Friday, December 31, 2010

2011: The year of what?

WE come to the end of another year, when it is accepted that we reflect on what happened in 2010, and make resolutions and forecasts about what we want for 2011. From my own perspective I don't see anything special about a new year, as going from one year to another is really just like going from one day to the next. The only difference is that instead of measuring in days or months, the measurement is done in years. For if we were to look at how much of the new year resolutions we have achieved as a country or individual, what would be the success rate, 10 per cent, 40 per cent, zero per cent, or even negative.

The truth, however, is that the world is made up of cycles, whether it is in our daily living or even patterns one can find on the stock market. So our world is always predictable, and human beings feel comfortable with it being that way. We cannot deal with the unknown and so are usually slaves of our own fear, and therefore continue to practice what we are used to. Stepping outside of our norm, into the unknown, is something that psychologically we find uncomfortable. This is why most people need leaders, and this is why we never truly recognise our heroes until they are dead. Most people cannot deal with the thought of change, and so don't like to entertain out-of-the- box thinking.

But change we must have if we are to move forward. After all, what is being touted as the greatest "game-changer" for 2010 — the JDX — was a break from the downward cycle of debt, which if not done would have surely led to debt default. We also remember however that persons did not accept at first the need for this change, proving my point that generally people are not comfortable with change, even when it is clear that the current path is unsustainable.

Heroes like Martin Luther King, Nelson Mandela, Marcus Garvey, Mahatma Gandhi, and other such, also preached change. But the reaction of the society was that these individuals were outcasts and everything was done to shut them down. Today, however, those persons are revered in the same society that sought to silence them, primarily because most persons in the society now feel comfortable because their teachings are the accepted culture.

And this need for comfort and acceptance will continue as long as people are alive, because most people are followers, and will always be comfortable only with what they know. And in many instances it is because they lack the ability to do the proper analysis to understand what the future holds. Whether you call it financial analysis, prophecy, or being psychic, it all boils down to an attempt to project what is in store for the future.

The Chinese, for example, try to predict generally what will happen in the coming year through their calendar, which is based on the lunar cycle. They assign twelve animals to each year over a twelve-year cycle. So next year will be the year of the rabbit, as we step out of the year of the tiger. The rabbit is supposed to be affiliated with success. So will we see success in 2011 according to the Chinese calendar, or is a better explanation that in every year there is always success and failure, and so these projections shape our perception rather than being accurate explanations? In other words, is it that what happens to us in our future is determined by our belief of what will happen rather than the accuracy of any prediction? Put another way, are we the creators of our own destiny? And if this is so then isn't the fact that we do nothing about reshaping our future, because of fear of the unknown, what causes us to remain stagnant. This is a lesson for the country and us individually.

Therefore, if even some of that logic is correct, then Jamaica needs to define what type of year 2011 will be. The year of growth, development, more debt, or better education. What will 2011 be the year of? It is only through properly analysing what is possible, and wanting that to happen why something will happen. This is why accountants do budget forecasts, and it is usually the company that sticks to the fundamentals of the projections that achieves the plan. So the CEO who sets out on his own path, thinking that he can make up for the plan later, will only find himself and the company in difficulty come the end of the year, and have to make more resolutions for the next year.

One reason, of course, for plans not being realised is that they are too unrealistic, such as a smoker of 20 years, saying on December 31 that he/she will stop smoking on January 1. Similarly in the past as a country we make grand predictions about GDP growth of four per cent or six per cent, which in the context of the Jamaican economy is totally unrealistic. But guess what, it sounds good and most people are willing to just accept that feel-good prediction rather than face the reality of what the real outcome will be. And so when there are some among us that make more accurate and realistic, but less feel-good predictions, they are seen as negative and labelled outcasts. Sort of reminds us of the Marcus Garveys of the world. And when their predictions come up correct in the most part it is ignored because ego does not allow us to accept, when we are incorrect.

All of the above was said to show that progress depends on human behaviour, and what we do and do not accept. The growth of companies depends on how employees behave, and the growth of countries depends on how the citizens behave. Investments depend on how markets behave, or how society behaves (crime).

And so as we move into 2011, it is important for us to understand that economic and social development is not a factor of being able to only attract overseas investors or creating a macroeconomic environment that is stable. This has been our mantra from as far as I can remember, with what result. An average growth of one per cent per annum. If we look at societies that have achieved any semblance of development, even the much-touted Singapore or Ireland — or are the Irish touts still sure about it — at the root of their development have been consensus and a deep respect for human development.

It therefore means that 2011 must be the year of a focus on a better society. This simply means a society where the Jamaican citizen is put at the heart of development, as I can assure you that there will be no economic development without proper social development. We must move away from our rich history of human rights abuses, a societal indiscipline, and culture of tearing down each other, if we are to move forward. I always find it amazing that the same people who went to school, or grew up together, are always so willing to tear down each other because of ideology.

It is only through consensus and respect that we will develop as a country. I always maintain that economics is nothing more than the result of human behaviour. Therefore if we want to encourage the economy in the right direction, we must first encourage the right behaviour.

So for me, the personality of 2010 was the average Jamaican for all he had to endure, and 2011 should be the year of the Jamaican.

Friday, December 24, 2010

Time to step up our game

One of the contradictions of Jamaica is our ability to show how great we are as a country, but still continue to suffer from low economic growth and issues such as human rights abuses. We are known to have one of the warmest set of persons in the world; received the title of happiest country in the world; consistently we are rewarded as one of the best tourist destinations; we continue to outclass other sporting giants; and our music and people continue to make an impact not consistent with our size.

Despite all of this however, we have not been able to achieve any significant economic and social development since independence and continue to see the suffering our people have to bear at the hands of those who are supposed to protect them.

What accounts for this contradiction in a country that can consistently produce the best in music, sports, business, and science? What is it that prevents us from making the leap from that demonstrated global excellence to the needed economic and social development?

My own view is that the only thing that has failed Jamaica is political leadership. Everything, and everyone else, has been successful. Politicians have held back this country from the greatness that we should be seeing in our country and people. If we look at all the excellence that Jamaica has achieved, it has been through individual achievement, despite the governance of our political and economic affairs. And this excellence has been achieved without the country providing any opportunity or support to these persons. We always recognize our own people only after they have achieved acknowledgement outside of the country, they are dead, or if they are affiliated to a political party. Apart from this there is no structure that allows for us to recognize the ability of our citizens. This type of behaviour we could describe as acting like "wagonists".

One of the reasons for this is the lack of proper accountability of our leaders, including those at every level of society. One such situation is the leadership of the education system. It is in light of this that I support the recent assessment done by the Ministry of Education, and the minister's policy announcement that teachers will be held accountable to a performance standard. This I think is one of the more significant policy developments, if implemented - many policies in Jamaica are nothing more than an announcement.

The reason for this is because we will never see a general improvement in our education system, and eventually productivity development, if we do not ensure that the persons in leadership positions in the educational institutions are held accountable. This is the whole purpose of performance pay, for example, which the JTA had rejected, just as they are now not accepting responsibility for what they need to do to ensure that this accountability is implemented. And I say JTA leadership because I know that there are some excellent teachers out there who would like to see the whole system step up to their level. I also believe that teachers (and other public sector workers) need to be compensated better based on performance levels.

I have seen the benefit of this type of approach (which I wrote about a few weeks ago) at Jamaica College. It is only logical that if you want to see an improvement in the behaviour and academic performance of students that it requires proper leadership and performance from our teachers, and principals. How can students perform in an environment where teachers do not turn up for classes, or turn up late? How can students perform in an environment where the physical infrastructure is dilapidated, such as non-functioning toilets? How can students perform if the people teaching them are not properly trained themselves?

So isn't it logical that if we are to improve the performance of students that the first things to do are to (i) create an enabling environment; and (ii) to hold the guardians of that environment - school management and teachers accountable. Isn't that the same thing we need for businesses to succeed - create an enabling environment? Isn't this the same thing we say of police-citizen relations, that in order for people to respect and work with the police, the police needs to respect them and set proper examples? So if we are clear about the need for this for businesses and policemen, then what do we expect of our vulnerable children.

On this point I support the minister and the ministry in its efforts, and urge them to prod on with the implementation, as this I believe is the most significant policy decision made in transforming education as far as I can remember. It is not enough to just create a more difficult exam - GSAT - and separate the performers from non-performers. What we need is a GSAT for teachers and principals.

It is time that we face the realities of our underachievement and step up our game.

Economic vulnerabilities
As I indicated a few weeks ago, while the economy will start to benefit from the recovery in the global economy, I do not believe that we have made the structural changes necessary to lead us to a new development path. The head of the IMF mission in Jamaica stated (Observer) that "the IMF couldn't impose growth targets but could only facilitate growth". I don't see how one can impose growth, as if it is a dictate to be followed, but secondly isn't all we need a programme that facilitates growth.

What is clear is that once again the economy will be vulnerable to the current oil prices levels, at over US$90 /bbl and heading to over US$100 next year. This will negatively impact the balance of payments, spending power, and business costs. The result is inflation pressures. What we must do now is focus on renewable energy sources in retail consumption and transportation improvement - 60% of our oil bill. Business costs cannot escape the short term impact of higher oil prices, as it is much more expensive to deal with that problem, as the highest costs come from air conditioning and manufacturing.

The other vulnerability we will suffer from is rising prices from food based commodities such as corn. The agriculture ministry has been doing a good job of improving domestic agriculture production, but as I indicated months ago, they have reached their capacity of what they can efficiently do. The only way to see a significant upswing in agriculture, and adequately replace food imports, is to significantly increase agro-processing of local products. This, however, is negatively impacted by the bureaucracy and social factors.

There are of course other areas of vulnerability, but space does not permit them to be mentioned. I am also clear that we can avoid much of the negative impact from the slow recovering global economy, but there are some structural problems that will make it difficult to achieve. These vulnerabilities could begin to show January/February.

I would like to take this opportunity to wish everyone happy holidays.

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Friday, December 10, 2010

Jamaica's new growth path

MY main disappointment with the IMF projections is that there is no promise of a restructured economy once the programme is over. All it does is offer money to tide us over while the global economy recovers, and then we are back to the same old economic structure that caused us to be in the problem we were long before the global recession.

So the programme is counting on (i) improved tourism, remittances, and FDI inflows; and (ii) even more frighteningly that oil prices will be at US$83.40 per barrel in 2013/14. Yesterday oil traded at US$89.02 per barrel. The IMF projections are showing that oil imports will move from 14% to 14.5% of GDP. If one were to project today's prices to 2013/14, then oil imports would be 42.7% of projected imports in 2013/14 instead of the projected 40%. All projections are that oil prices should go beyond US$90 by the end of 2010, and surpass US$100 by summer 2011.

The other consideration, as it relates to any significant uplift from tourism, remittances, and FDI, is the current state of the US and global economy. If one looks at the market that supports our tourism and remittance inflows, it is not wealthy persons, but rather middle to lowermiddle income earners. I am not saying that these inflows won't improve, but certainly not enough to change our economic fortunes.

With respect to FDI, I am hard-pressed to see where they will achieve the levels we saw before the start of the recession, as global income and demand will remain subdued. Even with high levels of FDI, we have a problem with absorptive capacity, so that much of that investment will come in, spend a little time with us, and then go back out, unless we can change our social and economic relationships quickly.

Within the context of the global environment, I believe that commodity prices will cause inflationary pressures. This will be at a time when the US, egged on by the Republicans, is promising deep spending cuts come January 2011. In fact, a bill passed in the House last Wednesday has seen fiscal cuts, as the US faces a significant fiscal deficit and high debt levels. Remember that the only reason why the world did not sink into depression in 2008/2009 was because of the US stimulus. These spending cuts include a two-year year wage freeze for nonmilitary federal workers.

Add to this (i) the fiscal cutbacks in Europe and the looming threat to their monetary system, caused by the debt crisis of the PIGS; (ii) US unemployment rate increasing from 9.6% to 9.8%; (iii) Germany and Euro-zone economic indicators showing a slower than expected growth; and (iv) a very worrying increase in US consumer credit, when a reduction was expected. This shows that the recent improvements in the US economic spending may be because consumers are back to their old habits again.

So the consumers we are depending on for tourism and remittance inflows are faced with inflationary pressures, wage freezes, fiscal cutbacks, and are borrowing more again. What this says to me is that the risk of relying on these consumers is high, and could lead to vulnerabilities in our projection. And remember the job of managers is really all about managing and eliminating risk as much as possible, in order to achieve growth.

The implication of the above (oil price increases and the global economy) is that we must cause a change to the IMF projections, which includes an economic programme that includes much-needed stimulus funds, a focus on import substitution — in particular food imports through agroprocessing, and a focus on reducing fossil fuel consumption through renewable energy projects and an organised transportation system. The four critical ministries are Agriculture, Transport and Works, Energy and Mining, and National Security — or more specifically, the police.

Minister Tufton has been for a while promoting production in the agriculture industry, and the truth is that if it wasn't for this focus then Jamaica would have been looking at a much greater significant economic decline and aggravated social conditions. He must continue on his path, and I know he faces bureaucratic hurdles that are the bane of our economic development. I will say again that unless we address our bureaucracy, then we are going nowhere.

The next steps for Tufton must be to support the growth of the agro-processing industry, and I see he has been pushing for storage of excess production which is long overdue. I really don't understand why it has taken so long for us as a country to focus on this. Instead in the past all we have done is encourage farmers to start a new crop each year and what is excess belongs to the goats, cows, and pigs (not the European ones). Tufton must also push Minister Henry to provide adequate farm roads to ensure that the cost of transportation does not inhibit competition with the imported foods, and importantly get the Scientific Research Council to start making some significant contribution to the development of the industry.

Henry, I think, is one of the more organised and hardworking ministers, and I think he has been doing the best he can with the scarce resources and what we have as a road infrastructure. He must continue on this path but also must ensure that the JDIP road development is used to fix roads that add most to the value-added of economic growth. For example, we must be able to deal with a smooth flow of traffic in the corporate area, as the lack of this impedes productivity significantly. This, of course, includes a much more efficient public transportation system, where many challenges are faced and improvements have been made, but need to be done at a much quicker pace. For example, I would want to see the quick incorporation of the small operators into a highly organised transportation system. This would also serve the purposes of positively affecting productivity, significantly lowering the oil bill, and easing off inflationary pressures.

On the matter of energy, I think that much more (and at a faster pace) needs to be done with renewable energy. I wouldn't waste time arguing with the JPS, a monopoly that doesn't seem too concerned about the public interest, despite ads to the contrary. My focus would be first on breaking down the bureaucracy surrounding the solar energy loans through the NHT, and special loans to encourage businesses to move towards renewable energy sources. This combined with a more efficient and secure transport system will save the country hundreds of millions of US$ and, if implemented correctly, by 2013/14 alone will cause the elimination of the trade deficit, which the IMF is projecting will increase.

After my column last week, I don't think I need to say much about security and the need for the police to start influencing behaviour. We cannot grow an economy where indiscipline is rife, which as far as I am concerned doesn't take much to change. Just a little will. Look for example in New Kingston — where there is a police station — at the blatant parking violations each night.

Space does not allow a detailed analysis, as done in my book, but these are just some of the more important focus areas needed to ensure that we get onto a new economic growth path.

Friday, December 03, 2010

Behaviour's influence on economic development

I first want to congratulate my alma mater, Jamaica College, for a job well done in taking both the Manning and Walker Cups for 2010. This is a part of the coming together of the vision that the principal and Board had for the school approximately five years ago. Today, the school is excelling at academics, sports and, more importantly, has seen a significant improvement in its discipline.

I just want to say that it is indeed a privilege to have attended a school with so much tradition, and to have been a part of the board and foundation for the past five years. JC had a low period before that but has rebounded nicely, a part of which must be because of the tradition that institutions like JC carry. To all JC students, present and past. Fervet.

My journey with JC over the past five years is very illustrative of what is wrong with Jamaica's economy and society and one of the prime factors needed to turn it around.

When the new board and principal started some five years ago, the indiscipline and academics were totally unacceptable, and this had even started to negatively affect the sports programme. The decision was taken that this would not continue and the principal outlined to the board a five-to-seven year development plan, which was to take JC from the slum we had found ourselves in to the number one high school in Jamaica. Not dissimilar is the 2030 vision for Jamaica, as the place of choice to live for all Jamaicans.

Five years later, we can certainly say that JC is on that path of development, and is very close to achieving that ultimate goal. Since the Jamaica 2030 vision was developed just after the turn of the century, can we honestly say that Jamaica is on the path to achieving that vision in nineteen years? The short answer to the question is no. Let me be clear even if we will do it, the fact is that as Jamaica stands today, there is no indication that that goal will be achieved.

The economy, despite what I think are positive policy actions, has declined considerably; crime is still a problem, and the recent trends are "worrisome"; the justice system seems to be seriously broken, inclusive of the daily cry of the average citizen to end police abuse; the indiscipline on the roads and the blatant disregard for the Noise Abatement Act is relentless; an estimated one-third of Jamaicans are squatters; poverty levels have increased to 16.5 per cent of the population and 86,000 Jamaicans have lost jobs in the last two years; abuse of incarcerated persons, children and the aged continues unabated, and the list of social challenges continue.

The current societal problems are of course a result of years of abuse and disregard for a disciplined and orderly structure, primarily because the development of the country was not always as important as the need for state power.

So, can we honestly say that Jamaica is near to achieving the 2030 vision? Of being a first world country? In my view, there is a lot for the Government to do, like making some good policy moves and things of the sort.

One of the problems is that we have failed to understand that it is not possible to pursue development primarily by a focus on the economic indicators only. For years our main focus has been on the fiscal accounts and macro-economic stability, but can we gain any form of development with the social structure that we presently have? The answer is no. Michael Manley somewhat realised this in the 1970s, but his mistake was that he didn't recognise that in order for social development to happen, you also need economic development, which is primarily why socialism as a system has failed.

Going back to the JC example, the first thing the board did was not to focus on academics but rather on the culture of behaviour. In other words, it was realised that consistent academic performance could not be achieved without a change in the behavioural pattern of students. And the key word there is consistent. Because just like economic growth, one can have a year or two of acceptable growth but because of the societal problems, there is no consistency.

In addition to the behaviour modification changes, it was also realised that this should first start with the teachers, who are, after all, the ones who set the examples and govern the general behaviour. For instance if we do not have a police force that displays or politicians who project positive behaviour, then how can we expect the average citizen — for example, — a taxi driver, to obey any traffic rules?

This had a remarkable impact, as once the teacher group's behaviour was acceptable then it was easy to influence the student body in that way. There is a lot more that can be said but space does not permit. In short, the result is a school that has an improving culture of discipline, academics and performance at sports. In other words, there is now a culture of performance that is consistent and started with the social changes rather than the traditional focus on academics and students. One additional important factor was the physical improvement of the school. If you put a person in an unattractive environment then his/her behaviour will reflect the environment. So when one looks at Jamaica's physical infrastructure, and in particular the roads, what sort of behaviour should be expected?

It is no surprise that Jamaica has failed to achieve development over our 48 years of independence. How do we expect people to behave if they live like animals because there is no running water or proper housing facilities? How do we expect people to behave if they are constantly subjected to police excesses? How do we expect businesses to operate with a competitive spirit if the bureaucracy sets up stumbling blocks that the preference is given to those with connections? How do we expect people to obey the traffic rules if you are always avoiding potholes, there are no adequate signs, or the police themselves disobey the traffic rules?

What we must understand is that economics is a social science, meaning that it is as a result of social interaction. It follows, therefore, that the result of economic and social development is also as a result of social behaviour. If we do not develop a culture of discipline and civility, then the behaviour that results from that will not lead to positive development. As a result there will not be any consistent economic and social development.

Until we seriously understand that, and start acting on it, then we will be destined to long-term declines as a country. Of course we will have periods of development, such as the economic growth in the 60s and 80s, or the social changes in the 70s; but are we as a people only concerned about bouts of development, followed by longer periods of decline, or are we concerned about a goal such as Vision 2030?