet to face further job losses and only this week the housing numbers show that the recession is deepening in the US and the UK.


Here in Jamaica we have to ensure that our economy is still seen as a viable place to invest and this can only come about by creating an air of confidence. It is going to mean changing the way we do things and we must address as two of the most important impediments to investment, the problems of crime and bureaucracy. Even with the fiscal and economic stimulus package announced by the Prime Minister, if we are unable to deal with the problems of crime and bureaucracy then come this time next year we will be in a worse position talking about the same challenges.

47 comments:

Anonymous said...

Fine way of describing, and ρleasant ρaгаgraph
to obtain facts гegarding my prеsentation topic,
whiсh i аm going to present in school.

Here іs my site :: altec bucket trucks
My web page locate a bucket truck

Anonymous said...

Undeniаbly cоnsidег that thаt you stated.
Υouг favourite reaѕon аppeared to be οn thе
іnternet the easieѕt thing to unԁеrstanԁ of.
I say tο you, I definitelу get аnnоyed even аѕ peορle think about ωоrгieѕ that thеу ρlainly don't recognise about. You managed to hit the nail upon the highest and defined out the whole thing with no need side effect , other folks can take a signal. Will probably be again to get more. Thanks

Feel free to surf to my webpage ... auto insurance dallas
My webpage: auto insurance dallas

Anonymous said...

mаgnificent submit, very informаtive.
I ponԁer ωhy thе othеr expertѕ
of this ѕесtοг do not nоtice thіs.
Yоu shoulԁ ρroсеed your wгіting.
I am confiԁent, you have a hugе гeadеrѕ' base already!

Feel free to visit my blog - coppell taxi company

Anonymous said...

Very shortly this web site will be fаmous amid
аll blogging visіtorѕ, duе to іt's fastidious content

Also visit my web blog; taxi service irving tx
My webpage :: taxi Irving

Anonymous said...

It's very straightforward to find out any matter on web as compared to books, as I found this piece of writing at this web page.

Check out my blog :: Okc Roofer

Anonymous said...

When I originally commented I clicked the "Notify me when new comments are added" checkbox and now each time a comment is added I
get several emails with the same comment. Is there any way you
can remove me from that service? Bless you!

Also visit my blog post; airplane game

Anonymous said...

It's awesome to visit this site and reading the views of all friends regarding this article, while I am also keen of getting knowledge.

Here is my blog healthy waist to height ratio

Anonymous said...

I'm impressed, I must say. Rarely do I come across a blog that's equally educative and
entertaining, and let me tell you, you've hit the nail on the head. The problem is something not enough people are speaking intelligently about. I'm
very happy that I came across this during my hunt for something regarding this.


My blog post :: good diet plans for women

Anonymous said...

My family members all the time say that I am wasting my time here at net,
however I know I am getting know-how every day by reading thes nice articles or reviews.


Here is my web-site - waist to height ratio chart

Anonymous said...

Awesome blog! Is your theme custom made or did you download
it from somewhere? A theme like yours with a few simple tweeks would really make my
blog shine. Please let me know where you got your design.
Cheers

Feel free to surf to my website diets that work

Anonymous said...

Spot on with this write-up, I actually believe this site needs much more attention.
I'll probably be returning to read through more, thanks for the information!

Here is my blog :: declaring bankruptcy in florida

Anonymous said...

Hello, I check your new stuff daily. Your writing style is witty,
keep doing what you're doing!

Feel free to visit my website ... best registry cleaner

Anonymous said...

When I initially commented I clicked the "Notify me when new comments are added"
checkbox and now each time a comment is added I get several e-mails
with the same comment. Is there any way you can remove people from that service?
Cheers!

Check out my site: diet that works

Anonymous said...

always i used to read smaller articles which also clear their motive, and that is also happening with this piece of writing
which I am reading now.

my homepage: how much should i weigh for my age

Anonymous said...

ӏ гead thіs рiecе оf writing complеtely conсernіng thе resemblanсe
of nеwеst аnd previous tесhnologіes,
іt's amazing article.

My website seo dallas texas

Anonymous said...

We are a bunch of volunteers and opening a new scheme in
our community. Your website provided us with helpful information to
work on. You've performed a formidable activity and our entire group might be grateful to you.

my web page :: calculate bmr

Anonymous said...

That is a really good tip especially to those new to the blogosphere.

Brief but very precise info… Thank you for sharing this one.
A must read post!

My web site - how to lose weight

Anonymous said...

I'm impressed, I have to admit. Rarely do I encounter a blog that's both educative and entertaining, and
let me tell you, you've hit the nail on the head. The problem is something which too few men and women are speaking intelligently about. Now i'm very happy that I stumbled across this during my hunt
for something concerning this.

Feel free to surf to my weblog ... best diet

Anonymous said...

Thanks a lot for sharing this with all people you actually recognise what you're speaking about! Bookmarked. Please additionally seek advice from my website =). We will have a link alternate contract among us

my web site ... diet plan to lose weight

Anonymous said...

Heya i am for the first time here. I came across this board and I find
It truly helpful & it helped me out a lot. I'm hoping to present one thing again and aid others like you aided me.

my blog: bankruptcy florida

Anonymous said...

I love your blog.. very nice colors & theme. Did you design this website yourself or did you hire someone to do it for you?
Plz respond as I'm looking to construct my own blog and would like to find out where u got this from. cheers

Visit my homepage; raspberry ketone diet reviews

Anonymous said...

you are really a excellent webmaster. The web site loading pace is
amazing. It sort of feels that you're doing any unique trick. In addition, The contents are masterpiece. you've performed
a great task on this matter!

Also visit my blog - bankruptcy in florida

Anonymous said...

you are really a excellent webmaster. The web site loading pace
is amazing. It sort of feels that you're doing any unique trick. In addition, The contents are masterpiece. you've performed a great task on
this matter!

Visit my website: bankruptcy in florida

Anonymous said...

Aw, this was an incredibly nice post. Taking a few minutes and actual effort to create a top
notch article… but what can I say… I put things off a lot and
never seem to get nearly anything done.

Have a look at my web blog; how many calories do you burn walking

Anonymous said...

Quality posts is the secret to be a focus for the users
to visit the web page, that's what this web site is providing.

my blog :: diets that work fast

Anonymous said...

Hello! I could have sworn I've been to this web site before but after going through some of the posts I realized it's new to me.
Anyhow, I'm certainly happy I discovered it and I'll be book-marking it
and checking back frequently!

Here is my webpage bmi calculator female

Anonymous said...

Great post. I am going through a few of these issues as well.
.

Feel free to visit my web site - calories burned calculator

Anonymous said...

Thanks designed for sharing such a fastidious thought, piece of writing is
pleasant, thats why i have read it completely

Also visit my webpage ... calories walking calculator

Anonymous said...

Why viewers still use to read news papers when in this technological globe everything
is presented on web?

Check out my weblog ... diets that work fast

Anonymous said...

Just desire to say your article is as astonishing.

The clearness to your put up is simply excellent and that
i could suppose you are a professional on this subject.
Fine with your permission let me to clutch your feed to
stay updated with forthcoming post. Thanks a million and please keep up
the rewarding work.

my blog post microsoft registry cleaner

Anonymous said...

First of all I want to say terrific blog! I had a quick question which I'd like to ask if you do not mind. I was interested to know how you center yourself and clear your head before writing. I've had a difficult
time clearing my thoughts in getting my thoughts out. I do take pleasure in writing however it just seems like the first 10 to
15 minutes are usually wasted simply just trying to figure out
how to begin. Any suggestions or hints? Cheers!

My website ... buy acai ultra

Anonymous said...

I read this article fully regarding the difference of
latest and previous technologies, it's awesome article.

My web-site ... dietgreencoffeereview.com

Anonymous said...

It's really a cool and useful piece of information. I'm satisfied that you just shared this helpful info with us.

Please keep us informed like this. Thanks for sharing.

Here is my web blog ... please click the next internet page

Anonymous said...

What's up it's me, I am also visiting this site daily, this site is really pleasant and the people are genuinely sharing pleasant thoughts.


My homepage; diet plans that work

Anonymous said...

I read this paragraph completely concerning the difference of most recent and earlier technologies, it's awesome article.

Also visit my webpage :: diet plans that work for women

Anonymous said...

Hello, I think your website might be having browser compatibility issues.

When I look at your blog in Ie, it looks fine but when opening in Internet Explorer,
it has some overlapping. I just wanted to give you a quick heads up!
Other then that, fantastic blog!

My web page; activity calorie calculator

Anonymous said...

I have been browsing on-line more than three
hours as of late, but I by no means found any interesting article
like yours. It's beautiful worth enough for me. In my opinion, if all site owners and bloggers made excellent content as you probably did, the net will probably be a lot more helpful than ever before.

Also visit my website ... activity calorie calculator

Anonymous said...

We stumbled over here by a different page
and thought I should check things out. I like what I see so now i am following you.
Look forward to looking at your web page yet again.

Take a look at my weblog - tips on how to lose weight fast

Anonymous said...

Hello! Would you mind if I share your blog with my twitter group?
There's a lot of folks that I think would really enjoy your content. Please let me know. Many thanks

Also visit my web site; Diets that work for women

Anonymous said...

Hello very cool web site!! Guy .. Beautiful .. Amazing .
. I will bookmark your site and take the feeds also?

I am satisfied to seek out so many useful info here in the
put up, we'd like work out more strategies in this regard, thank you for sharing. . . . . .

Feel free to visit my weblog: diets that work fast

Anonymous said...

I thіnk the admin оf thiѕ ωeb page іs actually woгκing hard in
favοr of hiѕ web рage, as hеre every material
is qualіty based data.

Feel frеe tο ѕurf to my ωеbpage: www.ukinsurancewise.co.uk

Anonymous said...

Hello, I enjoy reading all of your article post. I wanted to write a little comment to support you.


Also visit my web site; ketone diet

Anonymous said...

I feel that is among the most significant information for me.
And i am happy studying your article. However should
observation on some common issues, The web site taste is perfect, the articles is truly
great : D. Excellent task, cheers

Here is my web blog ... pharmacy technician school

Anonymous said...

This page talks about several effective ways through
which you can get rid of skin tags. I would also like to dismiss the
earlier notion that developing of genital skin tags should not
be misunderstood towards developing any sexually transmitted diseases.
The brown-slatted background in the image above really
isn't part of the technique I was trying to demonstrate here.

Stop by my blog: what Removes skin tags

raybanoutlet001 said...

polo ralph lauren
ugg outlet
polo ralph lauren
michael kors handbags
saics running shoes
polo ralph lauren
new orleans saints jerseys
fitflops
chicago bulls jersey
michael kors handbags
2017.7.26

Shawn said...

Quality Aircraft parts and Accessories repairs, overhauls, and exchanges aircraft parts and general aviation accessories. Explore the aircraft parts selection today!

abcsturcture4u said...

It's really a nice and useful piece of information. I am satisfied that you shared this helpful info with us. Please stay us up to date like this. Thanks for sharing.

Working to client specification, we build house extensions of any size from start to finish, including groundwork, brickwork, electrical installation, plumbing, plastering and decorating. We will source pre-used bricks and tiles to match existing and replace supporting walls with Rolled Steel Joists where necessary. Visit our site for Cheap Roof Repair