Monday, November 28, 2016

Relevance of local government — if we can get it to work

Last week I was driving around Montego Bay with the NSWMA regional manager and stopped by the Retirement dumpsite. As I drove around, I thought to myself that much of the challenges we continue to face — at the NSWMA, and nationally — have so much more to do with the lack of order, discipline, and civic pride (or I should just say how people are brought up), than it has to do with resource availability.

As I visited the Retirement dump, it was clear to me that not only does it need a lot of work, but that many of the environmental conditions as it relates to the people and children have been ignored. People are allowed to live around and on the dump, including children, which is a major health hazard waiting to happen. In fact, children there play at the dump as our own children play in our yards or parks.

This, I think, speaks to the ineffective way in which we have sought to enforce environmental standards – by focusing on it after events happen, than being proactive and ensuring that people do not live in these conditions.

But then again, can we blame the people who are to enforce environmental standards when people are allowed all over the country to squat where they please? Maybe this is just another squatting community in the eyes of our local and central government.

As I drove around Montego Bay (in order to view the numerous complaints we get about garbage pile up in the city), it became very clear to me that: (1) the problem of garbage pile-up has less to do with the NSWMA and more to do with our means of disposal; and (2) that based on how garbage is disposed of, we can never afford enough trucks to keep the city clean.

All around the town I spotted people just dumping garbage in piles on the roadside outside of shopping centres, and even where skips were visible, more garbage was thrown outside of the skip than in it.

I was also told, and saw for myself, that NSWMA trucks were picking up the garbage. Then by the time we drove past a few hours later, more garbage was piled up. So, in fact the truck sometimes must make two trips per day.

Based on what I saw, there is no way that NSWMA can provide enough trucks to manage this situation.

The way we dispose of our garbage requires significantly more resources for the NSWMA, which eventually means that Government inevitably has to raise taxes as the cost of providing the service is much more than anticipated.

I hope everyone sees this link.

The main problem, as I see it, is the lack of enforcement of order and discipline in the city, which is not peculiar to Montego Bay. The maintenance of public order is the main responsibility of local government, and this is where I think local government has failed. This responsibility also must rest with local and not central government.

The problem we have with local government is not that it is irrelevant, but that it is dysfunctional. So, in my view, what we need to do is to get local government to work and we would see a significant improvement in our economic and social development. This is because no economy or society can move forward without law and order.

The question, therefore, is why can’t this be done by central government and just get rid of local government? This is the argument that many people make, but this again can lead to greater inefficiency and facilitate corruption. This would be because the other advantage of local government should be a check and control of central government. But this has not worked, as many times it seems as if local government is nothing more than an arm of central government, especially when they are both run by the same party, and it seems impotent when controlled by the Opposition.

The reason for this ineffectiveness is because there is no independence of local government. So when both branches of government are controlled by the same party, the fact that it is the ruling party that appoints candidates for local government makes it an extension of central government.

And when they are both controlled by opposing parties, the central government many times starves local government of resources because the local government funds are controlled by the former.

This is the challenge that local government faces in Jamaica and why it is ineffective.

What we need to do, therefore, is carry out proper reform which would then make local government more effective and accountable to the people, such as direct election of mayors by the people rather than “the chosen one” from the political councillors. In that case, it wouldn’t matter to people who controls the councils, as the mayor would be independently elected by the people.
If this were so, then local government would be much more effective in things such as proper zoning, enforcement of order (such as removal of illegal vending), and clean commercial areas.

This lack of any autonomy for local government is evident in the debates, where much of the debate has centred around things being done at the central government level, rather than anything to be done at the local government level.

The reason for this is simply that parish councils are basically impotent on their own as all the action happens at central government.

Until this is addressed, we will continue to have weak and ineffective local government, lack of public order, and possibly the continuation of improper waste disposal — partly because of lack of effective local government and partly because of the lack of pride by our people.

Monday, November 07, 2016

Analysis of Jamaica’s competitiveness and development challenges (Part 2)

Last week, I ended by speaking on the point that if we are to see true economic and social development in Jamaica, this can only come through increasing our competitiveness as a country. The only way for us to do that is to target the categories of Efficiency Enhancers and Innovation in the Global Competitiveness Report (GCR) ranking, as our improvement has been in the category of Basic Infrastructure primarily.

In other words, what we have been doing over the past four years is creating capacity (such as through institutions and infrastructure development) and macroeconomic and fiscal stability.

This has caused us to see improved confidence and thus increased investments and a return to growth. (It is reported that in the September 2016 quarter, year over year growth was 2.3 per cent annualised. This, however, reflects the bounce back from the drought that affected agriculture and so a more normalised growth may be under two per cent — still a significant development.)

So if we look back at the areas of Basic Infrastructure, we would have seen significant five-year improvement in the pillars of Macroeconomic Environment (17 per cent improvement) and Health & Primary Education (38 per cent).

However, when it comes to our Institutions and Infrastructure, we have only seen five-year improvements of eight per cent and three per cent respectively. A further analysis shows that of these four basic infrastructure pillars, only Health & Primary Education is in the top 50 rankings, with Macroeconomic Environment at 112, Institutions at 73, and Infrastructure at 77.

So even though our overall improvement has come from the basic infrastructure category primarily, the fact is that the improvement does not mean that we are where we should be as our institutions and infrastructure primarily remain serious impediments to development. In fact, the recent occurrences in the “X6 court case” and the unacceptable situation at the Firearm Licensing Authority prove that our institutions remain a problem.

In the area of Efficiency Enhancers, we even have a more serious issue, as in the pillars of Higher Education & Training, Technological Readiness, and Market Size, we have seen five-year declines of 13 per cent, five per cent, and 17 per cent respectively, and rankings of 90, 77, and 119. These are pillars that are essential for improved competitiveness and are therefore a serious concern, and they must be targeted if we are to improve our international competitiveness to create sustainable growth and development.

In fact, the area of Higher Education is of primary concern, as there is no rich country that has a relatively undereducated labour force. I was just this week having a conversation with someone about the future of driverless cars and robots doing most of the menial tasks which Jamaica embraces as job creation. Our labour laws, for example, have helped to impoverish our labour force by creating greater informality in the labour force and lowering productivity. This has all been done with good intentions (and to get votes), but it has had a distortionary effect on the labour market and created less value.

Under Efficiency Enhancers we have seen five-year improvements in the pillars of Goods Market Efficiency, Labour Market Efficiency, and Financial Market Development of 11 per cent, 10 per cent, and 16 per cent respectively. However, the rankings for Goods Market Efficiency (61) and Labour Market Efficiency (60) are still out of the top 50 countries, and show that much work needs to be done, primarily from the regulatory side to improve.

The Innovation and Sophistication category shows five-year improvement in both pillars of Business Sophistication and innovation of 14 per cent and nine per cent respectively. This, in my view, reflects the natural improvement in the private sector, which controls the movement in these pillars. The problem with these is that they are both out of the top 50 countries, at 57 and 70 respectively. Even though they are not where we want them to be in the rankings, my own view is that if we were to create a friendlier and less inhibiting environment, through better regulations and lower entry barriers, we could see a more significant improvement in the Innovation category.

The table shows us the lowest ranked areas from the 2016/17 GCR report (over 100). What it shows us is that the challenges we face for competitiveness, which negatively affects our economic and social development, is primarily because of crime and justice, fiscal management, and government policy.

We all know about the deficiencies in the justice system, and the crime challenges, but as an example, the approach of tax policy in past years has been to raise the taxes every year on people who are compliant, largely ignoring the non-compliant and the fact that higher tax rates drive capital away from the country. The recent successes of the Employment Tax Credit and moves by Tax Administration Jamaica at compliance and ease of paying taxes, show that lower tax rates and easier tax systems do increase compliance and collections.

There is a lot more that could be done in terms of a detailed analysis of Jamaica’s lack of competitiveness, and hence lack of development, but space does not permit. Suffice it to say that what we must do is not just celebrate the headlines but take a strategic and surgical approach, to look at what are the factors that prevent us from achieving the growth and development we need — and then implement policies specifically to improve those areas.

This is the only way for us to get to where we need to be as a country to ensure prosperity for all Jamaicans.

Thursday, November 03, 2016

Analysis of Jamaica’s competitiveness and development challenges

Recently the World Economic Forum released the Global Competitiveness Report 2016/17, which showed Jamaica improving its ranking from 86 of 140 to 75 of 138 countries. This was an improvement from 67 per cent to 54 per cent in the ranking.

A few days later the World Bank released the Doing Business Report (DBR), which shows Jamaica falling two places, in the ranking, from 65th of 189 to 67th of 190 countries. This is a marginal slipping in the rankings.

Of course what we normally do, when these reports are published, is to look at and comment on the overall ranking primarily, and most times do not take the opportunity to look at the details to determine what must be done from a strategic point of view to address these issues.

A part of that deficiency may be that we don’t seem to set any real targets to improve in these ranking — as we always have discussions without any real understanding of the details behind the rankings and what must be done to improve in the rankings.

So we don’t, as a country, set ourselves targets in terms of where we want to be in say five years in the ranking of both the GCR and DBR reports.

As an example, I haven’t heard any real talk about an objective of being in the top 50 countries in the ranking in both reports. So a strategic goal could be to say that in three years our objective will be to be in the top 50 countries, and what that will mean for Jamaica. And then we may go further to say that within 10 years we want to get to the top 25 countries.

This would naturally be what private sector organisations do, as do individuals in their own life plan. But as a country it seems we never create a vision of where we want to be in a defined timeline, and get the population to buy into it. One may say that we have the Vision 2030 objectives — but the truth is that it is a well-kept secret from the general population.

To properly understand where we need to go, we must of necessity understand in greater detail what the current status of our economy is. And this can helped by looking at both the GCR and DBR reports, instead of just looking at the headline ranking. Because if one looks behind the overall ranking I think it gives a very good indication of what areas we must focus on if we are to realise Vision 2030, which is just about 14 years away.

One of the questions I always get is: if Jamaica is touted as doing so well, under the just- ended IMF agreement, then why are we still grappling with economic growth? In fact, even though we have seen a return to growth, the fact is that the average is still not much more than the average growth rate over the past 40 years. The reason for this, I think, can be answered by further analysis of both the GCR and DBR.

If one looks at some of the details behind both reports, you will see that the challenges highlighted are similar in both reports. Both the DBR and GCR reports identify that inefficient government bureaucracy is a major issue, and the GCR report goes on to highlight significant deficiencies in the justice system and crime as issues.

Both crime and inefficient government bureaucracy have been the two most problematic factors to doing business in Jamaica for years, and yet we have been unable to address these challenges.

If one were to really think about it then, the real challenge we face is a lack of proper governance, as both crime and bureaucracy are consequences of poor governance.

This is a conclusion I had come to in my book,Charting Jamaica’s Economic and Social Development, where it became clear that the real challenges of social and economic development stem from our constitutional politic arrangements.

It is not practical, however, to address it by trying to change our constitutional arrangements, as neither political party will want to do that, as they want to preserve power. So the next best thing to do, which has been the trend, is to strengthen the institutions around our current political systems, and in so doing remove some of the stranglehold of our political system (read the book Why Nations Fail).

It is this strengthening of our institutions (as depicted in the table showing the five- year trend in the GCR) that in my view has resulted in greater confidence leading to enhanced macro-environment and market conditions. In other words if we did not move to develop institutions like the OCG, public defender, INDECOM, Charter of Rights, and more recently EPOC and ESET, then we would have had worsening social and economic conditions. This would in turn lead to loss of confidence, lack of investments, and further impoverishment.

So what the table clearly shows is that Jamaica has been improving steadily in the GCR ranking, moving over the five years from the 67th to 54th percentile.

But even with this steady improvement, Jamaica has still struggled to find any significant economic improvement. What should also be noted is that the more significant improvements over the period occurred when we started the IMF agreement in 2013, which saw the strengthening of institutions (mentioned above) and more oversight by the private sector and civil society.

If we are to see economic and social development in Jamaica, then we must fiercely go behind the overall ranking and, secondly, put action in place to bring us into at least the top 50 per cent of countries for doing business.

Even though we have seen continuous improvement in the GCR ranking, it should be noted that the improvement primarily takes place in the Basic Requirements category — where over the five-year period we have improved 24 per cent from 114 of 144 to 75 of 138 countries measured. However, in the categories of Efficiency Enhancers and Innovation, over the period we have seen a decline of one per cent and improvement of 11 per cent respectively. The problem being of course that global competitiveness means that we have to do well with Efficacy Enhancers and Innovation.

It is this lack of development in these areas that, in my view, has caused us not to grow at acceptable rates.
(Continued next week)