Friday, November 27, 2015

Requirements for sustainable growth


The Planning Institute of Jamaica has reported good news that the economy is estimated to have grown by 1.5 per cent for the July to September 2015 quarter. Of note is that the goods sector has grown 4.4 per cent, with manufacturing up 9.7 per cent and agriculture up 3.3 per cent. At the same time the services sector grew 0.6 per cent, with all services growing with the exception of producers of government services, which declined by 0.2 per cent.

This performance is not unexpected, as the fiscal and legislative adjustments have had a positive impact on the macroeconomic environment, as well as the business environment. Certainly over the past year we have been seeing improved investor and consumer confidence, along with increased investments by large companies.

While we celebrate this return to growth, it is important that we set about ensuring that growth is not only higher, but also sustainable. It will therefore require an understanding of what the challenges are to sustainable growth and what must be done to fix them.

It is important to understand this, as in the past we have seen bouts of growth of around three per cent, only to slip back under one per cent, because of structural issues in the economy. The fact is that the fiscal and legislative reforms being undertaken have gone a far way to break down many of the structural issues. If we are going to have real and sustainable development it will be through deliberate policy actions.

Risk of uneven growth

The risk we run of course is that we will have growth, but that it will not be distributed evenly. In other words, the economy can grow but a significant part of the population cannot see any benefit. This is the situation we see in Haiti, for example, as growth in an economy does not necessarily translate into better income levels generally.

So, even as the economy grows, the gains can be restricted to a certain part of the population. This is a situation that we do not want to see, but we are at risk of seeing. This is because the main risk we face to sustainable economic and social development is the current state of our labour market. This is reflected in the low labour productivity numbers.

This means that even though we may see a decline in unemployment, it will primarily be with low paying jobs and it will be difficult (though not impossible) for the 100,000 jobs projected by the minister of finance to be realised.

If, however, we embark on a programme of training (eg through HEART) and labour market reform, then we can certainly see more than 100,000 jobs being created even before five years. The reason why this intervention is important is that a significant part of the labour market is not adequately trained for the more productive and higher paying jobs, and in many respects our labour market is still dependent on menial jobs.

Labour market reform will of course be necessary to attract even more long-term investors and also to promote labour productivity.

Shifting to SME growth

Secondly, sustainable growth will require a vibrant SME sector, and this means improving the ease of doing business on the ground and not just the legislative framework.

This is why although the Doing Business Report 2016 shows us moving up seven places, the Global Competitiveness report 2015-16 shows a slight decline effectively. What this means is that for us to develop a vibrant SME sector, deliberate policies must be aimed at reducing red tape and also providing a friendly legislative framework and customer service approach to facilitate the business environment.

Much improvement has already been done (and this is why confidence has been improving) but, to be globally competitive, much more needs to be done.

One of the very important things I mention all the time is a predictable environment for doing business. So even though many legislative improvements have been made, business people still have to consider that next year the finance minister could go to Parliament and impose a new tax, which is an additional cost to doing business. Or a bureaucrat could destroy their business by targeting them for audits or causing unnecessary costs from bureaucratic processes without any accountability.

I finally want to mention that sustainable growth is also very much about creating a safe and disciplined environment in which people will want to raise their families. In other words, the most stable environment for a person's family (in particular, children) will be where that business person's money finally comes to rest.

It is important to understand this point, as over the years we have seen where many people have made money through their business in Jamaica and shipped it out to other countries (namely North America), where they send their families to reside for fear of the crime rate or the general lack of discipline in the country.

So my message would be that, while we should celebrate the 1.5 per cent growth rate, we should be mindful that:

(1) if the proper infrastructure was in place we would be talking about growth of maybe three per cent, as the drought alone cost us one per cent of GDP;

(2) it is important to create an environment where we will have sustainable growth and not just acceptable growth for one or two quarters. My own view is that we are on the path to doing this, but we are still at a very delicate stage and any incorrect policy action can reverse these benefits;

(3) we must create a workforce that is equipped with the skills necessary to be more productive, and hence earn more income.

In other words, for sustainable growth to happen, we must reduce our reliance on large-scale projects and FDIs mainly, to instead concentrate on a vibrant SME market and internal investors.

Friday, November 20, 2015

"The law is an ass"


This phrase originated in the Charles Dickens novel, Oliver Twist, when Mr Bumble, the unhappy spouse of a domineering wife, is told in court that "...the law supposes that your wife acts under your direction".

"If the law supposes that," said Mr. Bumble, squeezing his hat emphatically in both hands, "the law is an ass -- an idiot."

On Saturday morning at around 1:00 am I arrived in the Customs Hall at the airport. On reaching the Nothing to Declare line, a customs officer looked at my form and saw that I had declared souvenirs in the amount of US$80. He asked if I had any clothes and I said that I only had the clothes I went away with, at which point he said I should declare them. I didn't think it made sense to declare the clothes I left Jamaica with as they were not acquired abroad.

He insisted that I do so. At that point I refused as it was not practical. He insisted that I was ignorant of the rules.

I still refused to write it down and another officer who was there told me that if I refused to do so then he would send me to the room to check my luggage, even before my luggage went through the x-ray machine. I told him to come and do so, but he ignored me. He did not have the decency to acknowledge. Apparently he wanted me to just stand there and wait.

On Monday I called the Customs Office, and it was verified that the officer was the one who was not aware of the rules. In fairness to the Customs Office they addressed the matter swiftly. I should also point out that every other time I have interacted with customs officers they have always been very pleasant and have never taken that attitude, so it is a matter of two bad eggs giving the department a bad rap.

Even one incident, however, is too much, and what was of greater concern was that the customs officer was trying to intimidate me even though I was telling him the right thing. It is unacceptable for anyone in authority to deal with a citizen of Jamaica, who helps to pay their salary through taxes, in that manner.

This was not a matter of the law being "an ass". Rather it was a case of someone in a position of authority "making up" rules and trying to intimidate a citizen. I shudder to think of how they deal with people who don't have a voice. Accountability demands that those people be removed from front-line duty, and I hope the Customs Office will deal with it in this way.

What this reminds us though, is that the law must be practical and must not be an inhibition to (i) democracy, (ii) market efficiency, or (iii) personal privacy. The law also must not be discriminatory to any group. And the persons charged with enforcing the law should do so fairly and with sensitivity for the rights of the citizen.

This seems to be one of the challenges we have had with the application of laws in Jamaica, where those given authority have sought to use it to abuse the rights of our citizens. Apart from this customs incident, members of the police force have also been known to use their authority to abuse the rights of Jamaicans. We also have the situation where procurement rules may be resulting in more costs to Jamaicans, rather than reducing them -- as in my view the bureaucracy caused by these rules in fact may end up facilitating the same corruption they are trying to prevent.

Law vs its application

So the law, and its application, must also play the important role of facilitating market development and competitiveness,. But also very importantly, it must make everyone feel safe and that they have the same opportunities.

So it is not only about what laws are on the books. Their application is even more important.

A similar situation has to do with what is recognised by the Global Competitiveness Report (GCR) 2015-16, as the most problematic factor for doing business in Jamaica. Inefficient government bureaucracy is seen as causing 16.4 per cent of all the problematic factors in doing business. As a result of the challenges, the GCR actually showed an effective decline for Jamaica in 2014-15 over 2013-14. Jamaica ranked 86 for both reports, but the number of countries included this year was 140 versus 144 the year before.

Contrast this with the Doing Business Report (DBR) 2016, which shows that Jamaica moved up 7 places from 71 to 64 of 189.

The reason for the difference in the reports is that while the DBR focuses on the legislative and policy framework, the GCR looks at the implementation of the laws and policies, or how it is felt on the ground. The challenge we have, therefore, is not that the policy makers (politicians) have not been putting the framework in place -- but that the operatives, at the institutional level, are not implementing the framework in a way that impacts doing business properly.

So while it is clear that we have been driving the legislative and policy framework in a positive direction, the main challenge we have is how to ensure that the implementation is also done in a way that positively impacts the social and economic components.

This is why public sector transformation is critical to moving the needle on our development. The fact is that unless we have a structure that will allow us to efficiently implement laws and policy, then "the law will be nothing but an ass".

So for me, public sector transformation is not primarily about saving money, but rather delivering efficiency. In this regard we must ensure that those in authority do not have the ability to abuse any citizen or make up rules as they go along, and there should be accountability when things go wrong.

Friday, November 13, 2015

Accountability's importance to development


The recent health sector saga has brought to the fore the real need for accountability in Jamaica. The fact is that this is not the first incident to highlight this deficiency, but another one that has been highlighted because of the sensitivity of the health sector and the election atmosphere.

What this incident has shown is that Jamaicans are demanding more and more accountability from our leaders, not only at the political level, but also those entrusted with the management of public assets. This is a good thing, as accountability is a very important ingredient for development, as without it there is usually an erosion of confidence and credibility in institutions and system.

It is no surprise, therefore, that there is little trust in our public institutions in Jamaica. It is because of the lack of accountability over the decades (as far as I can remember) that there is very little trust in politicians and public institutions like the police. As a result, there is constant suspicion of corruption and a heightened appetite for "scandal" news.

In other words, if there was a perception that people were held to account when things go wrong, then trust would be higher and not everything would be seen as corruption. My own experience, based on my public sector involvement, is that much of what people call corruption results from bureaucratic systems.

It is also because of the lack of systems for accountability that we have created very bureaucratic processes, such as procurement guidelines which take discretion and innovation out of the public sector, and which undermine the potential of many public sector workers. This is because our failure over the years to hold people to account has led us to introduce rules to make up for that accountability, but end up costing us more in the long run.

It is also because of this lack of accountability systems why we end up salivating each time a new so-called "scandal" breaks and calls for blood; because we finally get someone to account for the lack of accountability in all the past mishaps that we were not able to hold someone to account for. So we crucify the individuals in a very personal manner most times, with the objective of destroying them in the name of accountability.

The fact, however, is that when one exists in a culture of accountability, the focus is not on the person, but rather on the issue at hand. Accountability does not mean "crucifying" the person responsible, but rather holding the person (and the person holding themselves) to account for the execution of the function. So in a working accountable environment, it is seen as learning and a way to improve the person who might have made a mistake.

I remember reading an article when I was around 18, where a young manager in a very successful company in the US made a mistake that cost the company a substantial amount of money. When he went to the CEO and handed him his resignation, the CEO gave it back to him and said "Why would I fire you when I have paid so much for you learning a lesson, and then hire someone else who may make the same mistake?" In this example, the CEO realised that the young manager had taken accountability and was willing to learn from the mistake.

The problem we have in Jamaica is that no one wants to admit that they made a mistake so the natural reaction is to cover it up and not hold yourself or others accountable. So something as simple as saying to your stakeholders that I am sorry and made a mistake, is one of the problems we have. So, in the end, the problem stays like a sore that deteriorates without medical attention, and eventually threatens the whole.

Health sector saga

This is the problem with the health sector saga. The fact is that when Dr Dawes raised concerns, Minister Ferguson did the right thing and called for an audit. What went wrong, however, is that when the audit came back no one wanted to take accountability for it. So not being transparent and holding the operational people to account (which does not mean firing them as indicated above) resulted in the situation worsening and lives being lost. Lack of accountability creates a situation where credibility is not only lost in the system -- but also the people who manage it.

It is when that credibility is lost (because people have failed to hold themselves to account) that whether or not they can remain in the job comes into question. This would of course be the position the Prime Minister would have faced when she made the decision to remove the minister, and asked someone else to restore the credibility of the system. That was the right thing to do. The question that Minister Dalley must now ask is if the credibility of the system can be maintained if those who failed to hold themselves to account remain involved.

This does not only apply to health. We have also seen it in the police force, where the previous commissioner and INDECOM made accountability more prominent and we then started to see greater trust from the public.

What is certain is that a lack of accountability systems will stymie development, as companies or countries cannot move forward without trust in institutions and governance. And trust is not possible without accountability.

What is also obvious to me is that if people had held themselves to account earlier in this health situation, and said what went wrong and what was to be done to fix the system and restore credibility the loud calls for firings and resignations may not have happened. What is clear is that it is the lack of holding ourselves responsible that cause problems to escalate, and not the event itself.

So my plea to those charged with governance of our public sector is to be as transparent as possible. Share challenges with Jamaicans, as we were able to go through some significant economic transformation and we understand. And please take responsibility for when things go wrong and act. This is what Dr Phillips has done with the economic reform programme, through avenues like EPOC and his own utterances. Is it any coincidence then that the reform programme has been seen as successful?

Friday, November 06, 2015

Realising the objectives of governance?


Recently I did a presentation to the Institute of Chartered Accountants of Jamaica (ICAJ) about whether the success of the economic programme would make Jamaica the place of choice to live. I posed this question: "If you were guaranteed 100% return per annum on your capital invested in Syria, would you move your family there?"

The answer to that question was obviously no, which is what you would expect from any rational person who cares about their children in particular.

This shows us that choosing a place to live does not depend solely on financial returns, but rather on safety concerns and the general surroundings in which you live. As an example, even in a country where you have very little crime, things like racial, religious, or gender biases are very important. And in Jamaica's case, one thing we have that many other countries envy is our record of press freedom.

Around the same time, I was having another conversation in which I was told of someone who did business in Jamaica for many years, but decided to uproot himself and his family to go and live in North America because he felt safe when his children jumped on their bicycles and rode down to the park to play with their friends.

These two instances bring home the important point that the primary objective of governance should be about creating an environment in which people feel safe to live, work, and raise their families. In other words, in alignment with Vision 2030.

So even as we discuss the various achievements under the economic programme, I am reminded that we still have not, as a country, started to discuss the real issues relating to the purpose of governance, in any serious way.

Sure, we speak about the crime rate, health and access to education (or I should say free access), infrastructure, and employment opportunities. The problem isn't that we do not discuss the issues, but the context within which we do so. When we discuss these issues we do so from the point of view of how relevant it is to securing a vote. And this has been consistent from as far back as I can remember, not only from the politicians.

Context is of course important because it guides the way the conversation and action are developed.

I have given this a lot of thought recently, and the truth is that if we are to achieve Vision 2030, it seems to me that the whole purpose of governance must focus on creating an environment to make the average citizen see Jamaica as the place of choice to live, work, do business, and raise families.

If we were to do this, then I think everything else would fall into place -- because the focus would be on creating opportunities and an environment for individuals and families to see Jamaica as their first choice of home.

So we would not just be focused on the high murder rate, but rather we would be focused on the outcome of creating positive values within the schools, discipline on our roads, eliminating noise and waste pollution, and rehabilitation at our prisons. But our focus on crime though, is more a reaction to the outcry about murders. The result is that the solutions we propose are: tougher punishment for criminals, neglect of our prisons because we see inmates as criminals rather than citizens in need of rehabilitation, neglect of the Noise Abatement Act, and solutions to detect weapons in schools rather than change behaviour.

In other words, because our objectives of governance relate more to satisfying and minimising the cries from society, we become reactive to issues.

Similarly, another issue is the matter of the abuse of our children. The abuse we see now has been around for a long time, and every now and again it becomes a topical issue and there are a lot of reactive comments and action. But if we really had the issue on our radar to improve the lives of our children, then we would be focused on ensuring that the laws relating to underage drinking and gambling are enforced, we would ensure that there is a good school bus system in place so that children are not at risk on the roads, and we would ensure that the justice system catches sexual predators swiftly.

What these examples show us is that firstly, governance should be primarily about improving the lives of people rather than just economics, if we intend Jamaica to be the place of choice to live and raise families.

Secondly, it also tells me that maybe one of the reasons that we have been chasing our tails about development in Jamaica since independence at least -- is we have never really defined what governance should be about. To some it is holding state power and to others it may be 'what can I get from it?' But there is not enough of a critical mass that wants governance to focus on improving the lives and opportunities for the majority of Jamaicans. Is it any wonder then, that the US has been at the top of global development for a very long time, when its Constitution seeks first and foremost to protect and advance the rights of its citizens?