Friday, July 29, 2016

We need a serious approach to development

The current government has economic growth as its main thrust. The phrase coined by the Growth Council — “Five in four” — refers to the objective to have five per cent growth in four years. If this is achieved this would be a significant boost to our economic fortunes, and already we are seeing increased economic activity and higher levels of business and consumer confidence.

As a part of the boost to economic activity, the government has started to implement it’s $1.5 million tax threshold promise, made in the run-up to the general elections.

So far we have seen the threshold move from $592,000 to approximately $1 million, with the final move to $1.5 million slated for April 1, 2017.

In addition, the government has indicated that the aim is to move completely from direct to indirect taxes — a very good move, and Finance Minister Audley Shaw indicated on the On Point discussion programme on Business Access TV, that the aim is for this to be done before the end of the current five-year term.

Shaw also indicated that there was the possibility of a small tax package next fiscal year to accommodate the threshold increase, but that this would be on the consumption side.

The fact, however, is that while this tax threshold increase will result in short-term stimulus to the economy, and the move to indirect taxes will assist with greater tax compliance, this by itself will not give us the much-needed development. And without certain other actions or policies being implemented, it will be improbable that we will see the consistent 4.0 to 5.0 per cent growth rates needed.

Further, even if we are to see improved growth rates, this does not equate to the economic and social development needed. Economic growth is one part of the equation — but by itself is insufficient.

Economic and social development means an improvement generally in earning capacity and living conditions for most Jamaicans. This means that the increased capacity of persons to earn, infrastructure development, and personal safety must be at the core of government policy.

The challenge that we have is that our politics, and government policies, have been too much focused on handing out a fish rather than teaching Jamaicans how to fish.

And the reality is that Jamaica will not see true economic and social development unless we build the capacity of everyone to improve their income, and create opportunities for them to earn — instead of policies that seek to increase income without increasing productivity.

We may think that we are doing good for “poor” Jamaicans by “giving” them more — but what we have effectively done by applying those policies is actually caused greater poverty.

The welfare type policies that we have applied over the last 40 to 45 years in Jamaica have done nothing more than cause more long-term impoverishment, as is shown by the devaluation of the Jamaican dollar.

Whenever our governments have talked about improving the lives of Jamaicans, we have spoken in terms of specially created job programmes, housing for the poor, land distribution, tax breaks etc. Instead we should be talking about greater educational opportunities, facilitating more private sector investments (particularly SMEs), and tax incentives for investments (such as the Junior Stock Exchange).

The effect of what we have created can be considered in the example of raising a child.

If every time a child says they want money or a car etc you give it to them — without insisting that they develop the ability to earn it for themselves — then what happens is that you create a child that becomes totally dependent on you to live and maintain the lifestyle he has become accustomed to.

If on the other hand you insist that the child goes and gets an education or starts a business, and puts what he has learned to work, and earns his own money, then the child would eventually be able to earn much more than you can give to him.

And in the end there will be two incomes in the household rather than one income supporting two persons.

So what our policies have done over time is create a dependency syndrome: which we have not only shared what we have earned, but in order to maintain a “high” lifestyle for everyone we have gone out and borrowed to supplement the income.

And because our government policies support more and more dependents, we have continuously increased taxes on those who are more productive — the result being that overall productivity declines, as capital stops working to escape the increased taxes and bureaucracy by becoming dormant or going overseas.

One person recently said to me that every time something starts to do well in Jamaica the policy is to tax it in order to earn more income for the voracious fiscal appetite. In other words, we always kill the goose that lays the golden egg and then when we end up with no goose we wonder why there is no egg.

Because of this approach to policy, and the need to “please” every five years, then we not only create a dependency syndrome, but we also fail to focus on the important issues that hold back development. These include law and order (as this is seen as fighting against the small man who wants to set up his house or business anywhere — squatting, illegal vending, tourist harassment), infrastructure development, and the creation of rules such as the procurement process because we don’t want to face the real monster of accountability and corruption.

So while we strive for much-needed economic growth, we must also support the Growth Council by ensuring that we have policies that support the development of the average citizen of Jamaica, through increasing his capacity, opportunities, and safety.

Adopting a serious approach to economic and social development is the only way to sustainable “prosperity”. This should be the primary focus of the Government and its Economic Growth Ministry.

Friday, July 08, 2016

The chickens have started to roost

The phrase “The chickens have come home to roost”, can refer to a situation where something bad happens after an action, or inaction, occurs. So if a person goes around defrauding people, and is finally caught and goes to prison, then one could use that phrase.

This phrase can be used in relation to the present economic and social conditions Jamaica finds itself in today. When we think about the untenable crime situation in St James (the tourist capital of Jamaica) and the general levels of indiscipline and lack of law and order in Jamaica today, we can safely say that the chickens are starting to roost. That is to say that what we are seeing in Jamaica today is a direct consequence (even if long term) of the way we have practised our governance, and politics in particular.

When Commissioner Williams said that the problems we are seeing with crime in Montego Bay are deep-seated social issues, he is correct. This is the same reason why I have repeatedly said that Jamaica’s economic problems are social.

The fact is that the crime situation we see in Montego Bay today, is not unique to Montego Bay. We have had similar crime spikes in places like Kingston and Spanish Town. In all cases, they have left the nearby residents in a state of fear. So the Montego Bay situation may be what is current but it is certainly not isolated.

And each time we have these upsurges, we normally find a short-term solution, but fail to address the underlying problem. This of course does not mean that short-term solutions are not necessary, but they must always be accompanied long-term solutions also.

It is this lack of long-term solutions, that causes the predictable upsurge in crime to occur every few years or so. And although we do need far more resources, especially in the short term, the fact is that the main problem is not a lack of resources. It is one of political will and enforcement of our laws.

One of the problems with how we manage our resources is that we wait until there is an emergency and then find the resources to throw at it. Never mind that when the emergency occurs it costs you five times more than the preventative cost.

As I always say, fiscal policy in Jamaica is a simple math exercise of addition and subtraction. There is no real strategy about how fiscal policy can be used as a tool for development, and not just focus on how much money is being spent on a project, but rather what is the value added. But then again maybe most of our people in authority don’t understand the concept of value added.

It does not take a rocket scientist to figure out that is we create an environment where women have nine children without any way of feeding them properly; if taxis, buses, motor cyclists, and pedestrians are allowed to use the road as they wish; if people are allowed to squat and build communities as they like; if the justice system turns at a snail’s pace; and other such forms of lack of order are allowed; then what we are doing is laying a fertile ground for criminality.

But what we do is fail to enforce traffic laws or demand order on the road; we fail to enforce the Noise Abatement Act; we turn a blind eye at the squatter communities, until they develop into major communities; and we fail to enforce zoning laws. And when we fail to demand that laws be obeyed and that indiscipline must be rooted out, then we wonder why after many decades of neglect of enforcing the laws that we now find ourselves facing the social and economic challenges we have today.

In other words, how do we expect children to grow up and be successful professionals, if when they are young they are not taught what is right and what is wrong.

If we fail to do this, then the major role of the police will be to react to crime, and if there is a prevalence of crime, as we have today, that effectiveness is significantly reduced. Then what we do is apply a “shock and awe” action to the problem. Crime then dies down for a year, or two if we are lucky, and then rears its ugly head again often with more aggression.

This of course is because we have failed to address the deep-rooted social issues faced daily by our citizens, including children.

And then when these very same children, who have grown up in deplorable conditions (because of lack of urban planning), or grown up listening to deviant musical lyrics (because of lack of not enforcing the Noise Abatement Act), or see their father being abused by the police, or are abused themselves with little consequence in many instances — these children grow up and become criminals. We send the police to address the situation, by which time many of those children are lost, and further exacerbate our social issues.

Minister Montague has, in my view, spoken to some short-term approaches that are needed. However, what we must start to address immediately, and at the same time, are the longer-term solutions like enforcement of road discipline, and other laws like the Noise Abatement Act and the protection of our children from abuse.

Unless we can do these things, we will not be solving the crime and indiscipline issue, but rather just placing a band aid on a sore that will become worse. As we saw when we celebrated the reduction in crime in 2010, but which was just a temporary reprieve.

There have been many very insightful studies that we have just placed on a shelf, and not sought to implement. Either because of our inefficient bureaucracy (the number one problem to doing business) or lack of political will to do so. The fact is that no one who has had responsibility for policy to date can claim success, as where we are today is testament to what the efforts have been before.

One of the things I would love to see put back in place is the Rule of Law Committee, a private and public committee that was focused on addressing the crime problem — just as EPOC and ESET were set up. This is needed urgently, as because of our actions, (or inactions), in the past — the chickens have started to roost.