Friday, May 16, 2014

The economic impact of fear

FEAR can be a very important learning tool if one understands and embraces it. A child for example learns through fear, and understanding how to minimise the risk associated with the fear. If, however, the child does not take risks because of fear then the child will not develop properly, and could end up being mediocre in life because of the fear of taking risks. This I think is one of the reasons children (or young animals) are curious because nature understand this need to take risk in order to learn, but it also gives us pain as a way to ensure that while we remain curious we are also fearful of the consequences of being careless. In fact it is usually the fear of parents that lead children to not want to take risks as parents tend to thwart their natural curiosity to experiment.

While riding earlier this week, I thought about this concept, as we were all sprinting at upwards of 30 mph. While recognising the fear of falling, or crashing into someone, at 30 mph on a bicycle, we also understand that not taking the risk means that you get left behind. So if you want to ensure that you are at the front of the pack, then you have to understand that you have taken all steps to minimise the risk of falling but not let the fear of falling stop you.

This to me seems to be one of the major philosophical challenges we have faced as a country that has set us back significantly. This is manifested in a fear of failure that has led many Jamaicans, and the Government, into inaction. Or at best case to do the same things a different way, while expecting the same result.

This is one of the reasons the Insolvency Act, which is soon to become law, is such an important piece of legislation, as it seeks to change our perspective on people who have tried and failed. Steve Jobs, for example, did not succeed the first time he was at Apple, was actually dismissed as a failure. If he lived in a country like Jamaica, however, more than likely he would not have been given a second chance because either the ridicule from society, or the regulations, would have prevented him from trying again.

It is this stigma that society places on failure that leads many persons to prefer the comfort of a job rather than the initially difficult, but long-term rewarding, life of an entrepreneur. That situation is changing now I think, as I see a lot more university students wanting to become entrepreneurs, than when I was going to school when the thing to do was to become a lawyer, doctor, etc. In other words your parents wanted you to just go to school and then apply for a job you would keep for the rest of your life. The result of course is that you never enjoy the rewards of being a successful entrepreneur, which usually was left to the persons who never did so well academically, who ended up employing the persons who excelled academically.

This same situation is also present in the government bureaucracy, where the fear of failure is so entrenched that we ended up creating systems that ensured that no one is seen as a failure by ensuring that everyone failed. In other words, because we are fearful that persons will be corrupt, the first thing we do is assume that everyone is corrupt and then put in a system to ensure gridlock (procurement and approval systems) and the result is nothing gets done. The positive side we see is that if nothing gets done then nobody can be blamed, and so everyone is satisfied that they have done nothing wrong because they do nothing.

I have seen for example numerous situations where following the procurement rules caused the cost incurred to be greater than the risk from having less onerous procurement rules. In one instance I saw a situation where the cost of the system to monitor an expenditure cost more than the expenditure. I also remember a case that was in Parliament where the Accountant General department has not paid a bill for two years because the procurement rule was not followed properly to secure the equipment, and the finance charges they had to pay two years later came to more than the initial bill. So they ended up having to pay more than twice the cost, in US$. Why? Simply because of the fear of failing, even when we have failed already.

And this fear is exacerbated, and many times distorted, by the media who just wants to hear that someone got something wrong and then they are all over them, and the readers and listeners lap it up as the latest scandal to be discussed. Never mind that for the first time in a very long time Jamaica has achieved a fiscal surplus. That is not newsworthy enough to carry.

What I am arguing though must not be confused with carelessness and lack of accountability. Of course if one breaches rules or is negligent then there must be accountability, which the lack of it is another problem. Holding someone accountable for something, or accepting accountability, is a big problem we face, but maybe that is again driven by the fear of failure. What we must do is find the right balance between risk and accountability if we are to maximise success.

This I think is one of the positive differences with the economic programme we are currently undertaking. The fact is that it is a departure from the normal way we have done things, as it seeks to change the behaviour of the economic players, by changing the way we do things. This I think is fundamentally driven by the legislative reforms being undertaken. While the programme realises the risks associated with tax and legislative reform to the fiscal revenues, it also balances that risk with the benefits to be achieved from the increased competitiveness that will result.

The point is that while we must all be fearful of failure, that fear must be measured by the need for success, and the realisation that giving in to that fear means gridlock, and ensures that nothing happens. Just ask all the successful entrepreneurs we would all like to become.


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