Friday, October 04, 2013

Behaviour's role in economic growth

LAST Saturday I was with my cycling group for the ride out to Palisadoes and back. After getting to the airport roundabout we usually turn and go back to Harbour View before heading back to the airport.

While going around the roundabout, a man who was on a bicycle, heading towards Port Royal, also started to go around the roundabout. He, however, went around from the right side, while the approximately 20 cyclists correctly went from the left to go back to Harbour View. On seeing the 20 cyclists approaching him, at a pretty quick speed, he started to curse us, using some words that cannot be mentioned now, for fear of the Broadcasting Commission.

One of the greatest challenges we face as a country is how we hold the human resources accountable for their action, says Dennis Chung.

If he had followed the rules set out by the road code, then there would not have been any encounter, and he would not have had to utter such words, which could have led to further confrontation. In other words, if he had followed the rules, then there would have been perfect order, and peace would prevail.

However, in true Jamaican style, he chose to verbally abuse us although he was wrong and we were right.

I am sure that we can all relate to that situation in Jamaica, where persons breaking the rules abuse the other party. So, for example, you are driving and going within the 30 mph speed limit, but you are going too slow for the taxi man behind you who calls you all sorts of names while overtaking above the speed limit and where there is an unbroken white line. Or, as many young men can attest to, someone claiming to be the police wants to get information from you and you ask for identification and you are abused, even though the law requires that it is produced.

More commonly we can refer this to a situation where you walk into a tax office and while you are waiting in line, the person at the counter is on the phone speaking (obviously not work-related) or is chatting casually with a fellow employee.

All these instances are cases in which laws and processes are in place to ensure that there is order and that things are done efficiently, but the behaviour of the persons charged with the responsibility of carrying out the function, according to law, cause the inefficiency.

I believe that this is one of the fundamental challenges being faced by the bureaucracy in Jamaica today. It is not that we need more laws, or that processes are not in place, but rather that they are just not followed. So it seems to me that one of the greatest challenges we face as a country is how we hold the human resources accountable for their action. Which, of course, speaks to the problem of enforcement.

One glaring example of this, which may cost the country approximately one to two per cent of GDP growth, is the development approval process. Recently, I was alerted to the fact that development approval takes approximately nine months (at best) to process. This is not because there are not processes in place, such as a computerised tracking system, but rather because of the lethargy in ensuring that the approvals happen in a timely manner.

In fact, my understanding is that there are many millions of dollars in economic activity tied up in the bureaucracy of the approval process. This of course is at a time when there is fiscal tightening happening, causing a contraction in economic activity, which has resulted in six consecutive quarters of negative growth, and the highest unemployment levels in 16 years. And all we have to do to ease some of this pain is just to ensure that the already existing tracking system and processes are used, which could see the average approval time reduced from nine to three months, which is where it can easily end up.

This of course is not just a Jamaican problem, as we see in the US where grown men, knowing that the citizens of the US and the world are depending on them to reach a compromise, for their livelihood, cannot do so because of egos. We, of course, need to be careful of how we criticise them as we behave the same way all the time. It is estimated that if this continues for another week it could cost about one per cent in GDP growth, or even worse, if not resolved within two weeks, could lead to a global economic problem.

These examples illustrate the direct impact that behaviour has on economic growth. Many times we forget that economics is really about human behaviour, and that the macroeconomic measurements we like to speak of, are really nothing more than the outcome of how we behave.

Understanding this, it is therefore very important for us to consider the behavioural effect of policies on economic outcomes. I say this because when we sit down to think about the reform programmes being implemented, we should not keep our eyes fixed just on financial targets but on, more importantly, behavioural targets, which in turn affect financial targets.

So, that tax reform will only be successful when they encourage capital to move from the sidelines, or from overseas, to real investments in the country. Law enforcement is only successful when it causes orderly and compliant behaviour, which results in the citizens holding the enforcers of the law in high esteem and confidence.

So as we consider our economic future, let us look towards the current stand-off in the US as a behaviour we do not want to adopt, as it is clear that economic growth depends critically on influencing behaviour in the direction of greater productivity.

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