Friday, April 15, 2016

What should be the real purpose of growth and development?

Last year I had set a goal to ride 7,500 miles on the bicycle, which I achieved. Discussing it with another cyclist, I was asked if that was my ultimate objective and if I would be increasing it this year (2016), to which my response was no because the real purpose of the goal was not to just ride 7500 miles for the year, but rather that was an initiative to achieve the greater goal, which was good health and to perform better on the bicycle.

Also, just recently, I posted that the philosophy that was adopted by the previous NSWMA board was good customer service and good corporate governance. This in itself is not the ultimate objective of the NSWMA, but what it does is guide the development of the initiatives needed to achieve the ultimate goal.

These two examples show that in order to achieve any ultimate objective, we must have carefully designed initiatives and a guiding philosophy.

So even though the initiatives and philosophy have been identified and are both critical to attaining the objective, the fact is that if you were just told the initiatives and philosophy guiding the initiatives, they would both be meaningless unless we are aware of what the ultimate objective is.

However, if we were to know what the ultimate objective is, then we could easily identify a philosophical framework and the supporting initiatives without being told.

So if I told you the ultimate objective of the NSWMA (as defined by section 4 of the NSWMA Act) is responsibility for the proper management and disposal of waste, then you could say to me that in order to achieve that I would need to have a guiding philosophy of customer service and governance. At that point I could then say, well, if I want to achieve that then I must look at the major risks to achieving that and then create my initiatives by order of priority.

This is the approach that the previous NSWMA board took, as the first thing the board did was to go to the NSWMA Act and ask what is our ultimate responsibility. That was able to guide our philosophy and coming out of that analysis we were able to identify Riverton and garbage collection as main risk areas and tackle those early.

For the past 43 years, Jamaica has been trying to achieve growth and development. We have heard many people talk about the need to grow the economy, and identify specific sectors — need for macroeconomic stability; need to reduce the debt to GDP ratio and reduce the fiscal deficit; and how critical it is to pass the IMF tests inter alia.

Vision 2030

It wasn’t, however, until Vision 2030 was developed and launched in December 2013, that we sort of created a guiding philosophy for our development. It was then that we finally decided that what we wanted for our development was to become “the place of choice to live, work, raise families, and do business”.

Until then Jamaica had no guiding philosophy for our development. Sure we knew that we wanted economic growth. We knew that we wanted to develop the country’s infrastructure. We knew that we wanted to reduce crime and indiscipline. We knew that we wanted to eradicate poverty. But to what end? And the fact is that if you don’t know where you are going, then you can take any road and you will get there.

But even though this philosophy (which I think is an excellent one) was developed, the truth is that it really has not been taken seriously by successive administrations, and seems to have remained an academic task with no desire for implementation. So there are a few persons monitoring Vision 2030, but the needed initiatives have not been tied in to the action by the country’s “board of directors”, which is the Cabinet.

So imagine if the NSWMA management identified a philosophy for the organisation, but it was not accepted by the board. Could it be achieved?

Last Tuesday, I accepted an invitation to interview some young people from a low-income community, in an attempt to identify what their skill sets and needs are. I thought it was important, even though I had a really hectic day, because I believe our young people need serious nurturing and guidance. I was happy to see that several professionals were there, and it was more encouraging because it took place at 7:00 pm.


But while speaking to some of these young people, just out of school, I was very disheartened. These youngsters were very ambitious and creative, but had a poor family background, had been abused, had produced children early, or had to drop out of school because they had no financial support.

One young lady of 18 was trying to make life better for herself, and wanted to go back to school, but had to drop out at 13 when her mother died and her grandmother could not afford to send her and two younger siblings to school. So she had to start hustling to help them. Immediately I thought to myself, what type of future does she have? Fortunately, she had no children and I pleaded with her not to do so until she was financially independent.

There were many stories similar to this, and it was obvious that they were very willing to improve themselves and at a time when they should have been enjoying their childhood but could not do so. I will definitely participate again.

This led me to think that even though we are talking about passing IMF tests, and nice terms like macroeconomic stability, the fact is that there is a significant part of our population that is just concerned about what they will eat tomorrow. Hence the disengagement we saw in the election turnout.

The fact is that our governance and philosophy is totally disconnected from what the ultimate objective of development should be – to improve the general standard of living for Jamaicans and ensure that all Jamaicans have an equal opportunity at success.

That is what governance should be about. Instead we focus on initiatives, and because we have not been able to define anything but initiatives we have not been able to see any meaningful development.

In other words, our leaders need to go back to basics and understand that the real purpose of growth and development should be about enhancing the lives and opportunities for the people. This is why the US has been so successful as a country, because their ultimate objective is improving the lives of US citizens, guided by the philosophy of government by the people and for the people.

Friday, April 01, 2016

Why should we buy Jamaican?

As we pursue our eternal search for economic development, one focus has been on the need for us to purchase local goods and services in preference to imports. The reasoning behind this seems logical, as it should mean that the balance of payments should improve, and this should mean a stable exchange rate and employment for more Jamaicans.

As a result, there have been many calls for us to ‘Buy Jamaican’. Former senator Norman Grant has been at the helm of this initiative, which, in my view, has reaped much success. Even with this successful campaign, however, we have continued to see currency depreciation, high inflation and interest rates, and increased unemployment over the period. So the question is, why wouldn’t things improve if we had such a successful ‘Buy Jamaican’ campaign?

There are a few reasons for this, and it underlines the fact that simply saying we should ‘Buy Jamaican’ will not improve our economic fortunes.

So while the campaign was very good and necessary, the truth is that we never really supported it with policies that would sustain a move towards consuming more Jamaican-made products and services. In addition to lack of policy stimulus, many local producers have not improved the service and product quality to properly compete with imported products.

The first thing to note is that it is a futile exercise to be pushing a ‘Buy Jamaican’ campaign when we are unable to significantly increase the production of Jamaican goods and services. So what we have failed to do as a country is ensure that appropriate policies address this failing. To do so all we had to do was ask the question – what is it that prevents capital from making long-term investments in locally produced goods and services? In other words, does capital feel comfortable investing for the very long term in sustainable production, and – importantly – locating their facilities in Jamaica?

The answer to this is that government policy has never effectively addressed the issue of being more attractive to capital than our competitors. Sure we have done it by creating special incentives for industries such as tourism, bauxite, free zones, etc. But the fact is that government’s attitude to capital generally has been very wanting.

As an example, tax policy in Jamaica has always pinpointed increasing fiscal revenue as its primary purpose. Never mind that it ends up killing incentives for capital and businesses generally. In contrast, countries like Panama have a direct policy of focusing on attracting capital, and as a result they have consistently grown at 6.0 per cent to 8.0 per cent per annum.

Government policy in Jamaica has always created a hostile environment to capital, and then created special carve-outs for foreign direct investments. Small wonder then that local investors are reluctant to risk their savings and pensions in business ideas.

The fact is that if government policy was focused on addressing the four most problematic factors in the 2016 Doing Business Report: inefficient government bureaucracy, crime and theft, tax rates, and corruption — then not only would we solve 54 per cent of our business challenges, but we would also see increased capital inflows and employment. Instead we have struggled for years to implement a computerised tracking system for development approvals, and then we wonder why growth remains anaemic.

Secondly, many of the Jamaican products and services produced are not able to compete in terms of quality and price.

Price in many instances is again affected by government policy, which seeks to extract as much revenue as possible without much concern for the survival of businesses and their ability to compete. But there are also quality issues with some of the goods and services produced. As an example, last year I took my daughter to the Easter Funfest at Hope Gardens, and it was a great event for children. I got there very early and she was almost alone on the rides so it was good.

This year I went early with her, only to be greeted by blaring music, with speaker boxes lining the route to the rides. The music was so loud that my daughter started crying and wanted to leave, and it was equally unbearable for me and some of the staff. Later I got a video of them having a stage show there with children dancing on the stage to a large audience of cheering adults.

A significant deterioration over last year.

This is a similar story for many Jamaican products and services. They start out well and end up being uncompetitive. This is okay in a competitive market, but the problem is that this mediocrity is supported somewhat by government policy, which in many respects creates significant barriers to entry. The result is that the invisible hand of a competitive market does not get to work properly. For example, something as simple as not enforcing zoning laws allows some businesses protection by allowing them an unfair advantage from a cost point of view. The result is mediocrity.

Other inhibitors are lack of information and inability to move goods effectively. Just look at the deplorable state of most farm roads.

The point is that we should not ‘Buy Jamaican’ just because it is a Jamaican product or service. But rather we should ‘Buy Jamaican’ because it is just as good or better than the imported products.

It is only when we can produce competitively that we will see improved growth and employment. This is because buying an inferior product actually does have economic costs: (i) higher cost of living, (ii) lower productivity and hence lower wages, and (iii) decreased potential for foreign exchange earnings.

At best then, producing inferior products and services will produce a more closed economy which becomes more uncompetitive and produces lower income levels, as happens in Cuba.

If we are to grow the economy at acceptable levels, then we must increase the number of Jamaican products and services. This, however, must be done competitively if we are to benefit.