Long-term growth-inducement strategies

THE Planning Institute of Jamaica (PIOJ), in its growth strategy document, readily admits it was not called upon for long-term development. While some of the projects will impact long-term development, it does not appear to be enough, and as it rightly says, will only serve as a "short-term growth strategy" if a nexus is not created to long-term development.

While I say this, I believe that there are other things happening that will have positive impact on longer-term development, rather than just growth. And what we need is development and not just growth, which we have always focused on since Independence.

I will comment on some of these, and critical areas we need to focus on if we want development and not just short-term growth. Because this focus is lacking in the PIOJ document, this is why I believe that the money could have been better spent.

I start with the statement I often repeat that "economics is a social science and therefore has more to do with human behaviour more than macroeconomic numbers or investments". In other words, it is human behaviour and consumers that drive markets and economies forward rather than economic indicators or incentives. If we were to focus on driving human behaviour in the right direction, then businesses, fiscal accounts, and investments would all benefit. This is the most important thing in achieving the current illusion of the 2030 vision, the place of choice to live and work. People do not first choose to live somewhere because it is a thriving economic mecca, but rather because of the social quality of life. This is why, despite the economic prosperity of the Middle East, many would not choose to live and retire there but rather may go on a one- or two-year contract to make some money and retire to a place where the social quality of life is much better.

It is therefore imperative that any economic planning begins with this end of social justice and happiness in mind. For all those who feel differently, you are certainly welcome to go live in Saudi Arabia, Syria, or Iraq, where you can find financially rewarding contracts. It is this lack of focus on the social objective that has caused Jamaica to see dismal growth performances over the years.

The fact is that markets are driven by consumer spending (not investments and businesses, which are a result of consumer spending). And consumer spending is driven by consumer sentiment and behaviour. Therefore, it makes perfect sense to develop policies that will cause consumers to feel good about spending. In the US, for example, the growth out of the recession did not start to take hold when initially the government pumped TARP funds into businesses, but rather when money was placed in the hands of the consumer through micro business and home-purchase support.

The problem in Jamaica is that we have always placed emphasis on incentives for investments and the fiscal accounts while allowing abuse of the consumer by the police, the public bureaucracy, and others through road indiscipline and night noise. So if we abuse the root (consumer) of the tree (economy), then how do we expect growth? The only time that there was an attempt at social justice was in the 1970s, but the problem with that was its focus on political rather than social objectives.

There are, however, initiatives that have been taking place that will help to create a better society but this is being countered by a stronger focus on things that will depreciate the focus on a better social outcome. These include:

1. The Charter of Rights: this is probably one of the most significant initiatives that can lead to positive economic and social development. And to show how interested we are in ensuring social and economic development, it took us 20 years to pass it in the Lower House.

2. INDECOM, Police Reform, Public Defender, and the DPP: the introduction of INDECOM has been an excellent move as it now establishes an independent body that can bring rogue cops to justice. Similarly the zeal of the current Public Defender. The work being done by Commissioner Ellington and his team of top cops such as Henry (Clarendon) and Lewis (Traffic), and the careful way with which the DPP approaches her job. We need to put even more resources behind these offices and charge them with more precise objectives.

3. Tax Administration reform and Public Sector transformation: these two initiatives are critical because bureaucracy is a significant inhibitor to an enabling environment. My only criticism is that these need to move ahead faster, and in the case of public sector transformation, that it could have been done quicker and at a lower cost.

4. Infrastructure development: these include road improvements, Falmouth Pier, and the MoBay Convention Centre. These are things that drive productivity and a focus on the areas where we have a comparative advantage.

The other areas where we need to focus on are:

1. Energy: Accounts for 35 per cent of imports and probably the largest cost item for companies and individuals. While the longer-term LNG/Coal/Nuclear initiatives are critical, the fact is that we could save 40 per cent of our energy bill by taking short-term measures, with significantly lower relative costs. These include:

a. Public transportation: Developing an efficient public transportation system, such as what Minister Henry is pursuing. We need to provide initially at least $3 billion per annum towards this and incorporate the private operators in the system.

b. Retail consumption: Encouraging renewable energy (such as solar) use at homes. This could be assisted by using the GCT on JPS bills to provide a credit to consumers on the purchase and implementation of solar equipment at home, similar to the hand-out of the energy-saving bulbs.

2. Food: Accounts for 10 per cent of imports. We need to ensure that the Scientific Research Council is involved in local food alternative development; agro-processing ventures are supported by places such as DBJ; and places such as the JAS help with farmer organisation.

3. Tax reform: There needs to be a shift from our always-present focus on the fiscal to the real economy. Tax policy has always been driven by a need to sustain the fiscal programme, and so has always ended up stifling the real economy. Today, our effective tax rate is approximately 50 per cent, which is a big turn-off for sustainable formal investments. In the upcoming budget, tax reform must focus on providing a platform for businesses to flourish. Any attempt to do otherwise will have the same contractionary effect as recent tax packages.

After almost 50 years of Independence it is time we stop acting like a socialist welfare state and focus on social justice and the real economy. No other path will take us to the long-term development and vision 2030 objectives we desire.