Friday, September 04, 2009

Demanding more of a shrinking pie

Over the past few weeks the fiscal accounts have taken centre stage in economic news, whether it is because of the ratings from credit agencies, the need to reduce fiscal expenditure, or the industrial environment as a result of greater wage demands on the fiscal accounts.

What we need to be careful of is that we do not focus all our energies on finding solutions to the fiscal at the expense of the longer-term viability of the country, as the fact is that the fiscal accounts are nothing but a symptom of the underlying problem. The fact is that, even if we fix the fiscal accounts this year, and ignore the other fundamentals of the economy, we will sooner or later be caught in a much worse fiscal and economic situation.

This is the approach we have always taken for most of our independence and is why we are in the current predicament today. Instead of fixing the fundamental structural faults in the economy, we have always sought to borrow money to postpone the inevitable collapse of the economy.

At a crossroads

So once again we are at a crossroads, and based on utterances, it seems as if some are pressing for the same solutions to be implemented that have resulted in us being where we are today. This is no surprise to me, however, for many Jamaicans have always had a "big fish in a small pond" mentally. That is, they would much rather own 100 per cent of $10 rather than 10% of $1,000. Underlying this sort of philosophy I think is the "Great House" way of thinking, as well as the need to be the big fish, even while the water is being drained from the pond. So we would rather that every one dies, but in the end at least be the biggest dead fish.

So when decisions need to be made about cutting expenditures to fit the lifestyle or making decisions for a more efficient way of doing things, we tend to shy away from the practical approach. Instead, we seek to borrow funds to support a lifestyle that our income cannot afford. And not many of us can point to the government alone about this type of behaviour, as it is a daily part of the lives of many Jamaicans.

Two such examples that come to mind are (1) someone I know was going through a very difficult financial period but refused to sell his Land Rover because it would affect his profile; and (2) someone I heard of who rented a very expensive house and paid a big car loan (in order to drive a BMW) and in the process placed his family's financial future in doubt. And both cases occurred before the economic downturn started to take its toll. There are many other examples.

What we do not understand is that the accumulation of these individual behaviours is what results in the total debt levels in the country. But what governments must do is ensure that this fever is not replicated in government and put policies in place to prevent this. Well, we have failed to do so for a very long time and have now found ourselves in the situation where the prime minister has had to (and rightly so) announce significant expenditure cuts.

But while these necessary cuts are being announced, some of us still do not realise that the only way for us to see future development is to live within our means. There is no other way. The problem is that we have grown fat for so long on debt that we have forgotten about how to produce and earn for ourselves. So this has resulted in a situation where we were satisfied with becoming international beggars, through remittances.

The fact is that the tide has changed, and we are in a situation now where we must understand that no more can the country go along borrowing money to support consumption expenditure. It is not enough to have two cell phones and a car. We need to be placing emphasis on more agricultural lands in production and more factories.

Bail-out mentality

This paradigm shift in our thinking is proving very difficult for us to adapt to, and I think primarily because we have got accustomed to being bailed out. When the EU was going to cut the subsidies for sugar and banana we demonstrated against it and told them how to give away their money. Each year we budget income for grants. And finally, we are satisfied with training 80 per cent of our University graduates to seek employment overseas and send back what they will in the form of remittances.

Similarly, the government is facing a cash crunch and the economy is facing significant decline this year, and our efforts are consumed with dealing with industrial relations issues. I have no inside knowledge of the negotiations and cannot say what the arguments are for either side, but what I know, is that the country will suffer and at the end of the day we will be like the participants in the Iran-Iraq war. That is, what we are fighting for will have deteriorated so much that what the victor gets in the end will be much less than they had before the war started.

Just as the by-elections came and went and the country did not benefit, so this industrial climate will come and go eventually and the country will not benefit. I am certain that the teachers, police, and nurses deserve every cent of the money they are clamouring for, and I am also sure that the Government does not have the money. So what do we do in this situation? I would like to propose that the more logical solution is for both parties to sit down and try to create a win-win situation, so that it could be that the Government says to the teachers, for example, that if the pass rates can be improved in a measured way then instead of getting $8 billion you will get $12 billion (adjusted for inflation). The reasoning behind this is that the output of teachers, nurses, and the police do have an impact on GDP and government revenues indirectly.

Whatever is agreed to finally, it is clear that (1) the teachers, nurses, and police do deserve more money, but also have a responsibility to deliver quality service; (2) the Government has no money and the economic situation will worsen; (3) students must go to school, patients must be treated, and crime must be controlled. So being aware of all these facts, it must be within all of us as Jamaicans to find a win-win situation and this is going to mean that we have to sit down and talk to each other as Jamaicans, not as though we all live in a different country.

As far as I can remember we have always had industrial action for better wages, which has caused many disruptions, in our productivity and progress as a country. After all those disruptions can we truly say that, individually and as a country we have all improved? If the answer is yes, then we should continue in the same vein, but if the answer is no, then it makes no sense trying to get more out of a pie that is shrinking every day. What we need to do is sit down and recognise the limitations we have and find a way to increase the pie so that even if we end up with a lower percentage, it is more than what we had before.

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