Sunday, October 25, 2015

If Jamaicans are to excel...


One of the things we often forget is that development of a company or a country is primarily for the purpose of advancing the lives of people, and not just measuring numerical indicators. Although companies are developed primarily to improve their returns, they should ultimately have a positive effect on the lives of shareholders. Similarly, countries should be developed to improve the lives of their citizens.

This, I believe, explains the failure of many managers and governments, in that they tend to forget that their customers are people and not financial statements or fiscal accounts, which are merely ways of measuring development, but not the purpose of development.

So while the primary objective of a manager is to meet corporate objectives, this can only be done successfully if employees are productive, and employees can only be productive if they are happy with their environment. Further, if one is successfully providing financial returns but there is no return to shareholders through dividends or capital appreciation, then the share price will suffer.

Similarly, if a government institutes policies that are geared towards meeting numerical targets, but not towards improving the lives of its people, that government will fall out of favour.

I think that this is one of the primary failures that I have seen with many people, at a corporate level, and also fiscal policies over the years in Jamaica. They have failed to keep their eyes on the goal of human development as the ultimate objective of everything they do. This also translates to a societal problem, as over the decades we have developed so many products for profit only and have forgotten about the people in the middle. This is why today many of the foods and practices we have become accustomed to create health and other societal issues.

Excelling overseas

This lack of focus on the ultimate beneficiary of policy causes us to develop policies and systems that focus on financial returns, which ultimately hurt the progress of the people. This is why many Jamaicans, for example, go overseas and excel, when they find it difficult to do so in Jamaica. It is not because they suddenly develop new skills when they migrate, but rather the environment they are placed in allows them to exploit their full potential.

So when we talk about the need for private sector (and particularly SME) growth, we must understand that businesses will only grow if the operating environment facilitates that growth. This is the main reason why we have not seen greater SME growth in Jamaica, even though we have comparative advantages that we can develop.

One of the things that comes to mind readily is the way we have designed the procurement rules, which happens not only in Jamaica, as I have spoken to many people in the region with the same problem. Unfortunately, the way our rules are designed actually reduces the productivity of public sector workers significantly and creates costs greater than those we are trying to avoid, both directly and also in terms of social costs. The objective of the rules is supposedly to eliminate corruption and improve value, but because the rules were designed without the ultimate objective of efficiency and productivity in mind, they have actually had the opposite effect of costing more. Of course, the ultimate effect is negative on taxpayers and citizens generally in terms of the cost of living.

Another failing that comes to mind is the way we design policies, with a focus more on fiscal revenues, rather than focusing on creating an environment to make the bureaucracy and tax environment better for businesses and citizens. It is because of this focus why -- over the many years that I have been following the budget -- we have always been increasing taxes, even though over that same period the cost of living has been increasing while GDP growth and productivity have been lagging.

I believe that when we implement public sector transformation, the focus should be not simply on cutting expenditure, but on creating a more efficient public sector. In other words, the success of transformation should not be just meeting the wage target as a percentage of GDP, but rather on improving the service delivered to the public.

Why, you may ask, is it so important to focus on the human element? Simply because in today's world competitiveness is a direct result of innovation conceived in the human mind. Sadly, businesses and people spend much of their time trying to resolve bureaucracy issues or interacting with the government bureaucracy and so have less time than their competitors to spend on innovation. This explains why under the Global Competitiveness Report we are unable to transition to an Innovation Driven economy, which is when real value is added.

Of course, this means ensuring that institutions such as the police force and the court system respect human rights and are efficient.

So if we want to transform our economy it means we must focus on improving the lives of our people, and finally get the news that the world no longer exists in the industrial era where capital and land created competitive advantages. We now live in the information era where people create the competitive edge, and so if we do not create an environment where our people can develop better than in other societies, then we will forever be laggards.

Caricom dilemma

Each time I travel within this region, I realise why Caricom will never achieve the purpose intended. This is travel. It is much easier to travel to North America, or in some cases to Europe, than it is to travel within the region. Not to mention the fact that it is more expensive to travel within Caricom than to North America in some instances. As if that is not enough, it takes much longer for Caricom citizens to be processed through immigration than visitors from outside CARICOM, because we allocate fewer immigration counters to Caricom citizens, resulting in longer lines.

The fact is that unless we can better accommodate the movement of people and goods within Caricom, then it will continue to be primarily of academic rather than practical application.

Saturday, October 17, 2015

Capacity restrictions to growth


In my last article, I asked the question why is growth so elusive to Jamaica and identified some of the challenges that restrict our ability to grow. These are not new and have been with us over many years without any real attempt to address the underlying issues.

There has been much rhetoric around the symptoms of the underlying challenges. So we speak about interest rates, exchange rates, inflation rates, unemployment levels, NIR, etc, and many do not understand that these are outcomes of poor policy rather than the cause of poor economic performance.

This is why I believe that a focus on the legislative changes and fiscal discipline is important, because they both encourage behaviour that addresses the underlying problem. Only, however, if they are done correctly. In other words, many times we start with the right objective but implement it in the wrong way.

This is one of the reasons why we have failed to see any consistent growth levels above one per cent. The fact is that irrespective of how many policies we implement, if they are not geared at improving capacity to grow, then despite our best efforts we will hit a growth ceiling.

As an example, this Saturday will be the annual Kingston to Negril charity ride, and many cyclists have been training for it. The training, of course, includes many long rides leading up to the big ride, which are geared towards building your capacity for enduring long rides. So then, irrespective of whether you have the best bicycle and equipment in the world, if you the rider do not have the capacity to do a 158-mile ride, then the best equipment in the world will never help you to complete it.

What the quality of the equipment does is add that competitive edge over someone else who has similar capacity as you do, and makes it easier for you to compete. So I always say to fellow cyclists that I have found the most important upgrade on a bicycle is for the rider to get fit.

Similarly, Jamaica has seen massive amounts of FDI and billions spent on projects such as SME development. Irrespective of this, however, we continue to see growth averaging less than one per cent. So from a return on investment point of view, we have done very poorly. This problem will persist as long as we fail to address the capacity issues, irrespective of who is managing a country or organisation.

I have always found that the most sustainable way to build an organisation is to first address the issues that restricts its capacity; whether this be a human resource issue, infrastructure issue (such as IT), or the business model needs tweaking. Unless this is addressed, then the organisation, just like the country, will find its growth will hit a ceiling and not be able to move to the next level.

This, I think, is what has happened to Jamaica. For too long we have been trying to grow the economy without addressing the capacity issues,which has restricted our growth to an average of less than one per cent.

So, as an example, we currently have a capacity restriction caused by our poor water infrastructure. This may not have been a capacity issue a few years ago because the rainfall patterns were more predictable. But with the effects of climate change and the increase in residential communities, our water infrastructure has now become a capacity constraint.

Similarly, inefficient bureaucracy, crime and indiscipline, uncompetitive tax rates and corruption have been identified by the Global Competitiveness Report as the four top constraining factors to competitiveness and growth. In other words, unless we address these recurring issues, we will never be able to see the growth levels that we need to drive the economy forward.

One item that was a greater constraint on capacity a few years ago, compared to today, is energy cost. It has somewhat lessened, but still remains a problem, primarily because the pump prices are constraining spending in the economy, which are windfalls for other economies. So then, even though oil prices have fallen dramatically, the price from Petrojam have not adjusted accordingly and continues to be a constraint on our capacity to grow the economy and increase disposable income.

The problem, therefore, is that despite our best efforts over the years to achieve high levels of growth, the fact is that our failure to address the factors that constrain the economy has resulted in us hitting a growth ceiling and finding it hard to break through.

What is needed, therefore, is an identification of what the capacity-constraining factors are and deliberate policies to remove these constraints to growth.

Kingston to Negril 2015

As I mentioned above, this Saturday is the annual Kingston to Negril charity bicycle ride, where the proceeds this year will go to the Epilepsy foundation — an organisation I have a special place for.

Last year 150 riders started, and most finished, with many coming from overseas to participate. Included in the ride are people who participate for special reasons, and this year a local cyclist --Mike Johnson -- will be doing the ride in honour of his brother, who recently passed from cancer.

It is a growing sport, and recently Jamaican Marloe Rodman won the Tobago Calssic, following the tradition of greats like Peter Aldridge and David Weller. This is why I can't understand the statement made a few months ago that the only cycle track at the stadium was being destroyed to create more seats in the stadium, without an alternative.

Much respect to all those who line up on Saturday, and the organisers, who both do so for health and charity.