Friday, December 06, 2013

Transforming Jamaica's productivity

LAST week I referred to what I think is Jamaica's biggest risk (that of the unproductive human resources) and also addressed my belief that the economic programme is on the right track, given the accomplishments to date under the economic programme, and signs in the macro indicators.

As expected, I have had persons asking if I really meant it, as they are facing very difficult times in business still. Additionally, it is true that consumers are not spending as they used to, and a big part of that reason is because there are many people who are out of jobs.

A man on a roof appears to be making an illegal connection to Jamaica Public Service Company wires in Kingston. Indiscipline among Jamaican residents is one of the issues that needs to be urgently addressed, says Dennis Chung. (File)

However, any sophisticated investor knows that the best time to buy is when everyone is selling, and vice versa. In other words, not because things are bad does it mean that they are not improving. If you wait until things have got back to where they were before the recession then you would have lost out on the best returns, and this is the reason why some people are busy looking at investments now.

There are, for example, some listed companies that are underpriced on the stock exchange, and are good buying opportunities. This is especially so with the advantages to be gained under the new tax rules, and I must once again applaud Minister Phillips and his team for taking the bold steps that have long been required to transform the business environment, not just tinker with it as we have been guilty of doing for too long.

What I want to address though is, what are some of the ways that we can improve our productivity issues, and in particular labour productivity, which is a significant setback to competitiveness. I say this against the background that I believe the unproductive nature of our labour force, and all it brings, is the major inhibitor to development.

Some may say that bureaucracy and crime are the greatest inhibitors to development, but the reality is that how efficient a bureaucracy is, or how bad the crime situation is, has everything to do with labour productivity. So the fundamental problem we face is one of the competitiveness of our labour. In other words, it is the failure to productively mobilise our people that is at the root of our developmental issues.

How do we therefore transform our country from the low levels of productivity, to a high productivity one.

The first thing we need to do is truly understand what causes our low productivity issues, and secondly demonstrate that we have the will to deal with it. I believe that we have always somewhat been able to understand the causes, but have had very low commitment to dealing with the issues. Of course, because much of the causes go against the grain of what political parties have as their objectives, which is to retain, or gain state power. I must say that there are efforts to address some of these issues under the current economic programme.

After we have identified the inhibitors, then the obvious next step is to remove them. Some of the glaring inhibitors to productivity are indiscipline (which includes crime), energy costs, bureaucracy (including an archaic legislative framework, which includes labour laws), and a workforce under-trained for global competitiveness.

The economic programme I think adequately addresses bureaucracy, as it seeks to bring greater efficiency to the public sector, and includes legislative changes in tax reform, insolvency, collateral (access to credit), etc. -- the only challenge is timing. More importantly the tax reform framework removes the discretion of politicians to grant waivers, which creates a more level playing field for businesses, as there is no longer any competitive advantage from political connections. One aspect that must be addressed immediately is that of the development approval process, which prevents billions of dollars from finding its way into the economy, for no apparent reason but just  lazy and inefficient bureaucracy.

I am also confident that energy costs should reduce for industrial use even before the 360 MW plant, as the trend is for companies (and some individuals) to seek their own energy solution. The areas which need focus are indiscipline (which comes down to enforcement of laws and respect of citizen rights) and making the workforce more competitive.

On the discipline front, this implies that the security and justice ministers and the police commissioner must bring this in line. More specifically, despite the spike in crime, the police cannot ignore citizen rights in an attempt to solve crime, as it only leads to protest action and distrust, which contribute to non-productivity; the justice minister must of necessity not just put legislation in place but must move to ensure that the justice system moves quickly and is fair (in other words trials must be completed in good time and ordinary Jamaicans must not be allowed to languish in jails without a trial); and the security minister must ensure a policy framework that supports the security force in the lawful execution of their jobs.

Very importantly also, the government needs to move quickly to see to the transformation of our labour force to a productive one. I am all the time approached by people who want jobs, and if we do not put steps in place to assist with that transformation to a productive labour market, we could see even more people without jobs. This means a "joined up" approach to government, where education, industry and commerce, labour, and finance ministries will sit and determine what our labour needs will be (e.g. the logistics hub) and allocate resources to training for that demand.

Very importantly we must enact policies to move the public sector workers in particular to performance based reward. I have seen too many instances where reward is based on seniority and tenure, and not productivity. This measure for me is more important than the number of public sector workers, for if this is implemented then the public sector will be right sized (either up or down). What it causes in many instances though is for talented public sector workers to become frustrated and underperform or leave.

Without this transformation we could see a more productive economy with labour being left behind. All that will do is widen the gap between the haves and the have-nots, which is not an appropriate way to develop. Just ask Haiti.

Finally I am of the view that the economy will start to improve as we see confidence improve, but it would be prudent to have some project that will kick start the economy. This could be the road works, logistics hub environment, or monetary policy but something is needed to get money in the hands of the consumer to escalate the build-up of confidence.


kwame gordon-martin said...

Dennis, what ideas to have to specifically turn the civil service towards becoming a meritocracy? I see civil service exams as the opening salvo, defined contribution plans like IRA/401K as the norm and merit based bonuses with a portion going towards said defined contribution plan and thus non-taxable as the sweetener which means we can replace the various & sundry allowances, pensions & being beholden to any political party for a job in the civil service. What say you?

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