Tuesday, December 12, 2017

Fiscal consolidation's unintended consequences

Not all weight loss is good. In other words, if you lose weight by cutting into muscle, then it can actually have a negative effect on your health. Nutritionists will therefore tell you that it is very important to eat properly and avoid a “no food” diet, because lack of food will affect your energy level and ultimately your health.
This is certainly no different in relation to business, or even at a country level. The fact is that if your strategy is focused on simply reducing expenditure, then you will ultimately find that you have no capacity to expand or compete effectively. As a result you will begin to chart your own demise, irrespective of how great your intentions are. In other words, the most rewarding way to survive is to grow, not to stay the same or to shrink.

In an article I wrote on Friday February 2, 2007 (in the Jamaica Observer) titled 'The problem of capacity', I pointed out: “This lack of a proper plan to national development causes us to focus short-term on things like balancing the budget, while what we sacrifice in order to do that is the capital expenditure and investment required to develop that infrastructural support needed for economic growth.”

So in effect, what we have been doing as a country, since the 2007/08 recession, is “reducing muscle” and ignoring the consequences.

This approach, in my view, has led to the infrastructural challenges that are causing the traffic congestion we see today (costing us around $200 billion annually in lost productive hours), and more recently, the flooding that we saw in Montego Bay, as well as the crime problems that plague us daily.

I say this because our primary economic management tool since 2007 has been centred on reducing expenditure. And I remember around that time, a few of us were constantly warning that fiscal consolidation alone is not a long-term strategy, as the only way to achieve sustainable development is to start growing by at least three per cent per annum for a few years.


But instead, we kept patting ourselves on the back because of the results of the fiscal consolidation.

Today, however, we have discovered that reducing expenditure is easy (all you have to do is owe people or not execute), but growth is much harder and requires different strategies and skill sets.

In the same way that the government moved away from borrowing as much as they used to, many financial institutions and individuals learned that different skills are required to earn profits than those needed to rely on high interest rates. But whereas the financial institutions adapted, fiscal policies never changed to meet that reality.

So where have we ended up? Today we have very poor infrastructure, which creates significant opportunity losses, and we have inefficient use of capital, which continues to limit growth in the economy.

We have failed to invest in the equipment needed by the police force. We have not dealt with the serious problem of informal settlements, with the result that criminal activity is perpetually on the rise, costing the country some four to six per cent of GDP, or more than $80 billion annually.

We have failed to address the regulatory environment that restricts the efficient use of capital (such as the Minimum Capital Test, Reserve Ratios or what pension funds can invest in), costing the country tens of billions of dollars in capital investment and economic growth, the result being lower growth and a lower per capita income for the labour force, both pre- and post-retirement.

We have failed to address the procurement rules for government, again costing the country tens of billions in economic activity and lost productivity (taking over 10 years to look at the procurement rules/amendments).

We have failed to predict traffic needs in the face of the growing population and increasing economic activity. We have not invested wisely in our road networks or a proper public transportation system, resulting in traffic congestion, which has cost around $200 billion annually in productivity losses. We have also failed to invest in technology to monitor our road networks, resulting in increased man-hours for the police force, instead of using technology, resulting in higher costs on the fiscal accounts.

We have also failed to invest in upgrading our justice system, resulting in lost productivity and increased criminal activity.


Oh, yes, we have been very successful at meeting our fiscal consolidation targets, and we all agree that that was necessary because of the dilemma we found ourselves in when the recession started. But because of our failure to think beyond the exigencies of the fiscal challenge at the time, we have found ourselves celebrating one per cent growth, when what we need is three per cent, and we see the results in the form of traffic congestion, crime, and flooding.

The transition to growth is necessary, but it continues to elude us. Some of us now realise that achieving high levels of sustainable growth is a difficult task that requires different strategies. It requires a different skill set, which must either be developed in the people responsible, or be brought in with new people.

Either way, it requires a mindset change, and an understanding that the policies we continue to follow in many respects cannot give us the growth we need. For example, in the US, when they want growth they reduce taxes at all levels. In our case we reduce at one level and increase even more at another, without understanding that the effect is a net take from the economy.

Until we start to appreciate this distinction, then the type of sustainable growth levels we need will continue to elude us.

Friday, November 10, 2017

Create an environment to encourage growth and development

Last Sunday, Justice Minister Delroy Chuck made a presentation to newly commissioned Justices of the Peace, and it was one of the most passionate and practical speeches I have ever listened to.
He referred in particular to the rampant indiscipline, especially on the roads, and promised to ensure that the full force of the law is brought down on delinquent motorists. He also promised to consult with lawyers to see if there is any way that drivers with 10 or more outstanding tickets can have their licences suspended.

In addition, he indicated that at the end of the traffic ticket amnesty, anyone with unpaid tickets will have arrest warrants issued for them and they will be locked up.

I for one am in total agreement with the sentiments expressed by Minister Chuck, and I would even go further and say that anyone with two or more outstanding tickets should have their licences suspended.

In fact, it might not be a bad idea to systematically revoke all road licences and have holders reapply for them, at which time they would have to thoroughly convince the authorities why they should have them.

This might seem like a radical measure, but it is only by creating a disciplined and orderly society that we will be able to have a shot at real development.

I am sure that most people would have heard the saying, “Show me your company and I will tell you who you are.” Most of us understand that if you plant a seed in infertile soil, then the seed will either not grow or the plant that comes out will be too puny to survive.

The fact is that we will never be able to see any meaningful, sustainable growth and development until we create a fertile environment for people to become more productive. Productivity cannot thrive in an infertile environment. So just as seeds will not grow in infertile soil, people cannot achieve their potential if there is too much negativism and disorder around them.

Crime will not subside in an atmosphere of disorder and indiscipline. Businesses will not do well if citizens (consumers) do not reach their full potential.

This need for a fertile environment does not only apply to people, but also to capital. For years I have listened to people lament the poor productivity of capital and say that “the private sector” must contribute more to the economy, not understanding that the private sector comprises anyone who is not in the public sector, including those spouting criticism.

But local businesses will remain unable to realise maximum value and productivity if we continue to hold them back with inhibiting labour laws, or we continue to restrict the movement of capital.

In Jamaica's case, capital has to work much harder than in other countries. As an example, where our cash reserve ratios are higher than in other countries, then the capital left to work must have a higher rate of return. For that reason we may see fees and other charges not seen in other markets.

Another example of how environment affects outcome is the relationship between the increasing cases of abuse we have seen against children and the low educational performance over the years. This is why I remain disappointed that months after the case of the neglected seven-year-old was brought to the fore, no one from any of the responsible child protection agencies has been held responsible, which just shows the disregard and uncaring attitude we have for our children.

We should not be surprised about the environment that we have created. Our governance has long neglected our justice system, traffic ticketing system, child protection, and the list goes on.

Instead, our governance focus has been on fiscal policy that has the prime intention of grabbing more and more from the citizens while giving less and less. So today we have very bad roads, high crime, bureaucracy, and uncompetitive tax rates.

In plain terms, we have “deliberately” set about creating the environment we live in today, and sometimes I have to wonder about our intent and ability to change that environment.

The production of numerous studies and commentaries of “intent” lead to no positive outcomes. The “toxic” business environment we have created over successive decades simply goes from bad to worse.

This doesn't mean that we have not made some progress — as minimal as it may be. But what we have failed to understand is that we don't live alone in the world, and that improvement is not just assessed by absolute measures, but by relative measures. So while we are standing still, other countries are doing what is necessary to move ahead faster than we are. So we take 10 years to pass Road Traffic Act amendments, or 10 years to pass the new Procurement bill.

We are weighed down under many studies and reports, which tell us in a spectacular way what needs to be done. We listen to countless speeches made by politicians over the years proclaiming their good intentions. And the truth is that if we did even 20 per cent of what is contained in those many reports, we would be way ahead of where we are now, both economically and socially.

As I said at the start, Delroy Chuck is right: the only way to address the matter of indiscipline is to take a zero tolerance approach and bring the full force of the law down on perpetrators.

I also believe that the minister has every intention of doing all within his power to fulfil his promises. However, unless we take action and implement a functioning ticketing system, utilise technology to assist in the crime fight, and fix our ailing justice system, then all those pledges will evaporate. Because if the supporting infrastructure and environment is not in place to support his intentions, then his fate will be the same as that of our economic and social development.

Friday, November 03, 2017

Jamaica, no problem… or land of lawlessness?

One of the best ways to be educated is to travel to other countries and see different environments in operation, as it teaches you not only new things, but also shows possibilities. For example, there have been reports of ancient tribes that have been locked away in the Amazon for decades and still live the same way they did 100 years ago.

Whenever I come back from overseas and land at Norman Manley International Airport, it is always a great feeling to touch down in the land of my birth, as I am sure many Jamaicans living overseas feel. However, after leaving the picturesque view of the Palisadoes strip, you find yourself quickly descending into the decay of our capital city.

The first thing that hits you is the run-down infrastructure; then moving along Windward Road and Mountain View Avenue, you notice not only further decay, but also the indiscipline on the roads, where the police and government have ceded control to the taxis and buses.

As you drive further into the city, going either through downtown or New Kingston, you will meet the garbage pile-ups, numerous peddlers at the traffic lights, and taxis and buses weaving in and out of traffic, using their vehicles like “weapons of mass destruction”.


As a resident Jamaican, I am all too familiar with the contrast between the orderly environment overseas and the morass of disorder that always greets me on my return to Jamaica. I suspect that a new visitor to the island must be wondering if there is any government in Jamaica. They may have heard the slogan 'Jamaica - No Problem', but I don't think they would have imagined that it meant 'Jamaica - No Accountability'.

So every morning, as I make the arduous journey to work through the traffic, I can't help but wonder, like the new visitor, if there is any governance in Jamaica. Or should I say, if there is any care about proper governance.

Taxis, which are easily identifiable now, drive illegally on the right-hand side of the road, and flash off any oncoming traffic with disgust because they dare to drive (legally) on the left-hand side of the road coming towards them. And don't even try to suggest that taxis should stay in the turning lane, for example when they are turning onto Hope Road from East King's House Road. After all, they have the right to do anything they want, and no government or police can stop them.

' Jamaica - No Problem' means that anyone can establish a small business on the sidewalk by just deciding that they will set up a stall, and to hell with pedestrians who try to make rightful use of the sidewalk. And woe betide any female driver who dares to reject the “services” of boys who flock to wipe their windscreens. And you'd better not offer them less than $100 for the “service” they have imposed on you.

If you are misled into believing that as a Jamaican you have any right to peace and quiet, you will be sorely disappointed, because the party promoters have a lot of clout and will play their music as loud as they want at any time of day or night. You are crazy to think that because you go to the United States and see where noise levels are controlled, you can come to Jamaica and think you deserve the same privilege.

In fact, if you have children who are too young to watch PG programmes or listen to X-rated lyrics, tough luck. They will just have to stay in their beds and listen to the lewd lyrics from the music being played two blocks away. Why do you think that you have the right to determine whether your child listens to expletives or abusive lyrics being played through loudspeakers at parties? That is the right of the promoter, and no government or policeman can stop that.


And if people want to squat on government land and put up concrete structures, that is their right also, as long as they are delivering votes. It is no business of the government to tell anyone where they can build or if they want to operate a garage in a residential community.

If someone chooses to take unauthorised leave from work, the employer has no right to tell them they cannot, and if the employer dares to dismiss them for it, then they will just go to the IDT and put the employer in his place because he failed to follow a year-long process. No employer has any right to demand high levels of productivity from any worker, or they will be forced to pay monies which they were unable to earn because of low productivity.

And if you are ill-advised enough to sue someone for committing a crime, or because of abuse by any arm of the State, then you must suffer the high legal costs of having the matter adjourned repeatedly, and become familiar with the comatose justice system, because you will be in court for at least five years.

After five years, if the judge thinks you have suffered long enough and awards you any costs, especially against the State, you had better bequeath the amount to your grandchildren, because you will not see any payment in the rest of your time on Earth.

Does anyone think I am exaggerating? I am no crime expert, but how do we expect to solve crime and get economic and social development in the kind of system I have outlined above? Sadly, this is Jamaica's reality - not a fictional place.

Year after year, the Global Competitiveness Report tells us that crime and bureaucracy are the two main impediments to economic growth, which is essential for social development, but instead of addressing the root cause of disorder and indiscipline, we tinker around the edges while undermining our true potential as a nation.

Friday, October 13, 2017

Establishing a foundation for development

Over the past couple of weeks traffic congestion has been unbearable on the roads, and has revealed a lack of proper governance.
The recent traffic pile-ups have been caused, in my view, by:

(1) poor road work in the past, which has led to “craters” on the roads as soon as it rains;

(2) indiscipline on the roads, primarily from taxi and bus operators who think they can do whatever they like, and the authorities do nothing to address it; and

(3) the National Water Commission working on the roads all over the Corporate Area, causing traffic congestion, with no apparent thought to coordinating the activities so that they don't significantly affect traffic flow. And then when they are finished, not repaving the roads quickly.

In 2015, the Inter-American Development Bank started a dialogue on the cost of traffic congestion in Latin America, and concluded in the report that it was the number one factor inhibiting productivity in Latin America and the Caribbean.

This is not difficult to understand, as, if we assume that people on average spend even an additional one hour on the road every day because of traffic and multiply that by a working labour force of one million, we lose one million productive hours each work day. Assume 200 work days for the year conservatively, and we get 200 million productive hours lost per year to traffic congestion.

A simple computation (assuming GDP of $1.7 trillion, one million labour force, 200 days per year and one-hour workday) shows that traffic congestion, causing a one-hour loss per day, is costing us around $200 billion in lost GDP opportunity per year.

Wouldn't it be better to spend $10 billion to $20 billion per year on an efficient public transportation system, including a safe and efficient school bus system to prevent daily pick-ups, which adds to the $200-billion annual loss?

But traffic congestion is just one element of a weak foundation we have developed.

The recently released Global Competitiveness Report (GCR) 2017/18 shows that Jamaica still grapples with the issues of crime and theft, inefficient government bureaucracy, tax rates and corruption, as major inhibitors to doing business in Jamaica. I have omitted access to financing, which features in the top four this year, because the historical data show that these four issues have been consistently the main inhibitors.

Between 2014/15 and 2017/18, the GCR shows that these four factors above accounted for an average of 51.85 per cent of the challenges to doing business in Jamaica. In 2014/15 they were at 55.40 per cent; 2015/16, 54.20 per cent; 2016/17, 50.80 per cent, and 2017/18, 47.00 per cent.

The numbers show that they have been decreasing, but still remain around 50 per cent of the challenges to doing business in the country. No doubt there have been some improvements in the bureaucracy, which has caused the change, as evidenced by the fact that inefficient bureaucracy now ranks fifth, and in the years 2014/15 to 2016/17, was always in the top two challenges. Inefficient government bureaucracy still remains, however, at a significant 9.20 per cent perception as posing a challenge to doing business.

Among the inefficient bureaucracy is the matter of our regulatory environment, which includes the restrictions we place on the use of capital. Over the years of high government borrowing, legislation was put in place that effectively forced pension funds, and other financial institutions, to place most of their funds in government paper and a large amount also sitting down idly doing nothing.

This has caused us to lock away billions of dollars in capital, which could be working for local entrepreneurs, and which would cause lower interest rates, lower transaction costs, and greater wealth for LOCAL entrepreneurs.

Instead, fiscal policy has sought to lock away the capital (earning very minimal amounts), and has been pushing FOREIGN Direct Investments in preference to LOCAL investments. The fact also is that more local investments mean that more of the profits will stay in Jamaica. The fact also is that if capital was allowed to work, instead of being locked away, then more local people would have access to cheaper capital and our GDP per capita would increase.

So if we were to look at the conservative cost of traffic congestion ($200 billion), the approximate four to six per cent GDP loss from crime and bureaucracy ($85 billion), the capital losses because of uncompetitive tax rates and corruption (no estimate computed but assume conservatively two per cent of GDP - $30 billion), and the opportunity cost of capital locked away because of the regulatory environment, it would seem to me that we could easily get close to another $500 billion in GDP output, or another 29 per cent of GDP. This may not be in one year, but even over five years we are talking about six per cent growth per year additional.

This does not include the productivity losses as a result of our labour regulations, or losses from our procurement issues.

This shows that Jamaica's challenge for growth and development comes down to a poor foundation for development and growth. It also shows that the reason we are struggling with low growth, and our people are not productive and have low income levels, is primarily because we keep shooting our-selves in the foot. The fact is that Jamaica's challenges are more internally than externally generated.

So, given our limited resources, wouldn't it be better to just focus on these four or five areas to stimulate development and growth in Jamaica?

Friday, September 08, 2017

Artificial labour in Jamaica

Putin is recently on record as saying that whoever has a competitive advantage in Artificial Intelligence (AI) will control the future of the world. Elon Musk agrees with him.
Whether or not this will be so (and it does sound logical), what is clear is that the environment for labour is changing. In fact, a recent article suggested that because robots are being used more and more to replace labour, especially blue collar workers, governments should consider making a minimum payment to all their citizens. In other words, a minimum “welfare payment”, which would substitute for the displaced employment caused by robots and AI in the future.

What this onward march of technology means is that, in the very near future, most blue-collar and some white-collar jobs will be replaced by robots and AI. For me it doesn't necessarily mean that there will be no jobs, but that for people to gain employment they would have to be employed in areas that require higher-level thinking.

So recently I purchased, and have been using, a vacuuming robot at home, which can be scheduled to clean the house when no one is there. So even while on vacation the house can be cleaned.

There are also Wi-Fi camera systems that not only allow you to monitor your home from another country, but also allow you to speak through the camera to someone who is in your yard, or in your house, which I also have installed.

But this doesn't mean that you don't need household help or security companies to monitor your house. What it means is that their role changes to more critical and higher-level thinking. So the household worker now needs to understand how to utilise and monitor these house robots, and the security guard must now be familiar with the technology.

Another article pointed to the dominant economies projected for 2050. The similar track for the top 10 was that they all depended on infrastructure development, and very important growing and productive labour. So even in 2050, labour is still being seen as a competitive edge for development.

What must be noted, though, is that labour can only be competitive, and can only raise its value when it is constantly increasing in productivity. But labour can only increase in value, and be competitive, when it is allowed to compete with labour productivity in other countries.

This for me is the biggest impediment that Jamaica faces to our development and competitiveness, which I have been saying for some time.

The fact is that Jamaica's lack of international competitiveness and development is being stymied by our low labour productivity, and has been declining since the 1970s. The only way to increase real labour compensation is by increasing productivity.

However, up to the 2013 IMF Agreement, public sector wages were increasing (in real terms) at a pace faster than productivity. Indirectly also, overall labour compensation has been doled out through government welfare programmes, labour laws, and tax breaks. The result is that products and services do not increase in competitiveness, and as a result labour compensation loses value, resulting in declining standards of living.

If the Jamaican economy is to develop and become internationally competitive, it also means that our labour has to become competitive. Just like in a private sector company, the competitive edge is always labour productivity, such as customer service levels.

But for this to happen, Jamaica must face some facts and address them. The first one is that our policy must recognise that robots will eventually take over and be much more productive in jobs that we cling to for political reasons. These include street sweeping and sugar cane cutting.

This does not mean that we will displace these workers, but rather that we will employ strategies to ensure their training for higher-value thinking jobs, and hence more compensation because of increased productivity.

It also means that we must face the reality that our current labour laws actually end up creating a worse future for labour than the present we are trying to protect.

So I consider the IDT and labour laws major stumbling blocks to productivity, because they allow labour and capital to remain unproductive. This has resulted in more informal labour and less hope of pensions and health benefits accruing to workers.

So eventually the fiscal accounts will be caught with these gaps, which will mean greater taxes in the future.

This is not to say that unions are not relevant in protecting against any advantage being taken of workers, but they must be provided with an environment that promotes productivity and prosperity for their charges.

It is only by taking bold actions to address our present labour and industrial environment that we will begin to see an increase in labour productivity. And if labour productivity increases, then capital and labour compensation will increase. This will in turn increase standards of living.

But this cannot happen with just tinkering at the edge of the problem. Government must take the bold and decisive decision to do so, just as the decision was taken with the ZOSO.

Jamaica's growth and development can only happen when we accept the future of what will develop with labour markets and start to think about how we will make the Jamaican worker more productive, and not rely on “artificially created labour” and short-term impact measures.

Friday, September 01, 2017

Jamaica's lack of disruptive thought

The Jamaica Observer's editorial on Tuesday appropriately addressed the issue of the lack of “big” thinking, which has plagued Jamaica and resulted in a lack of development.
The Observer yesterday reported on the PIOJ press conference, which announced an estimated growth of 0.3 per cent for Q2 2017 (April to June), which followed a 1.4 per cent decline in Q1, as reported by STATIN.

The editorial, in my view, is fully supported by the PIOJ press conference. Dr Henry reported that in the short term, the reliance on growth would be on the expected construction on the Alpart plant, and that the risks to growth remain weather conditions and any oil price shocks, primarily.

This is the same thing we have been saying from as far back as I can remember, even while the world has, and is, changing around us.

In other words, for 40 years or more, Jamaica has been doing the same things, in a rapidly changing world, but expecting different results. Governments come and go, and they make grand announcements, but the same growth and market inefficiency issues remain.

So one could look at the last 10 years of the Global Competitiveness Report, and crime, bureaucracy, tax rates and corruption would feature among the top five impediments to doing business.

What is more, these four consistently account for upwards of 40 per cent of challenges to doing business.

It is this same attitude to governance that has caused the problem, not only with the Hip Strip, but with tourism decay in general. One may say that we have been increasing the number of tourists that visit the island every year, and that may be so. But within the context of a growing tourist market, cheaper and more accessible air travel, greater income levels and spend by tourists worldwide, and importantly, very good tourism offerings, particularly by our all-inclusives — have we really kept pace and achieved what and where we should be?

It is the attitude that ignores indiscipline (including illegal vending and harassment); the attitude that ignores infrastructure maintenance and development (because of our short- term fiscal thinking); and the attitude that ignores the foundations of crime (squatting and lack of order), that have kept us back and have us talking about negative 1.4 per cent growth, followed by 0.3 per cent growth.


Let us be clear: 0.3 per cent growth, based on the sacrifices we have made, the potential we have, and the growth we are seeing in the global economy, is shameful.

In fact, one could say it is within the margin of error, and when STATIN reports the final numbers, it could very well be negative.

With all of this, we still keep doing the same things and expecting different results. And maybe it is because successive governments think that even if the fiscal accounts do not perform well, all they have to do is raise taxes. Well, they have basically been doing so every year, and still we are reporting — 1.4 and 0.3 per cent growth rates.

Another example is the recent announcement by TPDCo to instal anti-harassment officers, which is being done for maybe the third time. But after a while you see the officers blending in with those doing the harassing, and as usual, “Jamaica - no problem”.

I am not saying that we have not had development in Jamaica, but I am saying that we are underperforming significantly compared to where we need to be. This is primarily because of the mindset that we have, and have had, towards governance.

In other words, what we need in our governance is “disruptive thinking”. And we had that when we put EPOC and ESET in place. Both teams have seen tremendous success, and made Jamaica the “poster child for IMF reform”.

This means that we are more than capable of moving the economy forward, and one has to therefore wonder why we can't achieve more.

Sadly, this is because of what the Observer editorial referred to as “lack of big thinking” or I would say “lack of disruptive thinking”.

If we are going to go for significant development and growth, and by extension improved living standards for all, then we must change the way we do things.

We cannot continue to be impeded by a set of procurement rules that cause more opportunities to be lost than costs saved; we cannot continue to ignore the indiscipline on the roads, such as the traffic lights that have become mini shopping malls and centres of harassment; we cannot continue to ignore the zoning laws and night noises; we cannot continue with labour laws that encourage an unproductive environment and the resultant loss of incomes; and we cannot continue to blame and restrict capital from working to develop the lives of Jamaicans, and as soon as someone starts to do well we tax them back down to a level of mediocrity.

And if we are going to achieve consistently high levels of growth, we have to recognise that the world is changing around us. So our growth strategy cannot continue to be to rely on “big” one-time projects, and not realise that we have to change our approach to agriculture because of climate change; we have to change our approach to growth inducement strategies; and we have to stop incentivising where we do not have a comparative advantage and build infrastructure to support those areas where we do.

Our fiscal policy must begin to recognise that the more productive capital is, the greater the returns for the economy. If we keep increasing the tax burden on capital and people, if we keep putting more and more stringent regulations in place, it follows that our fiscal accounts will fall, leading to further negative growth.

One ridiculous suggestion I heard recently was the recommendation by the National Road Safety Council that a tax be imposed on motor cycle imports to reduce the number of motor cycle accidents.

So, if we are to move beyond the growth we have seen in the first six months of 2017, we must understand that we need to have a mindset change from small thinking to big thinking, or from safe thinking to disruptive thinking.

Otherwise, in 40 years we will still be having the same press conference as the PIOJ did on Wednesday.

Friday, August 18, 2017

Jamaica's gold medal potential

As I watched the World Championships and saw us not medalling in events we were expecting to, I really did not feel as disappointed as the many individuals whose comments I have read and heard about. Some of the comments were nothing less than ridiculous, blaming the athletes, as if someone “put the medals down for us” prior to the event.
What I witnessed was a set of young athletes who went and did their best; and, fully understanding what goes into the preparation for such competitions, I was extremely proud of all of them.

I myself, being someone who engages in endurance sporting events and competes occasionally, understand what the body goes through and the pain one feels, and the necessity to be precise with your preparation. So when I heard Blake mention that the organisers had them waiting for 45 minutes in cold conditions, I thought to myself that this is what happens when you put people in charge who have no idea about sports, apart from what they read.

It always amazes me that professional sports is one of the only professions where one doesn't need experience to be an administrator. Many times people in administration are people who have never competed or played in any sporting event.

Over the past 12 years, we have had a cadre of athletes, led by Usain Bolt, who have all made Jamaica proud. In fact, as Leighton Levy pointed out, as far as historical records can show, no other country (especially given our size) has dominated athletics globally the way we have done.

So nuff-nuff respect to Bolt, Asafa, Yohan, Shelly-Ann, VCB, Carter, Melaine, and all those other athletes who competed at the highest level for us over the past 12 years. They have made Jamaica extremely proud, and have helped to place us as a global brand, just like the late great Bob Marley did.

In fact, it was the individual and team performances of these athletes that have given Jamaicans hope (eg 1998 World Cup qualification), and not the people who have been elected to do so. Our greatest hope and inspiration have come from our athletes, musicians, and business people, while our greatest letdowns have come from our politics and those elected to lead us.

But even so, the politicians are the first to pounce on the opportunity for popularity from these individual Jamaicans, often posing with them for pictures or having welcome-home celebrations or parties. And these Jamaicans deserve all of that and more for making us all proud to be Jamaicans, despite the mayhem and bad reputation created by our crime and inefficient bureaucracy.

My greatest disappointment with the Championships was not the individual performance of our athletes on the track, but what has been reported about the quarrelling in the camp. I am personally fine with seeing our athletes do their best and not medalling, as even if they make a final, remember they are amongst the top eight in the world, and many of those who criticise them can't even go through a training routine with them, and have no idea about what sacrifices they have made to get there.

My other disappointment is that the younger athletes do not seem to have the mental toughness that I see in the now older athletes, such as what we saw in the spectacular feat by Bert Cameron at the 1984 Olympics. That mental toughness is what most times makes the greatest difference, as one thing we forget as a country many times is that while we are celebrating our victories, other countries are planning and preparing to take our crown away.

This was the case with West Indies cricket, which we once dominated. I was going to Sabina Park from I was eight to watch the great Rolls Royce of West Indian bowling Mikey Holding with the other three hit men in the pace-bowling attack, and the finesse of people like Viv Richards, as he thrilled us, making test cricket have all the excitement of one-day cricket.

While we were on top, however, countries like Australia were planning a takeover with their cricket programmes at home. And as usual, our cricket was hit by administrators who didn't understand what was needed to sustain our dominance.

And so, just like athletics, or even after we qualified for the World Cup, there was little if any infrastructure investment made. If you look at the areas where we have or have had a competitive advantage, we find that most of the investments made in infrastructure have been done by private individuals, such as MVP or Racers. There have been few if any strategic infrastructure investments made by the government, even though we are a world leader in many of these areas.

The fact is that we have been celebrating Bob Marley, and his value-added for Jamaica, but wouldn't it have made sense to make some serious infrastructural investment around his community (Trench Town) as a major tourist attraction? We see where the Bob Marley museum was the first place Obama visited, which shows the attractiveness of Marley, but still we have failed to capitalise on this icon.

When we qualified for the World Cup in 1998, that was certainly an opportunity for some proper infrastructure investment in football fields across the island. The Reggae Boyz were globally recognised, just like the bobsled team.

Over the past 12 years, we have dominated athletics, and had the fortune of the greatest sprinter ever, and the man with the most sub-10-second times. Yet, has there been any strategic investments in track facilities, or even serious investments in GC Foster College, where we agree that much of the expertise that lay the foundation has come from?

And outside of sports, I go back to tourism, which earns us more than US$2 billion per annum, but we allow the degradation of the infrastructure in the tourism capital, and the rampant indiscipline to exist, allowing for example the traffic lights at the end of the Hip Strip to become an unofficial shopping mall.

Jamaica has true gold medal potential as a country, which can go way beyond individual accomplishments, which is what has built our brand. We have the potential to be fully recognised as the greatest country on earth, but we must overcome our governance challenges and take deliberate actions to capitalise on our areas of advantage and success, not just through celebratory activities, but investment in our people and infrastructure.

Friday, July 14, 2017

Does Jamaica have a resource constraint or management problem?

Many times, when things are not done properly in Jamaica, the common cry is because there is a lack of resources. The impression being given is that because resources are constrained, that is the reason for many of the challenges we face as a country.

So a few weeks ago, in a conversation, I expressed dissatisfaction that there are drivers with more than 1,000 outstanding tickets. The excuse was that we did not have enough resources to follow up on all the outstanding tickets. Then just two days ago I was told that the high crime rate in a certain parish is because the police lack the resources to properly address the crime problem.

If these arguments are to be accepted, it means that we will never be able to solve the challenges we face. The fact is that every Government and business I know has a resource constraint problem. When one is running a private business, for example, you will always have a resource constraint and will have to make choices about which initiative gives the greatest value added, and also how to best manage your resources to produce maximum benefit (returns). Failure to do so will result in the business being uncompetitive and ultimately failing.

In my view, it is this failure to manage the resources of the country properly that has led to so many of the challenges we face today - such as high crime levels, countless informal settlements, deteriorating infrastructure, and the list goes on. In other words, it is not the lack of resources that has led to these problems, but rather the failure to efficiently manage the country's resources.

Whenever there is a shortage of resources at the fiscal level, our solution is not to consolidate our public sector operations, or see how much more efficiently we can deploy existing resources. The fiscal solution is always to look at who is doing well (because they have managed to efficiently manage their resources) and raise taxes on them, demonstrating the intellectual vortex that too many of our policy makers have found themselves in over the past 45 years at least.

The result of this approach is no different than if a private business were to mismanage its resources and then when it needs more, seek to raise prices on its customers. The result is that the customers go elsewhere to spend their money and the business and employees suffer.

Similarly, when we raise taxes every year and fail to provide a suitable environment for businesses to flourish, and for people to live, then capital moves either outside the country, or to other unproductive investments, the fiscal accounts suffer, and people lose jobs.

So in the case of the person who told me that the problem the justice system faces is lack of resources to go after so many people with more than 1,000 tickets — wouldn't it be prudent to identify even two such people and ensure they are brought to book and made an example of? Then the probability that others would comply would increase.

Then there are those who believe that there are not enough police to monitor the traffic indiscipline. What about implementing cameras at the hot spots for indiscipline and identifying a few offenders and making examples of them?

Also, if we are going for growth, then doesn't it make sense to focus on the things we are already doing well and maximise the value from them? I think of tourism, for example, where the emphasis is always on increasing the number of tourists to the island without improving the value of the product offering, unless of course done by an all-inclusive, which is also hampered by the country environment.

Because of this lack of focus on improving the value, I understand that the average repeat visit to Jamaica is 1.2 times, compared to a world average of maybe three times. If this information is correct, then it means that visitors on average do not return to the island. This was a sentiment expressed to me by some senior visitors to the island, who said two things.

First, they said that Jamaica is a powerful brand and the envy of many, but that because the brand is so powerful the expectations are high, and when people visit the island and are met with harassment, a dirty environment (such as what is happening at the Hip Strip), poor public transportation, aggressive behaviour from our people (such as the peddlers at the traffic lights, etc), they become disappointed because the high expectations are not met.

Just think of going to your favourite restaurant and the food is not up to the usual standard. What would be your reaction?

Secondly, they spoke specifically about Jamaica's high departure tax, which is causing uncompetitiveness. In particular, they referred to the fact that many of the tourists come on charter, and when the travel companies sell these charter flights they do not quote the departure tax as they want to be competitive. So the person telling the story said she came on a charter flight, and when she was leaving Jamaica she discovered that she needed to fork out departure tax of more than US$80 and was totally unprepared for it. Her question was, “Is that the final farewell that we want to give to our visitors?”

Wouldn't a better approach to increasing tourism value be to improve the environment (think about the Hip Strip as an example) and then rooms could go for US$500 instead of US$250 per night, more people would venture outside the all-inclusive to spend in the local economy, and make Jamaica a higher-value, more attractive place to visit? In other words, think about maximising the resources we currently have rather than going for increased quantity, which costs more to do.

This is going to take a different mindset, such as changing how we think about taxes, so that we try to get more taxes from increased activity and lower rates, rather than seek to increase rates every year and limit the potential of increasing activities.

Friday, June 30, 2017

Failure to tame crime monster costing Jamaica dearly

It is a well-accepted fact that crime — the number one impediment to doing business in Jamaica — is costing us between four to six per cent of GDP annually.
What this means is that, because of our inability to arrest the crime monster, Jamaica, and Jamaicans, are between $56 billion and $84 billion poorer per year because of the failure of our governments to deal with crime.

Put another way, Jamaicans are being taxed more each year to the tune of some $10 billion, when the fiscal accounts could collect additional taxes of between $16 billion and $24 billion annually, if only the Government could tame the crime monster.

As far as I am concerned, the best strategy for us to attain economic growth is to curb our rapidly increasing crime problem. This would create more economic activity, greater investment, more jobs, more tax revenue, a lower debt -to -GDP ratio, and a better living environment, among other advantages.

Think about it. Just by solving our crime problem, we would increase the standard of living for all Jamaicans. So one must ask the question: Why haven't we put the necessary resources and effort behind resolving this issue over the years? Clearly it must be a failure of governance, as the primary reason for Government is to provide security and the opportunities for prosperity for its citizens.

I repeat that this is a failure of governance, because consecutive governments have failed to do what is necessary to create an environment for crime to be reduced.

In an April 2013 article called “If we are to solve our crime problem…” I wrote the following:

“In order for us to get a handle on crime, the first thing we must do is understand that we cannot sustainably solve the problem if we do not have a disciplined and orderly society. In other words, it is difficult to create order within an environment of disorder. So if the parents in a household carry on with unethical behaviour in front of their children, then more than likely the children will act out what they see rather than what they are told.

“…it is always going to be difficult to solve crime if we do not deal with the indiscipline on the roads, the violations of the Noise Abatement Act and the zoning laws, and the littering of the roads. These are simple things to deal with, but unless we address them, it will be like expecting someone to emerge from a mud lake without any mud on them.

“…justice must be swift and low-cost. If we are serious about taming the crime monster, we cannot have a situation where the police make an arrest, take someone to court, and the case takes five years to complete. We also cannot have a situation where jurors go to court and don't even get lunch money or transportation costs reimbursed…

“The police need to treat all crimes as equal violations of the law and act speedily in all cases. So when someone reports domestic violence or praedial larceny, it is important for the police to treat all those cases as urgent. Don't wait to take action until the thief and the perpetrator of domestic violence graduate to more serious crimes …

“The law also needs to be applied equally to everyone. And in this case I am not talking just about the person with connections, but also when we give someone leeway because you think they are numbered among the less fortunate. If you give the small man a chance, soon you find a reason to give everyone a chance, and eventually corruption flourishes.

“It is also very important that before charges are brought against someone or any accusations are made public, proper investigations take place. There have been many cases of people being charged or accused of wrongdoing, but these charges either prove false or lack sufficient evidence. This negatively affects the credibility of law enforcement.

“… Enforcers of the law, such as the police, cannot be seen to disobey it. It is very important that the credibility and authority of those persons… are intact.

“So if we are to solve the crime problem, we cannot just focus on the outcome (such as murder). We must address the root causes of the problem — the main one being a lawless society.”

The irony is that I could have simply republished this article and changed the date, and it would have been just as, or even more relevant, four years later.

The fact is that all these situations seem to have grown worse. Accordingly, the crime threat has also heightened, and is now affecting our number one foreign exchange earner — tourism.

All of this is happening at a time when everyone is bullish on Jamaica, but that “bull” has been reduced to a “calf” on account of the ravages of crime.

This inability for many years to enforce law and order has reduced the attractiveness of Jamaica as a place to live and work. As stated above, it is a direct failure of governance.


Although I have a lot of respect for Tourism Minister Ed Bartlett, his latest suggestion to remove crime from the front page as a solution is ill- advised. It is like the “divine intervention” suggestion.

Crime will not be solved by refusing to highlight it, or by invoking the Lord's help at a prayer breakfast. It is going to be solved by the same methods that we used to deal with our economic problems: facing the reality of the problem and setting up a public-private partnership (EPOC or ESET) to deal with it. The sad reality is that if left to Government alone, the solution will not happen. It needs the involvement of all stakeholders.

I am certainly no crime expert, but what I know is that (1) crime is costing us the opportunity to do the best we can for Jamaica, and solving it is the most effective route to “prosperity”; and (2) crime cannot be sustainably addressed in a society that lacks law and order at the very basic levels of everyday rules.

Friday, June 09, 2017

Political expediency has made Jamaicans poorer

As I reflect on how Jamaica has developed, it reminds me of some parents who, in bringing up their beloved children, try to make life as comfortable as possible for them. The parents give them the best, cater to their every need, and provide them with anything they ask for.Further, the parents protect those children from any possible missteps they may make, to the point where they become very sheltered and unable to face challenging situations. The parents will even attack anyone who tries to discipline those children if they misbehave. We have often read about this sort of thing happening in various schools.

The usual result of all this attention is that the children are unprepared for life and end up underperforming or depending on their parents or other people forever.

This is similar to what has happened in the Jamaican economy. Either because of “Love” for the people, or more than likely political expediency, policy measures have been driven by the need to “give a fish” rather than “teach Jamaicans how to fish”.

Giving the fish is more accepted, as the recipients don't have to do any work, and therefore feel that the politicians really care about them and so will give them their vote.
Teaching someone to fish will of course demand effort on both the part of the political representative and the constituent, and may result in the constituent being upset and therefore not giving the vote to the politician.

The consequence of trying to “teach people to fish” in our environment usually is that anyone who tries to provide people with the ability to fend for themselves, rather than sit back and receive gifts, will not be elected. The politician is caught between a rock and a hard place, as he is divided between doing what is right and losing the election, or doing what is unsustainable and winning the election. Normally they will go for the short-term solution and win the election, but in the end things only get worse.

We have seen this in recent elections — for example, when Holness said there would be bitter medicine, during the 2012 campaign. People were even wonderings how he could be so stupid to speak the truth, which many times we don't want to hear. Or the fact that Phillips took the bold decision to implement austerity measures to save us from economic disaster, and no doubt caused some people to vote against the government at the time.

Capitalising on the “politically na├»ve” remark by Holness in 2012, the PNP went on the offensive and said that Holness didn't love the poor. Learning from this in 2016, the JLP promised that things would get better, as everyone would have $18,000 per month more after the $1.5-million tax threshold.

Again, when McKenzie was mayor, he went on a campaign to rid the streets of illegal vending. The backlash was swift, with persons on social media saying that he needed to stop harassing people who were trying to make a living.

Recently when I wrote about the Hip Strip (a significant part of our main FX earner) becoming a dump, and lacking any order, the responses from social media indicated that I was fighting against people trying to make a living. No concern for the fact that when the Hip Strip gets worse it reduces the real estate value and is less attractive for the tourists, so the businesses will suffer, and maybe close down, just like many residents see their property values depreciate because of roadside garages and businesses being established in residential areas. But not to worry, if the businesses ever try to close down, or downsize and lay off anyone, the IDT will get them and make it more difficult.

But as many Jamaicans (in Jamaica and even in the diaspora, where they have to abide by the rules) would say, no problem with that, just don't fight against a trying man. Let them try that in the US or Canada though, and they would be keeping company with Bernie Madoff.

Because of this attitude, and the need for politicians to survive, we end up with policies all the time that focus on welfare rather than productivity.

Is it any wonder that Jamaica's labour productivity has been consistently falling since 1972? Is it any wonder that our GDP per capita is around US$7,000, while small Antigua's is US$18,000? Is it any wonder that we have 180,000 households reported to be stealing electricity, while the compliant pay for it? Is it any wonder that 40 per cent of our population is made up of squatters?

As long as we have this demand and supply relationship, then we will only be moved to do what is necessary when our back is against the wall, as was done in 2012 with the IMF programme. And then again, it only worked because of the public-private partnership through EPOC, or ESET. Relying on the public sector institutions alone has never worked. Not because there are not very talented people in the public sector, but systems like the procurement process severely restrict what can be done, while more and more money is thrown at replicating studies done too many times to mention.

What we will have to do is to try and break this cycle, as was done with the economic downward spiral in 2012. This means that government policy should be focused on doing what is necessary for driving long-term growth and sustainability, which will mean that short-term welfare will have to be reduced to only what is essential, and not the practice of creating policy that makes everyone poorer.

For example, why have we not been able to see the need to enforce general law and order, such as road discipline and noise pollution? After all, these create the breeding ground for graduation to more serious crimes. Why have we not been able to deal with the labour laws that create lower productivity? Why have we not been able to deal with illegal vending? Why do we push aside common sense long-term development policy for short-term resource distribution?

Because of this welfare politics, governments since the 1970s have created policies that limit productivity and create poverty throughout the economy. We have not sought to make the future of our people better, as evidenced by where we are, but have sought to cater to short-term satisfaction.

We have made some progress, however, and because of this Jamaica is in a better place than it was four years ago. But we must not get complacent. We must continue to strengthen the institutions that will create long-term development and make Jamaicans better off than they are today.

Friday, June 02, 2017

Jamaica needs a strategic plan for sustainable economic growth

In my view, the last two weeks represent one of the worst periods for economic news in recent times for Jamaica. We saw the report coming out from the PIOJ about the effects of the $1.5-million tax package, which showed the regressive nature of the tax package and the effect on those at the lowest income levels; the non-trial of the Cash Plus/Carlos Hill case after nine years - which once again shows the ineffectiveness and inefficiency of the justice system; the slowdown and slight reversal of the business and consumer confidence survey findings; and the flat first quarter GDP numbers for 2017.

All these made for a very bad period of news for Jamaica, which was only outdone by the self-inflicted nuclear-like effect caused by Donald Trump's tweets.

The truth is that I can't say that any of this is surprising though, and that really is the sad part.
If we look at them individually, we can assess them as follows:

o¨ Cash Plus “non-trial” is really just a continuation of the poor justice system we have, as over the years we have seen many instances of stalled trials, and the truth is that most of the successes we have had are really from “imported justice”, and I guess since we import everything else, why not?

o¨ Effect of the $1.5-million tax package is exactly what we at the PSOJ had indicated would happen, at the time when Mahfood was President, and in fact is exactly the thing that the 2012 Private Sector Tax Working Group report had seen happening and had recommended ways to address.

o¨ Business and consumer confidence downturn is somewhat expected, as coming off the expected euphoria of the tax package, then naturally expectations would decline. However, an even greater long-term concern is two trends I noticed as I charted the indices since 2014. First, the trend since 2014 is that the Current Business Conditions index is always higher than the Expected Business Conditions index, and the one time when they were almost the same was in 2015 when the Current index fell to meet the Expected index. This implies that businesses always have a less favourable view of the future than the current situation. Secondly, for the first time since 2014, the consumer expectation index is lower than the current condition index. Both these indices also have not considered the recent tax package. My understanding is that it features heavily in the research being conducted in the second quarter confidence findings.

o¨ The flat GDP outturn for Q1 2017, while somewhat unexpected, is not a huge surprise, as the drought conditions at the start of the year were expected to impact. The fact also is that whenever agriculture is negatively impacted, the risk to growth is always on the downside.

The challenge we face is that the second quarter may actually be worse than the first - or so it feels.

I say that for a few reasons. The tax package would have been implemented during that period, and we know the outcry surrounding the property tax. The rate of depreciation of the Jamaican dollar had increased, and although not anything to be alarmed about, the psychological impact of $130 could play here. Also I am not sure what effect the continued negative image of US politics is having (such as we see with reduced remittance flows reported in the confidence survey), and finally the costs associated with the recent flood rains, which should continue the negative effect on agriculture in addition to GDP losses.

What we must not do though - as we have done in the past — is dwell too much on our misfortune, but use this as an opportunity to refocus and redouble our efforts.

What we also must not do is excuse the performance with explanations, and not accept the fact that it is our reality.

What we must do this time is keep our eyes fixed on the ambitious target of five per cent growth by 2020, and determine what must be done to achieve this.

What I can further say is that achieving five per cent growth in three years means that we cannot do the same things we have always been doing and expect different results. It also means identifying all, and more precisely, the main impediments to achieve this target, and we must be in a hurry to fix them.

In other words, we cannot work within the same bureaucratic processes and expect to achieve the target of five per cent growth in 2020. In fact, it is this same bureaucratic process that is ranked as the number two problem to business in Jamaica, and so we cannot expect to work within that same system and achieve anything different.

Saying that, we also must realise that just following the IMF initiatives will also not give us the five per cent target. If the IMF model is based on a maximum three per cent growth, then logically it means that we must first ensure we maintain the baseline growth of the 1.5 per cent, ensure the IMF deliverables that will give us three per cent, and also we will have to implement additional initiatives to get us to five per cent.

For me this means saying to the PIOJ, put six per cent growth in 2020 in your model and tell me what I must do to achieve it, and then we have to focus on the major impact and low-hanging items to get to that five per cent. It is only by visioning this target (through the PIOJ model), establishing initiatives and timelines to get there, assigning accountabilities, and going against the system that has stymied our growth, that we will get to the target we desire.

It also means not only seriously taking steps to tackle the obvious GDP robbers of crime (approximately four per cent of GDP) and bureaucracy (maybe another two per cent of GDP), but also doing so in a hurry, which for me means not continuing to allow the procurement system, for example, to continue to keep us underperforming. But at the same time we must hold people accountable for breaches. Very importantly, it also means quickly bringing efficiency and confidence to our justice system.

The fact is that the only logical and realistic path to getting to sustainable economic growth is to chart a strategic plan, after creating a vision of that growth, and realising that to get there we must of necessity do things differently.

Friday, May 26, 2017

Fake flooding

Just over a week ago, sections of the island suffered massive infrastructure and other damage as a result of torrential rains which lasted for several days. It is estimated that the direct damage caused by the floods could be in the region of $700 million, and if one were to assume GDP conservatively at $1.3 trillion, then we could easily add lost productivity that would approximate a further $1.7 billion.

This means that the cost of the rains could be upwards of $2.5 billion, and some suggest it could be as high as $4 billion.

Of course, this does not take into account the negative social impact which will result from people having to recover from tremendous personal losses.

The devastating effect of the rains, however, is no real surprise, as for many years now we have been neglecting our capital infrastructure. This neglect has been somewhat expedient, as our attempts to recover from our deep economic woes left us with little option but to reduce capital expenditure, among other things, in order to balance our fiscal accounts.

During this period, some of us warned that by neglecting our infrastructure, we were running two grave risks:
(1) incurring serious damage - as we have just witnessed, and
(2) scaring off potential investors.

But although the neglect of shoring up our infrastructure is the primary cause of the recent flood damage, the irony is that the real reason does not lie in spending copious financial resources. The real reason is the culture of indiscipline that we have developed in this country — a culture which has resulted from a serious lack of leadership by those in authority, and the fact that we fail to implement accrual accounting in our fiscal accounts.

This culture of indiscipline is reflected in many areas, but the following stand out: the proliferation of informal settlements (where an amazing 40 per cent of Jamaicans are squatting); lack of proper zoning plans and approvals for developments; and practices like incorrect disposal of solid waste, which ends up blocking our drains and gullies. As a consequence, flood rains invade homes and businesses as the water has nowhere else to go.

All of these practices are attributable to successive administrations over the past 40-plus years, and no one can take full credit for it, but all who have been in government (especially at the local government level) must accept responsibility.

Both Prime Minister Holness and Dr Phillips have recognised this, and have said so publicly, with Dr Phillips stating quite bluntly that all those who have been in government must accept responsibility.
Holness has also said that illegal construction on river banks must stop, and I think he should go further and say that illegal settlements must also stop.

The Government must now give a timeline for remedying this situation of poor local government control over planning and zoning, what measures will be put in place to prevent illegal settlements, and how our population of squatters will be properly housed.

Apart from the severe threats to the infrastructure, it is inhuman to have a society where so many people must resort to squatting. What this speaks to is a failure of governance. But I guess this is what people vote for, and so there is some personal responsibility; just as the Trump supporters must now face the consequence of lost health care and other benefits.

Although there must be consequences for people who continue to live in illegal settlements, or to make a living from illegal vending, we also have to drive policy that creates alternatives. So if we are going to tell people not to vend or squat illegally, then we must also ensure that there are properly maintained markets (again a local government failure) and available housing solutions.

So we can't, for example, proclaim with great fanfare the construction of new hotel rooms without announcing accommodation for workers, as is the case in Montego Bay.

Funds from the NHT should be used to provide housing solutions and help to grow the economy, instead of being used to support the fiscal accounts.

We also must pass appropriate legislation and regulations for the revised anti-litter law, which will see a significant increase in fines for people who illegally dispose of their solid waste. If citizens insist on this practice, then they must pay heavily for it.

The second point made about accrual accounting may not seem like much to most readers, but as an accountant, I believe that failure to do this leads us to have a false sense that our financial house and assets are in order.

Accrual accounting addresses this by making provisions such as depreciation, so that when it comes time to replace the asset, you would have provided for the full cost after its useful life. So if you buy a new car today for $5 million, and it has a useful life of five years, you would provide in your accounts for it by putting aside $1 million per year for five years, thus ensuring that at the end of the five years you have the $5 million to replace the asset. This, of course, is a simple example, as one has to consider inflation, etc.

Contrary to this though, our fiscal accounts are prepared on a cash basis, so at the end of the fiscal year, the fiscal accounts do not consider assets to be replaced or monies owed to suppliers of government.

So one way that we famously balance the budget is by (1) not spending on our infrastructure (spending less capex than budgeted), and (2) not paying vendors when they supply goods or services.

As an illustration, I went to a gas station where there was a sign reminding the staff not to accept Advance cards from the Government.

The result of not using accrual accounting gives us a false sense of security about our finances and capital infrastructure.

So in my view, the recent rains resulted in what I call “fake” flooding, because the flooding is really just a symptom of what over the years has been poor governance, or one could say “fake” leadership, which we now have an opportunity to address based on the utterances of both Holness and Phillips.

Friday, May 12, 2017

Structural limitations on Jamaica's growth potential

The Prime Minister recently spoke to the need for sustainable growth that is equally shared by all, and specifically where the average Jamaican can share in that growth. We can, for example, mention many countries where there has been significant growth over sustained periods, and yet still they suffer from social and developmental challenges.As an example of this, Professor Hilary Beckles spoke to the situation in Trinidad, where for years they have seen high levels of growth and economic activity as a result of oil, but when the oil prices plummeted, the lack of social development was evident. Today Trinidad has a very high murder rate, as well as infrastructure which does not reflect the type of economic growth they have had.

This is no different from what happened in Jamaica after the cushion of the bauxite money left us. What it showed in both cases was that the authorities did not focus on economic and social development. Everyone knows that the best time to prepare for a hurricane is before it comes, not after it strikes. That is what the failure of governance in both these cases has demonstrated.

This type of preparation can only happen if a very deliberate and systematic approach is taken. This is also the type of approach that is needed for growth targets to be met. My impression is that we don't really apply a scientific approach to reaching growth targets, but rather we just “do some things” and hope that the target will be achieved.

Because of this we haven't really taken a serious approach to understanding and attempting to remove the structural deficiencies that prevent growth from happening. In fact, growth imperatives take second place to any political expediency, and as a result if we “buck up” on growth we are quite happy, but I can't honestly say that any deliberate and urgent approach is taken toward economic and social development, as it is much more than just growth.

For example, in December 2014 I wrote an article titled “Great need to transform Jamaica's labour force”. The article ended by saying that real sustainable growth “is only possible if we transform our labour force into a highly productive one, which means taking the necessary steps to do so.”

To date, however, not much has been done in terms of implementation. As a result of this, last week an article appeared in the newspaper, lamenting the fact that employers are finding it difficult to find sufficiently qualified workers. We also know that the BPO sector is limited to some extent because of the inability to find suitably qualified labour.

If I could see the need for transforming the labour market for growth from 2014, then I cannot for the life of me understand why our policy makers have not been able to do what is necessary to ensure that we would have met our growth requirements in 2017.

Or is it that although we projected growth, we really didn't believe that it would happen?

If unemployment is such a significant problem, why have we taken so long to take the necessary steps to train people for the jobs the economy will need, and by doing so create higher value employment and improve their earning power?

This shows that we don't really have an unemployment problem. What we have is a problem of the failure of leadership, as regards policy and execution, to create opportunities for people. Unemployment is merely a problem of that leadership failure.

The other challenge with our labour force is that our labour laws create lower levels of productivity. So the biggest problem that private sector companies complain to me about is the Industrial Disputes Tribunal (IDT).

This for me is a significant contributor to preventing increased productivity, because company owners have said that even if they have evidence of theft by employees, the company will still lose the case when they go in front of the IDT. The problem with this is that employers will shy away from long-term contract employment, and use technology to replace labour where possible. In the end the labour force suffers.

In addition to the structural problem of our labour force and its attendant legislation, we also underestimate the limiting factor of the indiscipline and general level of lawlessness.

I cannot for the life of me understand why we have not approached this with greater urgency, as major crimes can only thrive in an environment like this.

I also do not think they read the IDB report a few years ago, which stated that traffic congestion is the number one limiting factor of productivity in Latin America and the Caribbean region.

If we were serious about it, why for example have we taken so long to pass the new Road Traffic Act?

The approach to achieve high levels of sustainable growth seems very straightforward to me. It is a matter of going to the Planning Institute of Jamaica, and asking them what it will take to sustainably achieve economic growth of five per cent and above, in addition to addressing the social development issues. The PIOJ has a model that can provide some answers as to what would need to be done.

Once those strategies are identified, then what we should do is put initiatives in place to focus on the high-impact areas that will give us the greatest growth impetus. This may mean new legislation or some displacement of people and structures, but if we plan properly we can help people to transition to higher-value employment, and put in place much more efficient structures and institutions.

If this had been done in 2014, or before, we would not now be talking about the 12 per cent unemployment and high crime levels, while at the same time having employers report that they are having a difficulty finding suitably skilled and qualified workers.

Friday, May 05, 2017

Jamaica's poverty of the mind

Last week, members of the private sector met with Dr Alvaro Uribe, former president of Colombia, who was invited to Jamaica by the Economic Growth Council (EGC). At the meeting he said two things which resonated with everyone present, and which indicate the significant headwinds that have challenged our development.

Firstly he said that, if a Government does not create wealth, then the only thing they can distribute is poverty. This we are only too familiar with, as for the past 40-odd years, Jamaica has not created any wealth, even though our politicians have continuously sought to redistribute income from the most productive to the least productive. These failed “welfare” policies have resulted in fiscal deficits, low growth, trade deficits, devaluing currency, high crime, etc. This is the proof that our fiscal policies over the years just have not worked.

Secondly, he said he once had a conversation with Hugo Chavez, who told him that Venezuela does not need the private sector as they have oil. Well, we see where they are today, and to a much lesser extent this attitude against capital has also been a challenge for Jamaica.

Because of the desire to look like Robin Hood, many of our political decisions and policies have centred on “taxing the big man to give the small man a break”. What we have not realised, until recently, is that policies built on that principle will only cause everyone to become a small man. In other words, such policies will lead to impoverishment for all of us. This is what has happened to Venezuela, and the main reason for that is that we have not yet found any more efficient ways of creating value than the market forces.

In addition to those comments, we heard the minister of security say recently that an amazing 40 per cent of Jamaicans are squatting, and a recent editorial dealt with the high percentage of students who cannot cope with secondary or tertiary-level education because of poor grounding at the primary and early childhood levels.

Last week when I wrote about the lack of structure and degradation of the Hip Strip in MoBay, one person sent me an email to say that I am fighting against the small man who is trying to make a living. Obviously this person is caught up in a mentality of impoverishment, as he cannot understand that the way to “prosperity” is not to keep people at almost subsistence levels of living, but to expand the opportunities and teach everyone to take advantage of them.

The Prime Minister hit the nail on the head when he recently spoke to the fact that economic growth without social development is undesirable. And Hilary Beckles agreed by saying that this is what has happened in Trinidad, because while they were seeing high levels of growth, they failed to develop the social infrastructure, and so many were left behind with very low moral standards on top of it. Sounds like how we have developed in Jamaica, doesn't it?

As I reflected on these things, I compared it to conversations I have had with many successful business leaders, such as Hon Dennis Lalor, Hon Butch Stewart, Don Wehby, and Butch Hendrickson. These are people I enjoy speaking to and working with, as when you speak with them you get a different perspective on development, than for example the email I received about fighting against the small man on the Hip Strip.

And I would extend that even to some politicians, who suffer from the same “poverty of the mind” as the person who sent me the email.

This “poverty of the mind” is in fact what is holding back Jamaica. I have always maintained that poverty is more defined by how we think than the physical assets we own. When you listen to the stories of many of the very successful business people in Jamaica today, who were by societal standards economically poor, what you pick up is that even though initially they did not have material wealth, their minds were very fertile and prosperous, and that is what allowed them to become successful.

The irony also is that many people who say the rich should be taxed to help the poor man don't realise the difficulties they had to overcome to reach where they are. One trait I find among all the moguls mentioned above is that they never thought they were entitled to anything they didn't work for.

A serious problem that we face in Jamaica is a culture of entitlement that is ingrained in some of us. I saw a woman with nine children on the TV news one night, saying that she is suffering and the Government has done nothing to help her with her nine children.

Or we can even look at middle-class people who are in jobs and think that the employer owes them a favour, and so if they do what they are employed to do they must be compensated, or feel an entitlement to extend a long holiday weekend. And if the employer should dare to dismiss them, then they simply take the company to the IDT, where most times they will win.

Of course, this culture of entitlement receives strong support from political platforms, and is supported through legislation such as our labour laws which encourage unproductive behaviour and informal employment.

Over the years many have been mystified by the fact that despite Jamaica's obvious competitive advantages, such as in music, sports, bauxite, tourism, etc, we are still unable to develop as a country. Blessed with all these natural advantages, why are we still a poor country? Little Antigua boasts GDP per capita of US$18,000, while a much larger, resource-rich country like Jamaica is struggling at a mere US$5,000.

Or we wonder why indiscipline runs rampant in Jamaica, along with crumbling infrastructure and high crime. Why are we able to produce some of the best musical artistes in the world and the best athletes globally, yet with all of that we are still poor and struggling with economic and social challenges?

The problem is that we suffer from a poverty of the mind, which has been fed by the direction of some of our leaders over the years. The comment by the PM is to me a signal of this recognition, and must now be backed up by action.

If we are to move forward - one example being the development of the Hip Strip - it can only happen if we change our mindset, and stop thinking about poverty as our priority (such as what we can do for the poor) and start thinking about wealth creation (such as how we can make everyone better).

Friday, April 28, 2017

Invest in the infrastructure to drive growth

Last Easter Sunday seven of us decided that we would do the 111-mile cycle ride to Montego Bay.Of course I had to eat at Peppa's as soon as I got there, which I think is one of the best kept secrets in Montego Bay, and then stayed at my friend, Terrence Jarret's Altamont West, located right on the Hip Strip, which I haven't visited in a while.

After showering and resting for a while, I ventured out to meet a friend of mine who was visiting from overseas, to have a quick chat and then head back to the room for a good sleep.

I deliberately stayed on the Hip Strip because I could just walk from the hotel to meet up with my friend. Everything had gone well so far: We had a great ride to MoBay, ate good food, the room was good, and after the meeting I thought I'd just walk back to my hotel.

Everything was good until I started walking along the Hip Strip. This immediately struck me as urban decay in action.

The pan chicken and other vendors had all taken up residence along the side of the street and even under the bus stops, allowing little room for any pedestrian traffic.

The sidewalks had obviously not been repaired in many years, and one could see the concrete breaking up. The roads had been cleaned but were badly stained from the vending activities that take place there night after night. And the traffic was horrendous, with taxis stopping wherever they pleased.

I thought to myself: “This is a prime example of why we find it so difficult to develop the country.” Tourism, as we know, is the number one foreign exchange earner (apart from remittances which are not based on productive activity, and Trump may soon reverse that).

Additionally, Montego Bay is the tourist capital of Jamaica, and the main area of attraction has always been touted as the Hip Strip. So in effect this strip could be referred to as the proverbial “goose that lays the golden egg”. But it seems as if we are trying to strangle that goose.

I cannot understand why we do not have a grand vision for the Hip Strip. If we do, why has it not been implemented? I can picture the Hip Strip as a well-kept road, where only pedestrian traffic is allowed, or specially designated shuttles, operated by the Tourist Board, paid for by advertisements displayed by tourism interests. The sidewalks and streets are well maintained.
No vending is allowed, and the type of business activity is well regulated. Against this backdrop thousands of tourists are traversing the Hip Strip 24 hours a day, and because of this experience the cost of a room is double what it is now, which means soaring real estate values.

In essence, the Hip Strip would become a global tourist attraction. However, once I wake up from that dream I come to the realisation that the Hip Strip is being allowed to go the route of downtown Montego Bay, which is dirty and absolutely chaotic.

Urban decay has been allowed to creep into residential communities because zoning laws have not been implemented; inadequate planning and the support of the “disturb my neighbour mentality” prevail as loud music is the norm across the country, with no regard for the citizens who want to enjoy the peace and quiet of their homes.
This is another assault on the market value of real estate across the country, as if we are not satisfied with the decay we have brought to the garrison communities in defiance of the euphoria and vision that Jamaicans had in 1962.

But let's not stop there, because we have allowed this same type of decay to beset downtown Kingston, which we are now trying to redevelop, while at the same time allowing the decay and indiscipline to creep into New Kingston.

New Kingston is now a place where many people say they dread going to because the sidewalk infrastructure is decaying; homeless people loiter on the streets all day - some establishing car wash businesses on the streets, in addition to the begging; the parking restrictions are ignored and whenever you go there, a line of illegally parked vehicles can be seen (even though there is a police post); and then there is the traffic which is blended in with the reckless driving.

For too long (for fiscal and other reasons) we have ignored the infrastructure and have been underspending, and it is important to reverse that trend. Think of it like a balloon.
A balloon can hold a certain amount of air in it, depending on the size. If you put more air than it can hold, then it will burst, and this is an undesirable outcome as you will lose both the air and the balloon. Similarly, economic growth is like the air in the balloon, and the capital infrastructure is the balloon.

In order to expand your economic and social development, infrastructure is important. So if we think about the tourism product, it is not going to be possible to increase the tourism value added if we do not improve the tourism product. And the tourism product cannot be improved unless we put the necessary infrastructure in place to support the improvement.

So the all-inclusives, such as Sandals, and similar hotels which have done a fantastic job with a fragile environment, cannot grow geometrically if we do not provide the environmental infrastructure to grow. Even on a micro level, can you imagine the growth in tourism we would see if we could improve the infrastructure and environment around the Hip Strip - even without developing beyond that, though that too is necessary.

Or can you imagine the growth in business and real estate values if we were to halt the decay in New Kingston and solve the traffic problems?

As far as I am concerned, this is a sound argument for the use of funds like the TEF and NHT. We shouldn't only be talking about using these funds for fiscal support.

We must think outside the box and start envisioning what is possible if we properly utilise these funds to provide this environmental support, and find the will to instill the discipline and order that we need.

What I am certain of is that investing in our infrastructure will increase our capacity for growth, and allow us to see the geometric expansion we need, rather than the incremental growth we have become accustomed to.

Monday, April 10, 2017

Jamaica's opportunity to shine

A few years ago someone asked me what I was passionate about. I mentioned that one of the things I really am passionate about is Jamaica and Jamaicans. It is that passion for Jamaica and to see Jamaicans in a better place that often drives me to write and make comments, as I think this is the best way I can contribute.

I really believe in the potential of Jamaica, and when I speak at any event overseas I always try to portray that. Recently I was at a regional conference and spoke to what Jamaica has done since 2012 in transforming our economic fortunes, and what I discovered was that many people are aware of our progress and have a lot of respect for what we have done. We need to understand that this was no easy task, and people overseas understand this much more than we seem to.

Where we are today is undoubtedly one of the best opportunities we have to shine, and I can’t remember in my lifetime such an opportunity. Speaking to people who are older than I am, I get the feeling that we are feeling somewhat like we did in 1962 — the year we achieved independence.

At that time, I am told, there was a feeling of invincibility - a feeling that we could achieve anything we wanted. History has shown us that those responsible for charting that course have messed up badly, and they have to live with that. Today, however, I think we have a chance to once again realise that dream, and if we do not do so now, then I am not sure we will be able to do so any time soon. So we must ensure that we grab the opportunity and “run with it”.

In order to do so, it will take extraordinary leadership. Note carefully I said leadership, not management. Because it won’t be about just checking some boxes and saying that we have completed a set of tasks or initiatives. What it will require is leadership that will mobilise and motivate the people to be the best that they can be. This is the resolve that the Government will have to find to lead this country on a path to real prosperity and development, which means allowing people to reach their full potential and success by their own efforts - and not through handouts as we have come to think development means.

At the present time I think that both political parties have two leaders who are capable of delivering on such a vision. Andrew Holness and Peter Phillips — both of whom I have a lot of respect for — have the ability to lead that change via different paths. Based on my interactions, I believe they are both committed to seeing a better Jamaica. But commitment alone never got anyone anywhere, because in the end it is how one leads and manages to mobilise his/her team that will make the difference.
Team in this case means all Jamaicans, not just the ones who vote for either side. This distinction is very important, as too often we act as if there are two Jamaicas, and one can survive without the other.

One of my greatest fears is that I will become mentally disabled and unable to think properly — an affliction that overcomes many coherent people from time to time. As far as I am concerned, anyone who defends a party position irrespective of the illogic behind it suffers from some form of mental disability and lack of independent thought.

In the past I have voted for both parties based on the agenda that they placed in front of me during the election campaign, because I think that success is not based on the colour of the party flag, but rather on ideas and the ability to lead. As a matter of fact, if one is blinded politically by “party colour”, how can one criticise a racist who is blinded by “race colour”? I am not saying that one should not have political ideals, but just remember that John McCain — a Republican — criticises any perceived wrong move by Donald Trump.

This is the real challenge that the “chosen leader” will have to face. In order for us to move forward as a country, we must unite around common goals and not ostracise someone else just because they hold a different opinion. Sadly, I see this happening all too frequently on social media.

The leadership we need must not only be able to see beyond “party colours” and unite the nation around a common goal, but must also ensure that there is consultation with the people. This does not mean that one must talk to everyone about everything, but a good leader can always feel the pulse of his people. Think about Bustamante and Michael Manley.

This is what I take away from the “Call to Action” report done by the Economic Growth Council when it says that citizen security should be at the heart of our development. This could not be better stated. What we must remember is that nations are not successful because they have fiscal surpluses, stable exchange rates, and highways. Countries are successful because they have successful citizens who live in an environment they feel comfortable in. This is what created the nostalgic feeling in 1962, and it is what we need to focus on if we are to be a truly successful country.

Of course, this means creating an orderly and disciplined society where people feel it is “the place of choice to live, raise families, work, and do business”. Show me someone who goes home and sleeps with his bank account every night and feels satisfied. Show me someone who feels good knowing that he has amassed a lot of wealth but needs to have constant security around him 24/7, or else face possible criminal attacks.

To be a successful country also means not just creating an orderly and disciplined society. We must also create EQUAL opportunities for everyone to be the best that they can be. The circumstances of our birth shouldn’t matter; we should all have the ability to excel based on our own efforts. This means removing the obstacles that prevent people from moving forward - like excessive bureaucracy, taxes, corruption, and crime.

In addition, we must protect our children so that they don’t grow up abused and angry, and we must create an efficient system of justice, where if someone is accused of a crime they don’t spend years waiting to get a verdict.

Like others looking on from overseas, I believe that Jamaica and Jamaicans have accomplished a lot over the past four years, and we have an opportunity to shine. This will require the type of leadership to unite and put every citizen at the centre of all policy decisions.