Friday, February 26, 2010


When I wrote my book last year, I started out looking at the economic numbers and tried to analyze the challenges and why Jamaica did not over 47 years achieve any real development. After looking at the numbers I concluded in the last two chapters that in order for Jamaica to achieve the elusive development, we must of necessity first see a new political and social order.

Included in this new order "must of necessity... [be]...a focus on developing the human capital across society". The fact is that Jamaica will never be ready for any real development unless we address the social and political challenges that face the country. Sure we may be able to eke out isolated bouts of three percent economic growth occasionally, but that is not development. In fact the growth we have seen, and what is being projected in the IMF programme, has come and will continue to come from international begging...I mean remittances.

Fading productive base
The truth is that the productive base of Jamaica will never grow until we address the social ills facing the country. Until then the truth is that the only real economic systems that will service Jamaica well are feudalism and slavery, which effectively is disguised by political independence. But if you tear away all the hoopla surrounding so called independence, we still have a significantly oppressed citizenry (controlled in the new feudal farms called garrisons) and we still rely on developed countries for debt and aid. So are we truly independent.

Modern day economics of course assumes that a civilized society exists, and does not consider the type of widespread corruption and high crime rates Jamaica has. So development and market theory does not assume a significant cost of business as extortion or that government will consistently run fiscal deficits in order to satisfy a political rather than economic motive. Economic theory assumes that the self correcting mechanism of the market will be allowed to operate and that governments will work in tandem with the market but will intervene in order to allow a smoothing out effect, thus eliminating any violent market reactions that will dismember the working class.

These assumptions do not hold in Jamaica, and therefore our relentless pursuit to practice an efficient market economy is futile.

Last week I wrote about the massive gun find in Mountain View, and said then that the economic recovery will of course depend on how the Commissioner of Police addresses the fight against corruption and crime. I also mentioned that resources were being wasted dealing with issues that should not occur in the first place such as Armadale and Horizon. The week after of course the Armadale report was revealed, which even more frightening to me than the report was the fact that the authorities had it in their possession for well over a month.

So to me the real horror of police brutality, horrendous prison conditions, and neglect of children's rights is not the fact that they occur, but that the authorities over the years have neglected to do anything about it. I am of course horrified by Armadale but let's be honest these things have been occurring consistently over the years. The only difference this time is that some children died and more importantly credit must be given to the Prime Minister for immediately setting up the commission of inquiry. I mean over the past few weeks the Child Development Agency (CDA) had been running these nice sounding ads that anyone who knows about child abuse and does not report it is guilty of an offence. Of course this seemed to me to be nothing but PR, as in plain sight children continue to be abused every day. When children are allowed by their parents to spend the day at traffic lights wiping windscreens or selling on the roads isn't that abuse in plain sight. So what has the CDA or any child protection agency done about it? Give me a break. This does not require resources.

If being cynical you could say that when you look at the animated picture of children on the CDA website they look like they are in strait jackets. So go figure.

When police are accused of brutality against citizens what is done about it, and what is done about the simple things like night noise and blatant traffic violations. The police can't tell me that they need any special investigative arm up setup to deal with these two in your face but important law and order situations.

In May 2008 I wrote an article called 'Déjà vu", where in reaction to the public and leadership outcry against the assassination of a young lady in York Plaza, I indicated that the public outcry seemed like déjà vu as every time there is a crime upsurge everyone speaks out only for nothing to be done to correct the systems. Similarly when Armadale happened last year there was a big outcry and if Nationwide and the Observer did not carry the report everything would have been "no problem". So what will change after we all get tired of talking about this instance and a few people resign? Again déjà vu.

Threat to the economic programme
So while the Finance Minister is busy trying to get interest rates down and manage the debt and fiscal accounts, other parts of the bureaucracy are ensuring that all his efforts come to nil. It is like the finance department trying to control costs and the marketing department making as much contacts as they can but when the customer comes to the organization for service they are abused by the operations personnel. So the Jamaica Debt Exchange (JDX) will be put in place and the interest rates will be immediately lowered, and provide a significant fiscal boost, but the operational people will ensure that the economic programme for improvement is not maintained.

This is because investment decisions are more driven by the need for social stability and economic predictability. People use these factors to determine risk and return on investment more than interest rates. So we have projected that the rate of devaluation will be about four percent per annum, and one can get approximately four percent on US$ deposits. So why invest in Jamaican dollar assets at 10 or 12 percent when one can realize 8 to 9 percent on US$ assets if your money is going to be at risk from the social and economic instability in Jamaica.

This is the real risk to the JDX as no amount of monetary policy can work in a country where citizens are not geared towards productivity either because of the new feudal farms (garrisons), they are crying out for justice from police brutality, or they are being turned into criminals by the state when they go to correctional institutions.

If you look at Jamaica's social development over the years we have fallen behind many other countries. Again quoting from my book - "...of 101 countries surveyed [Human Development Index Report] in 1975, Jamaica ranked 39th or in the top 39 percent...By 2005, however, Jamaica was ranked 101st of 177 countries...or in the top 57 percent." Clearly although our ranking may have improved absolutely we have fallen behind many countries.

In short what Jamaica must first become if it is to achieve the necessary economic and social development to move forward is a civilized society.

Friday, February 19, 2010


LAST week, the Government secured the much-needed approval from the IMF board for some US$1.3 billion to be loaned to Jamaica for balance of payments support. More importantly though, this paved the way for the Government to secure the necessary financing from the other multilateral organisations.

For me, however, the greatest impetus to economic recovery last week was not the IMF loan, as the loan does not ensure economic recovery but simply provides a halt to the decline of the economy which will continue if the appropriate policies are not implemented. The greatest impetus to economic recovery last week was the arrest of the police seargent and others in the gun and ammunition find.

Why people invest
My reason for saying this is that the salvation of Jamaica does not rest solely in the way the macroeconomic numbers or fiscal accounts are managed. While the management of the numbers is very important (and being an accountant I know that), it is more important for us to remember that economics is a social science and people invest more because of social stability, predictability and confidence, rather than macroeconomic numbers or interest rates.

As an example, in 2008 global investors were accepting a negative return on US treasuries while other markets and instruments were giving positive returns. This was so because of the prevailing uncertainty in global markets at the time, and the first thing that investors want to secure is their original capital. If you can maintain your original capital then you can live to fight another day, but if you can't, then you have no other opportunity to invest if the current one fails. And failure must always be seen as a possibility.

In fact, when investing, the management of risk and minimising loss are always more important considerations than how much profit you can make. The reason for that is if you can minimise your downside risks, then it means that the number of times you have to win in order to get ahead does not have to be very high in order to be profitable.
If, on the other hand, you take a decision to go for broke and you fail, then more than likely you will be wiped out in one go. So when making decisions about investments, investors usually find the best balance between risk and reward.

It is therefore important for us to understand how the potential investor thinks about the risk element of the investment. Investments take place in all types of environment. In Afghanistan and Iraq, for example, people do make investments, but these are investments that have a relatively short payback period. A rational investor would not, for example, seek to establish a business such as an online book store or an agro-processing plant in Afghanistan, even if he is getting money to borrow at zero per cent. Instead, he may seek to do some trading business where there is a quick turnaround on the investment.

Similarly in Jamaica, there are many people who would want to invest more in agriculture but refrain because of the high incidence of praedial larceny.
It is therefore very important for the investor to see (1) a stable social environment; (2) a predictable system of justice and fair play; (3) maintenance of law, order, and discipline; (4) a favourable industrial climate; (5) reduced bureaucratic structure and impediments; and (6) appropriate legislative protection. After all these are in place, then we will start to see serious investments taking place in the country.

Sure we will see some investments taking place, but they will only be in the form where investments are relatively quickly recouped. As examples we will see investments in financial institutions and services, where other people's money is used as capital while enjoying high returns, or we will see investments in trading and services, which have low capitalisation and quick returns. This, in fact, is the way that Jamaica's economy is structured for the most part, and the reason for that is because of all the impediments faced by potential investors. So if we want to see real long-term investments taking place we have to address those issues.

Efficient, corrupt-free police
At the heart of this drive for recovery, therefore, is the need for a corrupt-free and efficient police force. In the largest economy in the world one can't drive 100 yards without seeing a police car, and do not dare try to bribe any of them, or else you will certainly end up on the wrong side of the law. In the US also, while there are predictable and very efficient laws in place to ensure discipline, protection of human rights, and equity, these laws are not overbearing and do not require that everything that happens in the country has to go through a bureaucrat or the minister in charge. What they do is lay the foundation and guidelines for all to follow.

In Jamaica, for example, I can never understand the system of the Tax Compliance Certificate (TCC), which starts off by assuming that everyone is a criminal. Why does the person who has never been a problem have to go through the same process as the person who has had multiple run-ins with the authorities? Wouldn't it be more efficient to have a system where everyone is assumed innocent and if you have problems with the authorities then you are blacklisted and required to go through the process?

In Jamaica also we do not have much respect for human rights. As I keep saying, if people always have to be crying out for justice, then what time do they find to be productive? So once again, because of the way our bureaucrats operate, we waste a lot of productive time and resources dealing with issues such as Armadale and the Horizon Remand Centre, whereas if we had ensured that the rights of these people were being protected in the first instance we wouldn't have to waste time and money on these matters.

The people who are responsible for this should be asked to pay back the monies spent by the state in investigating. I am heartened by the prime minister's response to the announcement by the public defender that his office was denied entry to the Remand Centre. That is disgraceful for a country that calls itself civilised.

And how can any investor have confidence in the police's ability to solve murders and deal with extortion if they can't even control the night noise or the taxi drivers on the road? It would seem to me that these are basic aspects of discipline that any state should be able to maintain. The police seemed to have been making some effort to do so, but as usual when something starts in Jamaica it is kept alive for about... nine days. So once again people are parking (or stopping for a long while) in vehicles on Knutsford Boulevard to go into the food places thus obstructing traffic while all the policemen stationed at the Knutsford Police Post are holed up in the office trying to enjoy the air-conditioning, I assume.

If we are really serious about economic recovery, then while interest rates and other fiscal and monetary policies are important we can never really see real development occurring without first ensuring that we behave like a civilised society. Because as far as I am concerned, our society is far from civilised. In this age of globalisation there are far too many options available to investors other than Jamaica, so we must compete aggressively. For me, therefore, Owen Ellington is going to have the most pivotal role to play in 2010 in policing the economic recovery of Jamaica.