Social behaviour - the missing link for Jamaica's development

Jamaica Urban Transit Company (JUTC) buses. Chung lauds the JUTC and the Ministry of Transport for their efforts to streamline the bus system.

AS we start the 2014/15 fiscal year with the reports that we have successfully passed all four IMF tests so far, and with a feeling of greater confidence and hope for economic and fiscal improvements, it is also important for us to consider that economic growth alone is not enough for development. After all, our ultimate objective as a country must be social and economic development and not just growth. In other words, we should strive to achieve the mission of vision 2030, which is to make Jamaica the place to live, work, and raise families.

In order to achieve this vision, however, we must understand that while economic growth is necessary, it is not sufficient for development. It is also important that while we pursue the necessary economic, and legislative changes to secure a competitive economic environment, we also focus our efforts on what I think is the foundation for a country's development, which is social behaviour. We will of course remember the "values and attitudes" campaign under PJ Patterson as prime minister.

The reasons proper social behaviour is so important to development should be obvious to all, but suffice to say that whether you are in an organisation or in a country setting, no meaningful development can happen without an adherence to rules / structure and the respect of the rights of every citizen in the country, whether they are guilty of a crime or not. It is on these principles of rules, acceptable social behaviour, and respect for the rights of all, that modern societies are based. And without these at the base of our development we cannot consider ourselves a modern society, but rather one with barbaric norms.

Because how can we hope to be a modern society if our public transport system is a chaotic state of illegal and legal operators who drive how they want and stop anywhere in the road they want? How can we hope to be a modern society if people cannot enjoy their homes, or commute on the street, because there are those who believe that they should contaminate your space with loud music or preaching? How can we be a modern society if we ask a private company (JPS), and the law abiding customers, to subsidise the illegitimate behaviour of stealing electricity? How can we be a modern society where adults sexually and physically abuse children at will?

These are just a few of the socially deviant behaviour types that have become the accepted social behaviour in Jamaica. So we are happy being a country where social behaviour is dysfunctional and not understand that this more than anything else is what contributes to the widening gap between the income levels.

One case that I want to highlight specifically is that of the public transport system, and again add my commendations for the stance being taken by the JUTC and the Ministry of Transport on the need to streamline the system. What we today call a transport system is one where anyone who has the means to purchase or drive a motor car, can enter the market as a public passenger vehicle, endangering the lives of the public (including children); one where taximen and bus operators (including some JUTC drivers) drive as if they are involved in either a formula one or motor rally event; one where there is no proper scheduling of buses; one where there is no colour coding or no proper training of operators to provide uniformity.

The system as it is now not only endangers the lives of the users, other motorists, and pedestrians, but it also causes an economic strain on the country, as people prefer to drive rather than take a disorganised and unsafe public transport system. This then causes traffic congestion, which an IDB study showed that traffic congestion is the greatest inhibitor to productivity in Latin America and the Caribbean. Not to mention the need for imported oil and foreign exchange for car imports.

This is why the JUTC has my full support for the structure that they are bringing to the sector, and should not waiver from what they are doing as we need to stop selling ourselves short just because some may feel that the behaviour is oppressive. I am sure that the JUTC will equitably consider the other side also.

Another area of great concern to me is that of the number of cases of child abuse. This not only contributes to deviant behaviour when they get to being adults, but in most cases results in perpetuating the cycle of poverty and destroying our most important factor of production - our human resources. The long-term effect is continued poverty. Add to this another problem, which is the abuse of citizens by some policemen and then you see that what we are creating is a workforce that is ill-equipped for global competition and productive lives.

Add to these two problems again the slow pace with which our justice system moves, and then we can understand why for the past fifty years we have stagnated as a country, happy with the small crumbs of economic growth we have been able to achieve sometimes. In other words, the lack of discipline and structure, and deviant social behaviour has created a society where ethics are at an all time low (resulting in white collar crime, including corruption); where immediate gratification is more important than long-term planning; and other such issues.

So while we remain optimistic about the economic and legislative reforms being undertaken, which show much hope for a more competitive economy, we must remember that it is not possible to achieve the needed social and economic development (Vision 2030) without addressing the serious social deficit that we have as a country.

Jamaica’s road to prosperity

THE January fiscal numbers reveal a concern that many of us expressed at the start of the IMF agreement: that achieving the primary surplus target is going to be very challenging. The numbers show that up to January 2014, we were some $2 billion behind the primary surplus target of $69 billion, with the more challenging months (February and March) ahead of us. So a lot will depend on the tax collections, especially in March.

What we also know is that many businesses and individuals have seen significant fall-off in income levels, and local and international consumption tax revenues have been lagging behind. We also know that the Government has been making considerable cutbacks in capital expenditure, and to January 2014 we have spent just under $8 billion less than was projected. But even this was not enough to save the primary surplus target as tax revenues were some $13 billion behind projection, showing that it is all going to come down to the tax collections.

Based on this the question on many minds is whether the Government will be introducing new tax measures. It is important to note here that the thought process of the IMF continues to be that what we need is a widening of the tax base and lower tax rates, which implies doing away with special exemptions, as done with tax waivers, and eventually lowering the tax rates generally. This process is already in train.

Will there be new taxes introduced? Only the finance minister can answer that, but in my own view, this would be a very damaging thing to do at this moment when we are seeing improvement in confidence, and very importantly, from where I sit, a lot more interest in entrepreneurial activities from university graduates.

This last point is critical, as what it means is that young people are seeing a better way for themselves by going the route of starting their own business. The problem is that they are not the ones with the loudest voices; those really are the business people and people in the workforce, through unions, etc. The other problem with this is that some of the businesses and people who are having difficulty have that difficulty because they are not competitive enough. On the other hand, there are also many SMEs in particular that have challenges because of still existing inefficient government bureaucracy and government policy.

The challenge we face, then, is how do we distinguish between those who have a genuine problem and those who even, after we make the necessary bureaucracy and policy improvements, still won't be able to survive. And also, how do we help to transform to greater productivity those businesses and persons who are capable of being transformed to greater productivity and efficiency?

This is a challenge that is faced even when one is trying to turn around the fortunes of a company, or person. The fact is that there are some companies and persons who will not be capable of being transformed, and we need to quickly identify those and understand that they are incapable of being saved and put in place other ways to assist them. This could include retraining, refocus, or welfare. In the past we have tried to maintain the status quo, even when there are clear inefficiencies, and what this has resulted in is new taxes and continuation of outdated incentives that do nothing more than cause further pain for all.

On the other hand, there are many that are capable of greater things, as we see many times when companies and persons extend themselves abroad to other environments and excel. And all they need is that government policy to create an environment for them to excel in.

It is for this reason why last week I recognised the excellent customer focus of the TAJ. And also why my message to the Government now is that the most important thing for us to do to transform Jamaica to prosperity is to stay the course. In other words, we must have confidence that the current fiscal policies and legislative and other changes will work, and we must continue on the path with a certain amount of discipline and not panic. So if we see tax revenues below projection, this does not mean that we raise taxes in a panic as this will only result in what we have done in the past.

Instead, what we must do (as the IMF says) is continue to broaden the tax base and lower the rates, to make us more competitive. We must also continue to focus on reducing energy costs; strategically dealing with crime, indiscipline, and transforming the police force for better customer service; and we must address the bureaucracy impediments, such as the development approval process, which is not being worked on fast enough.

We must also continue our focus on legislative reforms to make the environment more facilitative and competitive. So the fiscal rule legislation (which must also include sanctions), insolvency act, and comprehensive tax reform is necessary for the transformation to prosperity.

I have always felt that the primary surplus target was going to be very difficult to meet, and I wouldn't spend too much time right now on whether we do or not. What I think is important is that we continue to do the things that are necessary to move us to a more competitive environment where businesses (and in particular SMEs) can flourish and plan, where citizens feel safe and can be rewarded with success if they are willing to work, where all children have access to a solid education (up to tertiary level), where government bureaucracy is focused on providing excellent customer service (such as at TAJ), and where discipline is maintained.

My own view is that we are on the right path to making all of this happen, and what we must do is filter out the valid criticisms from all the noise that will inevitably come as we go through this period of adjustment. The sign of a good professional is that he/she does proper due diligence and determines a successful plan and sticks to that plan after having ensured that it is the right one. The biggest mistake he/she can make is wavering at the first criticism that comes.

So if we want to get Jamaica to prosperity, then we must also stay the course.

The politics of Malaysian flight 370

A little over two weeks ago Malaysian Airlines flight 370 went missing and has captivated the attention of the world. This is the first time that I can recall in my life hearing of a plane that just went missing, bringing back memories of the mysterious Bermuda triangle. What is even more suspicious is that even with the advances in flight and other technology, 16 days later we are still unable to say what happened to the plane.

And even though it is not confirmed if it went into the Indian Ocean or not, the reports about the difficulty of the search is a stark reminder that even with our significant technological advances, we have still been unable to conquer the ocean here on earth, while we know so much about space, In fact man may know more about space than what happens on the bottom of the ocean.

My own view is that there was no terrorist action involved and that what we might be dealing with is a “zombie” flight, where some event happened that incapacitated the pilots and caused the auto pilot to fly the aircraft in the direction of the Indian Ocean until it ran out of fuel and went into the Ocean. One reason why I believe the aircraft is in the ocean, and not on land, is that the satellite technology we have would have picked up anything on land a long time ago, particularly the military technology.

Even with this situation monopolizing the news, flying still remains possibly the safest form of travel.

Another point of view on this event, however, is the apparent politics behind it.

The fact is that the search for the missing aircraft has turned into a scenario where countries seem to be competing with each other to find out what happened, from the governments to the media houses. The two main countries in the search are China and the US, and some experts believe that China may actually be releasing the information in bits and pieces because they don’t want the world to know of their capabilities, and the US is also tying to prove that they can solve the mystery.

Just think, I the Chinese were to locate the aircraft before the US, then what would it say about the capabilities of China, which has also been gaining steady ground s an economic powerhouse, and is busy acquiring many assets worldwide. In fact the common belief is that China will one day be the new super power.

It therefore may be critical for the US to be the ones to find the missing plane, and cement itself as the world leader. One could say that the reason why China is taking such an active role is because 75% of the passengers were Chinese, but another reason might simply be the need to show their technological capabilities, which are long established in the US.

At the level of the media house everyone media house wants to be the one to report first on what actually happened. So they have many different perspectives, from experts. So here again there is a race to the finish, or should say the start.

Transforming the public sector

ANYONE who has been reading my articles will be aware that I have always been caught up with the need to transform the public sector into a more efficient and facilitative support for private sector development. When I talk about public sector, I don't just mean the persons employed in the sector, but very importantly the rules and legislation, which affect the private sector intimately.

In fact, we need to understand that public sector bureaucracy, and more directly the inefficiency, is a major cause for reduced levels of productivity when compared to our international partners. In the 2014 Doing Business Report, our ranking slipped from 91 to 94 out of 189 economies, in terms of the ease of doing business. Many of the challenges relate directly to the bureaucracy such as registering a business, registering property, dealing with construction permits, enforcing contracts, resolving insolvency, etc. In fact there were no areas that we improved in over 2013, but in the area of registering property we declined by 12 places.

The current reforms that are taking place under the economic programme, such as tax reform, insolvency act, security in personal property, super form for business registration, and many others, will certainly lay the foundation for ensuring the improvement in the doing business index in Jamaica. And so I am confident that from a policy perspective the government is doing much to address the challenges to doing business in Jamaica.

One thing I have learnt in my years of work, is that irrespective of how good the systems in an organisation are -- or put another way even if you have the latest software programmes, the output is only as good as the people who are delivering the service. So in my world of cycling, although having a good bicycle can help with performance, in the end it all depends on the physical and mental toughness of the cyclist. As I have always joked with a friend of mine who used to change his bicycles regularly, because he felt that they would perform better, that after about the fifth bicycle change he should recognise that the problem is not the bicycle.

So, too, in the public sector I realise that the problem with the bureaucracy has in many instances to do with the attitude of the persons to service, and how they see the public. If you see the public as nothing more than some people who must wait until I who have the power am ready to serve them, then this is exactly what contributes to the inefficiency, as service delivery is compromised by that attitude. As an example, I have been in situations where the rules do not facilitate efficiency and the public servant's attitude is that service is utmost and finds a way to deliver good service.

On the other hand I have also been in situations where the rules provide for efficient service but the attitude of the public servant ensures bad service.

So the Development Approval Process does have a computer based system that if used, will significantly improve the time to approve construction permits, but it is the attitude to service of the players that cause the delays. In fact this attitude is a major cause for inadequate growth in the country, as improving the process can add billions to economic activity, resulting in more economic growth and jobs.

It is for these reasons I think that the only way to truly transform the public sector bureaucracy to greater efficiency, is to attack it from the human resource aspect, by (1) ensuring promotions based on performance rather than seniority; and (2) implementing some measure of performance-based pay.

There are two organisations in particular that I want to highlight the good work being done, and the changing attitude to service. The first is the Tax Authority of Jamaica, under the leadership of Ainsley Powell, who has been making significant strives in transforming that organisation to a model for the rest of the public sector to follow. This is my third year of filing my taxes online, and again I can attest to the excellent service attitude and the ease of being able to file my taxes in the evening or on a Saturday morning. In fact, you can start filing one day and complete it another.

There is of course more work to be done in the service delivery at the physical tax offices, and in discussions with Ainsley I know that he is working to improve these facilities and I have seen some marginal improvement.

The second is the police force, under the leadership of Commissioner Ellington. I know that crime is still a problem but I believe that much of the crime is caused by the indiscipline that is supported by many, who lament the high levels of crime, but still support the indiscipline. And the two "in your face" areas I speak to are road indiscipline which is now not the taxi drivers but the persons who hold up traffic while texting or having the phone at their ears) and the night noise (I would like to commend ministers Davies and Guy for their efforts in bringing some amount of discipline to public transport.

But while crime remains a challenge, I believe that the attitude of the policeman to citizens is changing, and also the approach to crime fighting is much more intelligent than we had in the past. There is much more that needs to be done, as there are still instances of police abuse, but I sincerely believe that the attitude to service is changing, and today I feel more comfortable with the police than two years ago.

Therefore as we seek to improve the public sector, we need not go overseas to get some consultant or model to look at, but speak to leaders such as these two gentlemen, and find out from them what their approach has been. Let us use our own Jamaicans who are trying to make a difference as examples.

So if we are to truly transform the public sector, to one that is facilitative of the increased productivity of the private sector and citizens, we must understand that the most important part of good service is an attitude, more than the rules.

Jamaica’s emerging crisis

IN examining whether an organisation can turn around or is a good investment, one would first have to look at its businessmodel to see if it makes sense or not. Secondly, one would have to consider the people managing or working there and what inherent risks exists. This approach will tell you whether to shut down the organisation or attempt to revive it.

So too, with a country, we need to examine its economic model and determine the human resource input, and the risks associated with its development. This approach will tell you of the structural risks that could make or break the country’s progress.

On Ash Wednesday, I went out to Hellshire to get some fish and festival, which I do sometimes, but usually go early to avoid the crowd. Because I did a five hour ride that morning, I was unable to get there until the crowd had already descended and what I saw was quite revealing as it unearthed certain inherent challenges the country has.

Firstly, I should say that my view is that under the current programme, our economic model is moving in the right direction, and Jamaica does have many comparative advantages it can easily exploit for international competitiveness.

There are, however, certain inherent challenges that could lead to an economic and social crisis, which is not unrelated to the crime issues we are seeing.

My first observation is that I believe Jamaica will face a significant health problem and poor nutritional choices evident amongst the young and older people which will definitely lead to a crisis. This is coupled with the fact that many of the persons observed can easily become unemployable, based on the number of young men content with just sitting down to pull on a “spliff” continually or their attitude and dress sense.

Secondly, and most important though, is the apparent absence of values and social skills required for a productive work force.

It is obvious that many of the required values for social interaction are missing, and I saw situations where young children were being exposed to foul language and behaviour, by their parents and older persons, which will negatively impact their values.

In one situation a man was driving with loud music blaring, with the DJ saying how one should treat a woman, in a very degrading manner, with two young boys no older than eight sitting in the back. In another situation a man, dressed with his shorts half-way at his underwear, and a big “spliff” in his mouth was there with a little girl around 11.

The many young children there also lacked the social skills for acceptable values and attitudes required for productive interaction, as they gyrated to the sometimes offensive music, spurred on by the similar actions from the adults.

It occurred to me that the people there represented the masses in Jamaica, and the future of the country. At that moment it was evident why there was so much violence, not only generally, but in schools, and why there were so many instances of child and female abuse. The fact is that this type of aggressive, carefree, and undisciplined behaviour was totally acceptable as the norm.

I also thought that I wouldn’t want my family associating with these people, and learning that sort of behaviour and why there is a class division in the country. I cannot imagine wanting to expose any child to that sort of accepted behaviour. Not to mention also the utter chaos, as there was no organisation around the traffic.

It occurred to me that if we do not do something to address this behaviour then we will not only face a social crisis, but that we will have a workforce that is unable to compete for jobs in a more competitive world. In other words, as was said on radio a few years ago, “one chiney can do five somebody work”.

What this simply means is that even though we are excited about major projects such as the logistics hub and the road improvement, the truth is that if we do not do something about improving the attitude and productivity of our labour force, many of these jobs could be farmed out to foreigners. This is not because of any sinister plot by the government, but because our work force will not have the requisite skills to compete effectively for those jobs.

What we must understand is that as we shift the economy to a more productive one, where government no longer determines who gets what jobs or if one company has an advantage over another, because of political leanings, then it also means that workers need to become more productive.

It is only through productivity and innovation that companies will survive. As a result of this need by companies to survive in a more competitive environment, they will also demand workers that can operate at the highest levels of productivity. Anyone who chooses to hire someone merely because they are a friend, or family, even though they are clearly unproductive is eventually going to have to shut down their business where they are faced with more efficient competition.

A very big part of productivity is attitude, and

not just academic qualifications. I have seen many people with academic qualifications whom I would not even consider to feed my dogs, because their attitude is wrong and also they lack the ability to reason or solve problems. They may end up either kicking my dog or over feeding them.

This problem of attitude also crosses over to social media sites where I see many young adults destroying themselves before they even start working by their posts, not realising that any serious human resources department will always check social media sites before they hire someone, as an employee’s social media ranting can affect the company’s image.

So, when we see this type of behaviour emerging among the masses, coupled with the lack of discipline we see generally (partially driven by the inability of the police to control things like road indiscipline and night noise for various reasons), you can see a crisis of human resources emerging in Jamaica.

Holding back the reform agenda

ANYONE who has been reading or listening to my recent commentaries would realise that I am fully in support of the reform agenda otherwise known as the IMF programme.

Similarly, anyone who has been listening to my commentaries in the past will also realise that I was not in favour of the prior IMF programmes, because I never thought they would have worked.

The reason why I think this current programme stands a better chance than the prior ones, is that I think that the approach this time is a fundamental shift.

The previous programmes focused on providing funding support to prop up the balance of payments and fiscal accounts, without undertaking any structural changes to the economic and social order. In fact, the main theory under those programmes is that if we just devalue the dollar then everything will be OK after that. What occurred in those cases is that one had significant knee damage and got some steroid injections to keep running.

Under this current programme, before we get the steroid injections, we have done the corrective knee surgery to address the damaged ligaments and put a graft in to ensure that the damage is fixed. The IMF has said after you surgically fix the knee, then we will provide you with the steroid shots you need (funding), so that you can not only run but outperform the competition.

So I think we stand a very good chance at recovery, but there are some significant risks we face. So while we are better prepared to face the competition and finish the race, the fact is that our productivity is low because our muscles have been at rest for too long, and the shoes that we have are way past their useful life, so unless we change the shoes (support structures) we will only start the process of damaging our knee again, and maybe not finishing the programme successfully.

I have mentioned before that the significant risks to not realising our goals are no longer with the fiscal side, but rest outside of the Ministry of Finance (the only other monetary situation that was causing significant challenge is the liquidity problem which the BOJ has sought to address). The main challenges we face today rest in three main areas.

These are:

(1) Energy costs. Here, a lot rests on the 360 MW project, and therefore, the management of it by the OUR. Energy is a significant challenge for manufacturers, and is certainly one of the reasons why we have seen growth in agriculture, construction, mining, and tourism and a decline in manufacturing in the last quarter. High energy costs inhibit Jamaica from moving from a producer of primary to secondary products.

(2) Crime. Indiscipline is the major contributor to our fundamental problem and hinders productivity. Crime and indiscipline lead to low productivity of labour and capital, otherwise called total factor productivity (TFP). Jamaica's TFP has declined at a rate of approximately 1.5 per cent annually on average since 1972. An example of indiscipline can be seen in an article I wrote about a few weeks ago concerning Jamaican timekeeping and meetings, road indiscipline and night noise. Unless we get serious about this, then productivity will not be positively affected. Our current attitude sees us unable to successfully compete and everyone grows at a faster rate than Jamaica. I want to also mention in particular the demise of societal values and the failure to protect our children from abuse . This all leads to an even more unproductive work force.

(3) Bureaucracy. This is probably the biggest challenge facing businesses and results in low productivity. I recently had an example, which illustrates that while the Government is trying to pull in one direction (to move the economy forward) its functionaries of government are pulling in the other direction. In the past week I have had two instances that remind me of this. The first is being stopped by a policeman to say he was carrying out a spot check (no reason other than that) and then proceeding to seek to extract something from me, which I refused to do because I told him it was not right.

The second instance, however, is a situation where I had to go to the rent board to resolve a matter, even though the tedious process already set me back two months as that is the time period they gave to me to deal with the matter. So if you are unable to afford to be without the income for two months, then you will lose your property before the rent board deals with it.

After waiting for the two months, though (trying to follow the rules) I get a call the day before the matter is to be dealt with, saying it has to be delayed because the person handling the matter was unavailable, and I would be advised to select another date. After a few days I called to complain about the situation and eventually had to report it to the parent ministry (Transport). I then received a call the day after for a hearing to be set, which date was inconvenient, but then again I had to seek a remedy outside of the rent board, as I might have grown too old waiting on them.

The question, therefore, is what is the purpose of the rent board, as they were supposed to have made the process easier, but only succeeded in supporting the violation of the rights of a property owner, ensured that the Government loses tax revenue because no income is collected during the period, and maybe their delay has caused others to lose their property, and has caused rental costs to be more expensive for future renters as one will now have to demand enough security deposit to compensate for the delay of the rent board.

So, while the government is pressing ahead with the reform agenda in many respects, there are other forces pulling in the other direction.

Understanding the mechanics of growth

A few days ago I was on a radio interview where the question was: Who was responsible for growth, government or the private sector? This question, I think, is of fundamental importance if we are to understand how to achieve growth. This is particularly as I have heard many persons in Jamaica repeatedly say that the private sector must deliver growth.

My own view, which I have

consistently said, is that this conception that the private sector is responsible for growth is one of the reasons we have not been able to understand what is needed for growth to occur.

In fact, when asked the question as to whether the government or private sector is responsible for growth, my answer was that the private sector is responsible for their own interest and the government's responsibility is to provide the environment to channel that private sector selfish interest in such a manner that it creates sustainable growth for the economy. In other words the government's main responsibility in the growth agenda is to create an environment that encourages private sector growth, and specifically in a direction that creates a surplus on the balance of payments and fiscal accounts.

An example: if a horse is in the gates awaiting the start of the race, he will not run out until the gates are open. If in addition to being in the gates the horse is tied to the gate, he still will not be able to leave the gate and start running the race. Still another consideration is that if the gate is open, he is untied, but does not wear blinkers then the possibility is that he will run off the track or in the path of another horse and be disqualified.

This example explains the difference between private sector and government role in economic growth, and I use the term role as it is a much better description than responsibility. The private sector is like the horse and the government the facilitators (trainer, jockey, stewards, etc).

In other words, if the government creates legislative and tax reform, but does nothing about the bureaucracy and lack of efficiency, then this will prevent the private sector from being able to “jump out of the gates” and start doing business. So the lengthy development approval, TCC, or NCC processes place a stumbling block in the way of businesses even being able to start when projected. The result is that even with the best legislative and tax framework, businesses are still left standing in the gate, even after the gate is purportedly open, because the bureaucracy still keeps them tied to the post.

So while the role of the private sector (the horse) is to create profitable and sustainable businesses (in other words win the race like the horse), it can start to do so if it is not prevented from “starting” through the removal of barriers to entry or an inefficient bureaucracy. This clearly defines the fundamental role of the private sector in growth, which is to make as much money for its shareholders as possible (pursue personal interest), and the role of the government is to ensure that the private sector is not prohibited from doing so.

But even after the horse is let out of the gate and untied, or the government has removed the bureaucratic and other obstacles, we cannot allow the private sector to just run with no direction. If the horse runs without a jockey, race track, blinkers, and without the jockey having a whip, then it could end up running away from the finish post, in the path of another horse, or even if it gets to the finish line it could do so by walking or in a very inefficient route.

So while the private sector must be allowed to easily enter and play in markets, the government must ensure that it lays down the rules and policies that will guide the private sector actions so that it gets to its profitability goals while respecting labour rights, not doing anything illegal, and in a manner that provides the best possible returns for the investment. This is being done while the government also ensures that the appropriate handicaps are placed on the horses based on their capacities, so that there is a level playing field and fair competition.

If everyone in this horse race does what they are expected to do, that is, the trainer ensures that the horse is properly trained and fed, the jockey is familiar with his mount and ensures the race stewards see that the race is fairly run and there is no doping, the race organisers ensure that the track is appropriately maintained, and the owner/trainer ensures that the horse has blinkers if needed, then the end result will be fair competition and the best horse will win.

So while we are all fully aware that growth can only be efficiently achieved through the private sector (the horse stands a better chance to win the race than the jockey alone), it is also very important to understand that the private sector can only invest and be efficient if the government ensures that the best environment exists for them to operate in competitively.

It is also important for the government to not only provide an environment, but also to create policies that will encourage private sector investments in areas that contribute to the sustainable growth and development of the country. As an example, if we want to create a balance of payments surplus, then we must make it easier to export than import, or manufacture with local rather than imported inputs. One specific example is that we must deal with crime and high energy costs, which result in our local inputs being much more expensive than the imported ones.

I hope that the above clearly defines the roles of the private sector and government in growth, as if we do not properly define the roles then what will happen is that the jockey will end up carrying the horse and the stewards will want to train the horse, while the trainers end up self policing themselves for doping offences. The result being that we end up with very slow races, filled with a lot of doped up horses and stewards who don't know the front from the rear end of the horse.

Discipline’s role in development

LAST Wednesday I was driving to work when I saw a man throw an orange peel and another item on the road. The confidence with which he seemed to do it implied that he thought that everything was right with what he was doing. He had no consideration for the fact that it would make the streets look unclean, could possibly be a health hazard, and that this sort of action is what contributes to increased costs to clean the streets and gullies.

If enough of this type of behaviour is multiplied then you can see the effect on the budget, cleanliness, flooding, and other environmental and health hazards.

What we have failed to recognise as a country is the impact that our own indiscipline has on development. One of the first things is the attitude towards time. We make a joke of it, and accept it, by saying, for example 1:00 pm Jamaica time, which is supposed to mean that even though the meeting is supposed to start at 1:00 pm, we accept that, because we are in Jamaica, then it may start an hour or so later. So when people are invited to an event that is supposed to be between 6:00 pm and 8:00 pm, some people turn up at 8:30 pm and ask why it has ended already.

This disrespect for time is one of the things I hate most, as it is not only a total disrespect for the time of the other participants, but is a very inefficient way for us to organise ourselves. And we will all accept the concept of “Jamaica time” but then fail to understand why our productivity is so low. Logically, if in another country a meeting that is supposed to start at 1:00 pm starts at 1:00 pm, while in Jamaica it starts at 2:00 pm, then doesn’t it mean that they are going to be more productive with their labour, as we sit around doing nothing for a hour waiting for the 1:00 pm meeting to start at 2:00 pm?

These examples of time management, and the attitude littering the streets are an indication of the rampant indiscipline in this country.

A few years ago a multilateral organisation did a study which showed that the greatest inhibitor to productivity in Latin America and the Caribbean is traffic congestion. So if you multiply the traffic delays caused by indisciplined driving, by taxis and buses in particular, you will see how much productive time is lost in traffic and the cost of the additional gas resulting from those traffic delays.

The problem with this sort of individual behaviour is that the general attitude in Jamaica is that everything is OK as long as it doesn’t affect me. So we have a problem when the person in front of us causes traffic delays because the person is on their phone, and we curse the person, but when a call comes in we do the same thing, and then when the person behind us blows in disgust we ask if they can’t have patience.

The fact is that if we look at the developed countries which we emulate and seek to use their economic models as examples, we will realise that they have well ordered and structured societies. For example, we want our oil bill to be reduced but we fail to ensure discipline in our transportation system, so that it is attractive to everyone to take it. We also want to ensure proper development of communities but fail to ensure that houses are not left abandoned, or ensure that commercial activities are not allowed in residential areas. And if you call and make a report to the authorities, then that is like a wasted phone call, which the only thing it has ended up doing is costing you for the telephone call.

This lack of accountability because of the reluctance, or slowness, of the authorities to act is at the root of the problem. As a result of the low level of risk that you will be held accountable for indisciplined behaviour, which breaches the law, then persons do not feel the need to obey the laws, as they can get away with doing what they want.

So the abuse of the night noise act continues, because there is no significant penalty for keeping citizens awake so they can’t be productive the next day because of lack of sleep. If the police go and lock down the music, then the only loss is to the patrons who can’t get more enjoyment for their admission fee. There is no penalty that prevents persons from trying to breach the act again, so the same person might do the same thing the following week knowing fully well that there is a high probability that no action will be taken. And as someone who rides my bicycle from home at 5:30 am some mornings, I hear the music at that time sometimes, within close proximity to a police station.

Apart from the productivity loss that indiscipline causes, we also fail to understand the influence that this indiscipline and lack of accountability has on major crimes, such as murder. No one starts off being a murderer, but rather grows into a hardened criminal because they have grown up in a society where there is no accountability for breaches of the law, and therefore feel confident graduating to the major crimes.

So the young boy who grows up not feeling the necessity to adhere to not drinking when driving, or being at parties until 4:00 am with the music blaring, doesn’t feel that when he gets into gang-related activity that it will be any different. Eventually, that gang-related activity leads to major crimes and before you know it, enough of these acts lead to crime being a big problem for doing business.

It is therefore important for us, as a country, to recognise that if we want to realise the economic and social development we desire, then we must do something about the level of indiscipline in the society. This must not only be through accountability being enforced by the authorities, which must be fairly applied, but must also include each of us taking personal responsibility for our actions.

So hopefully that gentleman in the silver Nissan Tiida (licence number withheld) will think twice about treating the streets like his personal garbage bin.

Just do it

A Nike shoe is shown on display in Niketown. The Nike tagline “Just do it” means that we shouldn’t just sit around thinking about what we can or should do.

Probably the best known sporting brand, Nike, has a very simple tagline — "Just do it". If you think about it, the tagline simply means that the only way to get results is to act.

I have heard many people say that they have bought expensive exercise machines but have not used them, as if somehow the act of purchasing the latest equipment or the latest Nike shoe, or in my sport of choice, purchasing the most competitive bicycle is enough to cause a result. The fact is, most times the result you can get with action and inferior equipment is much more than you get with the best equipment and little action. So as I tell persons who express interest in cycling and who ask me what is the most important part on the bicycle, I tell them the rider.

This is a problem I find with people also. That is they are afraid to just take a decision. So they end up investigating and arguing a point that is really a very irrelevant part of what they are supposed to do. In other words, they fail to see the big picture because they are preoccupied with the small stuff, and end up losing more because they focus on the small items while the opportunity cost of not focusing on the bigger picture is greater than the cost they are focusing on.

This is the primary reason why external audits don't focus on every single transaction, and use risk- based assessments. That is because to focus on every single transaction would mean a never-ending costly audit where no audit opinion would be passed.

This lack of "just do it" attitude, or implementation, is something that Jamaica has suffered from as far as I can remember. As a country we must hold not only the world, but universe, record for having the most studies which have not been acted on. So I find that there have been many analyses and studies about what has been, and continues to be wrong with Jamaica's social and economic environment. And in most cases they have all been correct, and have some well laid out action plans. The problem is that they have failed to "just do it". So most of these studies sit on shelves and are either lost or ignored, and so we end up having another study, similar to the previous ten, which arrive at the same conclusion.

This in my view is the fundamental difference between the current IMF agreement and the previous ones. If you look at all the previous agreements, I am sure that they will have all outlined the same problems for Jamaica. But for the first time it seems as if we are "just doing it". And I will admit that it is early days yet, but the fact is that we have shown that we are willing to take the risk to meet the fiscal targets and legislative reforms. This has been demonstrated by the removal of the waiver discretion from the minister, the passing of the tax

incentive legislation, security in personal property legislation, introduction of the super form, and tabling of the insolvency act. There is still a lot more to come, least of which is not the fiscal rules and overall tax reform, but at least we have seen a commitment to meet the fiscal targets (through expenditure reduction) and pass the legislative reforms as projected.

In fact, what this is doing is changing the environment to ensure greater competitiveness, so that risk and reward is now driven by market forces rather than by government directive. This is the significant game changer that I wrote about in my first book, Charting Jamaica's Economic and Social Development, in 2009, where I concluded that in order to change our economic fortunes we had to change the political system, as the Westminster model concentrates too much power in the hands of the governing party.

What we will see with the implementation of the fiscal rules, and already the removal of the waiver discretion from politicians, is tantamount to a shift in the power under our political system. So instead of changing the political arrangement, what we have done is remove the power from the politicians to abuse the budget, or influence the market, through legislation. This is the same effect as changing the political system to one where less power rests with government. This supports the view that the problem with the economy has been our political arrangements, and more specifically too much political influence concentrated in one set of hands.

This is why I believe that today we stand a better chance of changing our economic fortunes than in the past. There still, however, remain significant risks. However, with the implementation of each new piece of legislation, and ultimately the fiscal rules, the risks decrease. The two biggest ones to be addressed now are crime and bureaucracy.

While we must commend the government for taking this action, we must also continue to demand that as a country we stick to the programme, and just do it.

Speeding police and salvation

Last weekend a group of us were riding from Ewarton, and were on Mandela Highway approaching the merged lane where the highway comes onto Mandela. On almost arriving at the intersection (we of course had the right away) a speeding Salvation Army van hastily drove in front of us in order to avoid having to wait until a small group of cyclists properly went by before proceeding. Or maybe the Salvation Army van was trying to ensure that we got to heaven early, avoiding the economic and social conditions in the country at the moment, for which we maybe should be eternally grateful.

Having only around two seconds to recover from the gesture of the Salvation Army bus, and almost reaching the intersection, a blue minivan with a policeman behind the wheel decided that he would also do the same, but by this time he had run out of road (without hitting us) and rode on the soft shoulder, almost hitting the trees, and in the process throwing up a rock and hitting one of the cyclists on his ankle, who rightly showed more concern for his bicycle before assessing his own damage.

Effect of crime and bureaucracy on development Pt 2

Spanish hotel chain Riu recently opened its fifth hotel in Jamaica. Fixing the problem of crime and bureaucracy would drive investment into the country, says Dennis Chung.

THIS week I am going to look at the positive impact we can have on development if we were to fix the crime and bureaucracy challenges. I will once again do this by looking at the same example and assume that we have finally managed to make the bureaucracy more efficient, and finally we have tamed the crime monster and people feel safe and businesses are no longer subject to extortion.

Let's assume that the committee set up under the chairmanship of Peter Knight, manages to bring the development approval process down to three months, and that the security minister and Commissioner of Police have managed to eliminate corruption and extortion.

The same investor then comes to Jamaica after the processes have been fixed, still wanting to invest US$100 million, and is still very impressed with the potential Jamaica has and the good job that the Jamaica Tourist Board and Jampro have done of selling Jamaica.

The investor makes his application for the same development, and instead of waiting two years for an approval this time he gets the project approved in three months. He was able to set-up his office and hire all his employees, and the business is up and running and exporting from month five. So this means that he does not realize after nine months that he has to lay off his staff and, in fact, by month nine has already expanded to another market and has hired new staff.

In the example last week the result was that after waiting nine months he could no longer afford to keep the staff and had to lay them off, so at that time the investment was actually pulled from the economy, awaiting approval. So unemployment would have gone up in month nine and, importantly, there would have been a contraction in GDP rather than an increase from the expansion in the example this week. The result is that there is greater disposable income in the economy and a higher multiplier effect, which inevitably expands real GDP. Because of the GDP expansion, government gets greater fiscal revenue, and is able to reduce the fiscal deficit with increased revenues rather than debt or taxes.

This time also he does not have to pay any extortion to any "area leader" because the police have eliminated the gangs, having the benefit of being supported by the anti-gang and DNA legislations, and the courts are disposing of cases within weeks rather than years in the previous example. In addition, the parish councils are now using the AMANDA system and there is no longer the ability of any corrupt-minded individual to take money in exchange for ensuring that approvals are done quickly, as the system now ensures that everyone can track the status of approvals.

The result of the reduction in extortion and corruption on the investor is that he has a lower cost structure, and hence makes greater profits. He can therefore compensate his workers more (because of the greater productivity) and has a higher taxable income. The government therefore increases fiscal revenues from PAYE and corporate income taxes. Another effect is that the economy becomes more productive because persons are no longer receiving funds (through extortion or corruption) for services that do not add any value to the GDP, but rather has the opposite effect of reducing the GDP.

As a result of the positive experience the investor has in Jamaica, he tells his friends in other markets and also looks to new businesses and expansion. The result is greater employment and increasing GDP. Soon the economy is growing at a rate of four per cent to five per cent, rather than the 0.5 per cent to one per cent previously celebrated by the government, when the standard error in the GDP statistics is 0.5 per cent.

Increased business activity also means that labour is in short supply and workers can now demand higher income levels because of the greater productivity. This increased income level feeds into more discretionary spending which drives even more business ventures and a higher quality of life generally, which results in a higher Human Development Index rating by the UNDP. In addition the Doing Business Report has Jamaica in the top 10 countries to do business and the Global Competitive Ranking shows Jamaica as an Innovation led economy.

Everyone now wants to do business in Jamaica and finally we are realizing our full potential from our music, sports, culture, and tourism, as Jamaica is the place to not only do business but vacation.

The above example is the Jamaica that we can achieve if we are able to deal with the bureaucracy, crime, and energy challenges we have faced for the past 50 years. This is because Jamaica has a lot of untapped advantages that we are not able to maximize because we have been unable to maintain discipline and efficiency. We have suffered from poor governance for too long and must change it, and I believe that we are at a point where that change is possible.

The fact is that at this time of our economic history the only feasible option available to us is significant growth through the private sector. The government no longer has the ability to ignore private sector-led growth, as we have postponed what is needed too long and gone instead for living on debt, inflating the economy, and then taxing the inflation growth. This has led to a spiraling inflationary economy, which has translated into lower real incomes for Jamaicans. This option is no longer available to us.

We have made good progress last year, particularly in the areas of tax reform and energy to some extent, but have not realized the benefits as yet and must stay on top of it and see it through.

We now need to focus on crime and bureaucracy, and this means starting with discipline, respect for human rights, and the development approval process.

If we are able to do these things then I am confident that Jamaica will be the place of choice to do business, live, and raise families.

Effects of crime and bureaucracy on development

AS I stated in my last article, I believe that Jamaica can start seeing positive economic and social development with the current set of legislative and fiscal reforms we are seeing. However, for this to happen in any serious way we must address the issues of crime and bureaucracy.

I see that we are about to embark on the public sector efficiency programme, and in particular the emphasis being placed on the development approval process. Also the statement from the national security ministry that there will be measures against indiscipline and corruption in the police force is welcome news. We now need to see it happen.

An aerial view of the New Kingston commercial district in Jamaica. Crime and bureaucracy is affecting the island’s development negatively, says Dennis Chung.

I want to now look at an example of the way crime and bureaucracy affect development negatively, and next week look at the possible development path if we were to address these issues.

Let us assume that as a consequence of the economic reforms (lower effective tax rate, new insolvency laws, omnibus incentive act, etc) an overseas investor decides that he wants to invest US$100 million in the cultural and construction industries. He is excited about Jamaica because of the recent good news about the performance to date under the International Monetary Fund programme, the performance of Tessanne Chin, and the recent listings on the Junior Stock Exchange.

He starts making plans to come to Jamaica, and invests quite a bit of time and money on due diligence and establishing residence here. After the due diligence and the promises by Jampro about the potential in Jamaica, and the welcome extended by authorities, he feels that this is a good place to do business.

He decides that he will set up a local company and decides to register the company and finds that it took him two weeks, and he had to get a local law firm to assist because it was not a very user-friendly process. Already having a company in New Zealand, he wonders why it took so long, when in New Zealand it took him one day. He shrugs it off as just one of those things that happen and was very pleased with the service provided by the law firm, even though he didn't think it should have been necessary.

He then starts to mobilise his people and office, and then applies for a development permit, thinking that it will take him three months at most to get approval, so that his staff and office can start construction plans. After around six months of waiting, he decides to check with the authorities to find out why it is taking so long, and is anxious because it is costing him significant sums he would not have incurred if he had known the process was so lengthy. He would have checked before, but was busy dealing with his electricity connection, which took him over 90 days to sort out. He is told that the file was sent from the parish council 60 days after the application was made and NEPA needs another 60 days to do its due diligence, so he is looking at another 30 days before it gets back to the parish council for other checks to be done.

At this time he has to think about reducing his staff complement and the size of the operations, as he cannot afford to indefinitely carry the cost without the certainty of a start date. While conversing with his auditors he finds that one of his staff members defrauded some funds and he moves to dismiss the person but is faced with a ruling from the Labour Ministry to say that he can only send the employee on paid leave while it is being investigated. Finally, it ends up taking six months, and legal fees to be represented at the IDT, which the ruling is in the employer's favour but he is unable to get any compensation for the ruling as the employee decides to drop the case just before it gets to court.

During the time that he has been waiting on the development approval, he has had to downsize his operations and rented out the premises to a tenant who has not paid any rent or the associated utilities for three months, and he is unable to ask them to leave because the law requires that commercial tenants need to have one year's notice. He has filed an action with the Rent Board, and was successful, as the Rent Board moved quickly, but the tenant got the court to allow the tenancy to continue for another six months unpaid. The investor is left with the mortgage payments, without any rent revenues.

Finally, after eight months, he checks with the parish council to see where the development approval is, and is met by an employee who says that there is a lot of backlog but if he talks to him he can see what he can do to get it to the top of the pile. Not understanding what he means the investor says he has been talking to people for the last five months, and when he finally understands, refuses to pay anyone to fast-track the process.

The result is that he eventually ends up waiting for another year to get the development approval. What's more is that he has had to explain to the tax authorities why he has filed nil returns after being in Jamaica for over a year, and why he started paying payroll taxes initially but stopped paying it, and if he has proof that he has laid off the people he once employed.

Finally, after two years, and much cost without any revenue, he starts up the operations again. When he thinks that things will now get underway he receives a call from someone who describes himself as an area leader, who says that if he pays a certain amount of money each month he can ensure that he is not affected by crime. He thought this was the role of the police, he tells the so-called area leader, and is told that it is an arrangement that most business people have in the area.

By this time, his friend who invested in another country had his business up and running three months after his application, and has been earning foreign exchange since then. The Jamaican investor is over two years into the process and all he has are costs and brushes with corruption and extortion to show.

He is now wary of the pace of expansion because of his experiences, but still chooses to press on with the operations, when he is listening to the radio and hears someone say that the private sector needs to put more capital into new investments as they are not playing their part in the development of the country.

Staying the course in 2014

AS we move towards 2014, it is natural for us to not only reflect on 2013 but also think about what we must do in 2014 to improve our lives. This should not only be on a personal level, but also at a country level. I can't really remember us ever doing that as a country, but rather we always get some message about the great potential we have as a nation, and that we should be considerate of the less fortunate.

But have we seriously thought about what our objectives are, and what specific strategies we need to employ to meet those objectives? We do that at a company and personal level, with some amount of success, but have never really done so at a national level. And we also see that individuals who fail to do so usually end up not being successful.

I believe that for the first time I can ever remember that we are close to doing that, and it is based on the strategy and timeline included in the Economic Programme, otherwise known as the IMF agreement. The fact is that if we have the commitment to stick to the fundamental reforms in the programme, then it is my view that the economy will become competitive, and the business climate will improve. However, while these reforms are necessary, they are far from sufficient to cause the fundamental transformation needed in the economy.

The reality is that unless we can solve the crime and bureaucracy challenges, then we will be hard pressed to see the sort of economic and social development we want and need. Sticking to the path we are on not only means that the government should ensure the reforms are implemented to cause greater competitiveness but it also means that government needs to do nothing to slow down the return of the much needed confidence. This is because confidence is necessary for capital to move into real investments and the reality is that the only way that we can see economic growth of any substance is if private capital returns to real investment.

It is important to understand this, and to implement the necessary policies to ensure that capital is confident enough to go into real investments. The chain result of increased confidence, and a more competitive economy, is that jobs will be created, consumer spending will increase, government revenues will increase, and the cycle (called the multiplier effect) will continue. This will no doubt cause an increase in real GDP growth, which will then lead to a reduction in the debt to GDP ratio.

So if we want to see sustainable economic growth and development, then it can only happen with private capital being confident enough to commit to real investments in the economy.

It would follow therefore that policies must be implemented which satisfy the requirements for business and consumer confidence to improve. If business confidence improves, then new investments will take place, leading to higher profits, employment, and fiscal revenues. If consumer confidence improves then more money will be spent in the economy, and the economic multiplier will increase. In both cases credit will also rise.

For this to happen, though, we must stick to the transformation plan. If we allow ourselves to swerve from our objectives and implementation plan, then we could derail the improvement. One thing is sure: the government cannot take the path of previous administrations and seek to tax our way out of the problem, as this will only lead to short-term fiscal gain and long-term loss. This has been the path chosen in the past and it has not worked.

The legislative reforms that have been done so far, under the programme, will add to the enabling environment we need. However, this can only be complete where bureaucracy and crime are tackled. As an example of the stifling effect of bureaucracy, the development approval process takes too long and at best may take around nine months. Estimations are that reducing that nine months to six months could unleash approximately $30 billion into the economy, which also means increased employment. An effect of crime is that it prevents maximising capital because of the prevention of running more than one shift, for example.

Therefore, while I believe that it is necessary for us to stick to the tasks outlined in the economic programme, it is also important to not take steps to negatively affect confidence, to stick to the programme plan, and to address the problems of crime and bureaucracy.

I cannot express enough the importance of reducing bureaucracy and crime, as these have a crippling effect on economic and social development. Failure to do so will cause any recovery to be long and painful.

I also would like to take this opportunity to thank all who read my column and to wish you happy holidays. The cry from the retailers is that this Christmas is the worst they have seen in a very long time, and it is not unexpected, as once we started with the IMF programme it was unavoidable. I believe that this is part of the transformation in the economy, where productivity is going to be key to survival. However, we must have the conviction to see the programme through.

I expect that the first quarter of 2014 is going to be the real test of our conviction, but if we are able to make it through that period then we could start seeing some real benefits (assuming that crime and bureaucracy are addressed).

Irrespective of what happens, though, individually we must all take steps to improve individually. Happy New Year.

Transforming Jamaica's productivity

LAST week I referred to what I think is Jamaica's biggest risk (that of the unproductive human resources) and also addressed my belief that the economic programme is on the right track, given the accomplishments to date under the economic programme, and signs in the macro indicators.

As expected, I have had persons asking if I really meant it, as they are facing very difficult times in business still. Additionally, it is true that consumers are not spending as they used to, and a big part of that reason is because there are many people who are out of jobs.

A man on a roof appears to be making an illegal connection to Jamaica Public Service Company wires in Kingston. Indiscipline among Jamaican residents is one of the issues that needs to be urgently addressed, says Dennis Chung. (File)

However, any sophisticated investor knows that the best time to buy is when everyone is selling, and vice versa. In other words, not because things are bad does it mean that they are not improving. If you wait until things have got back to where they were before the recession then you would have lost out on the best returns, and this is the reason why some people are busy looking at investments now.

There are, for example, some listed companies that are underpriced on the stock exchange, and are good buying opportunities. This is especially so with the advantages to be gained under the new tax rules, and I must once again applaud Minister Phillips and his team for taking the bold steps that have long been required to transform the business environment, not just tinker with it as we have been guilty of doing for too long.

What I want to address though is, what are some of the ways that we can improve our productivity issues, and in particular labour productivity, which is a significant setback to competitiveness. I say this against the background that I believe the unproductive nature of our labour force, and all it brings, is the major inhibitor to development.

Some may say that bureaucracy and crime are the greatest inhibitors to development, but the reality is that how efficient a bureaucracy is, or how bad the crime situation is, has everything to do with labour productivity. So the fundamental problem we face is one of the competitiveness of our labour. In other words, it is the failure to productively mobilise our people that is at the root of our developmental issues.

How do we therefore transform our country from the low levels of productivity, to a high productivity one.

The first thing we need to do is truly understand what causes our low productivity issues, and secondly demonstrate that we have the will to deal with it. I believe that we have always somewhat been able to understand the causes, but have had very low commitment to dealing with the issues. Of course, because much of the causes go against the grain of what political parties have as their objectives, which is to retain, or gain state power. I must say that there are efforts to address some of these issues under the current economic programme.

After we have identified the inhibitors, then the obvious next step is to remove them. Some of the glaring inhibitors to productivity are indiscipline (which includes crime), energy costs, bureaucracy (including an archaic legislative framework, which includes labour laws), and a workforce under-trained for global competitiveness.

The economic programme I think adequately addresses bureaucracy, as it seeks to bring greater efficiency to the public sector, and includes legislative changes in tax reform, insolvency, collateral (access to credit), etc. -- the only challenge is timing. More importantly the tax reform framework removes the discretion of politicians to grant waivers, which creates a more level playing field for businesses, as there is no longer any competitive advantage from political connections. One aspect that must be addressed immediately is that of the development approval process, which prevents billions of dollars from finding its way into the economy, for no apparent reason but just  lazy and inefficient bureaucracy.

I am also confident that energy costs should reduce for industrial use even before the 360 MW plant, as the trend is for companies (and some individuals) to seek their own energy solution. The areas which need focus are indiscipline (which comes down to enforcement of laws and respect of citizen rights) and making the workforce more competitive.

On the discipline front, this implies that the security and justice ministers and the police commissioner must bring this in line. More specifically, despite the spike in crime, the police cannot ignore citizen rights in an attempt to solve crime, as it only leads to protest action and distrust, which contribute to non-productivity; the justice minister must of necessity not just put legislation in place but must move to ensure that the justice system moves quickly and is fair (in other words trials must be completed in good time and ordinary Jamaicans must not be allowed to languish in jails without a trial); and the security minister must ensure a policy framework that supports the security force in the lawful execution of their jobs.

Very importantly also, the government needs to move quickly to see to the transformation of our labour force to a productive one. I am all the time approached by people who want jobs, and if we do not put steps in place to assist with that transformation to a productive labour market, we could see even more people without jobs. This means a "joined up" approach to government, where education, industry and commerce, labour, and finance ministries will sit and determine what our labour needs will be (e.g. the logistics hub) and allocate resources to training for that demand.

Very importantly we must enact policies to move the public sector workers in particular to performance based reward. I have seen too many instances where reward is based on seniority and tenure, and not productivity. This measure for me is more important than the number of public sector workers, for if this is implemented then the public sector will be right sized (either up or down). What it causes in many instances though is for talented public sector workers to become frustrated and underperform or leave.

Without this transformation we could see a more productive economy with labour being left behind. All that will do is widen the gap between the haves and the have-nots, which is not an appropriate way to develop. Just ask Haiti.

Finally I am of the view that the economy will start to improve as we see confidence improve, but it would be prudent to have some project that will kick start the economy. This could be the road works, logistics hub environment, or monetary policy but something is needed to get money in the hands of the consumer to escalate the build-up of confidence.

Jamaica's big risk

WHILE walking, or cycling, I often see people who ask me many questions relating to the economy, finances, or issues about my second book. In the last few weeks, though, I notice that the majority of questions focus on the difficulty people are facing in the economy.

My own view is that with the fiscal adjustments, which we were forced to do under the IMF agreement and that Finance Minister Peter Phillips and his team have been seeing through, I believe that the necessary reforms will be to the economy and market that we have needed for a long time. This adjustment is also buoyed by the Economic Programme Oversight Committee (EPOC), which was a very good initiative put in place by Phillips. The truth is that the EPOC initiative may have been the most important element in the agreement, as it brings a certain amount of confidence and oversight to the economic programme, which has never existed before, and Phillips must be congratulated for that.

While greater economic growth could see a decrease in the unemployment rate, from the current 16 per cent, the quality of the employment created may not create the needed middle class, says Dennis Chung.

This in my view is the only time I personally have any confidence in an IMF programme being implemented by the Jamaican Government.

In answering the many questions on the economy, I tell people that we will see negligible growth towards the end of 2013, but I expect that growth will improve in 2014.

My reason for saying that is primarily that I believe the biggest factor for lack of growth, after the IMF agreement, has been lack of confidence, and uncertainty. And this was borne out in the last confidence numbers, which showed the dismal perception and uncertain expectation of what will happen in the economy. As a result, capital naturally moved from the riskiness of investments in the Jamaican economy, to the safety of the US$. It is for this reason that the dollar has kept sliding, more than any scarcity of the US$. So no matter how much we try to address the sliding dollar with monetary policy attempts to tighten liquidity, it will not stem the slide of the dollar.

The reason why I say that the consistent dollar slide has more to do with confidence and uncertainty more than the shortage of US dollars is as follows. The fact is that we have always had a balance of payments (BOP) shortage, and even with the loans that we have had, we still were not able to adequately cover the BOP deficit. Even so, we were still able to hold the exchange rate and interest rates relatively stable. Some may say that this was facilitated by the higher interest rates and increasing debt. And to some extent, yes, but the fact is that much of the debt was in local currency, which would not help the BOP problem, and the main reason for the debt was not for BOP support but rather to close the fiscal deficit.

It is true that relatively higher J$, to US$, interest rates would have caused a preference for J$ instruments. Today we have J$ rates moving higher, and we also have an improving fiscal and BOP situation, but still we have a consistent slide in the exchange rate, and I highlight consistent because this is what I am saying is caused by a lack of confidence, and uncertainty.

I also am of the view that as confidence and certainty creep back into the system with each passing of the IMF test, then we will start to see that reversal from holding US$ assets to J$ investments. It is, however, important for this positive fiscal adjustment to be accompanied by transparency and equity in governance, and importantly an improvement in the security situation. If these situations do not improve, then we are not going to be able to maximise the benefits from the fiscal, and legislative, adjustments under the economic programme.

Even if we assume, though, that we see an improvement in the governance and security (which of necessity must include improved relations between the police and citizens), there is still one big risk that the country faces going forward, and it is growth that is restricted to a certain group of people, thus increasing the risk of a decreased middle class, which is necessary for sustainable development.

This has nothing to do with any dictates under the economic programme (note: I have refrained from calling it the IMF programme), but rather, it is a wider social and cultural problem that we have.

The fact is that while greater economic growth could see a decrease in the unemployment rate, from the current 16 per cent, the quality of the employment created may not create the needed middle class. In fact, many of the jobs could be casual jobs, which are seasonal or low-paying. The reason is that there is a critical mass of persons in the country, particularly among the younger labour force, that is not properly educated/trained and/or productive enough to face a more market-driven and competitive environment.

This is the big challenge (and risk) that the Jamaican economy faces, and which, quite frankly, we have not done enough to deal with. If you think about it, as investors get more confident, then what you will find is that they will start shifting from US$ assets to J$ investments, which will necessitate a sell of the US$ currency to the market. The exchange rate will not see any great revaluation, if any, but at the current exchange rate, the ROI is minimal compared to investment opportunities, in an economy where confidence is strong.

The problem is, because of the low productivity levels of this critical mass of the labour force, quality re-employment of the unemployed is not going to be maximised.

The challenge the government faces is how to transition this unproductive work force to a globally competitive one. It is a task that must be undertaken by the Jamaica Productivity Centre, and HEART in particular, and must receive the support of the ministries of industry, education, labour, and finance.

A failure to address this problem could result in some growth returning to the economy, but without the mass benefit needed. This would serve to stymie the growth of the middle class, which would not be a sustainable model for development.

Policy's role in creating an enabling environment

Presentation to The Rotary Club of St Andrew on October 22, 2013

OVER the past few weeks, I have been approached by many persons who ask the questions: What is happening to the economy? Is Jamaica headed in the right direction? Is it time for me to migrate?

These questions have been influenced by the continued devaluation of the Jamaican dollar, increasing prices, difficult bureaucracy, indiscipline on the roads, and a general feeling of insecurity. One could say that the people who ask the questions have a right to be concerned, as they want to ensure their future is secure.

These conditions have now been further compounded by the recording of the lowest levels of business confidence since 2009 and consumer confidence in 12 years. This supports the pessimistic views behind the questions.

The question we need to ask ourselves, therefore, is: Are we on the right track with the current policy initiatives, in terms of the economic, legislative, and social programmes? In my view, it is very important to understand this and ensure that we do what is in the best long-term interest of the country, as it is highly unlikely that we will get another opportunity to bring us back from the brink, if we are not there already.

In order to do a proper assessment of this, we need to understand why we are here and what can actually bring us to a better tomorrow.

The first thing to understand is that the reason why we continuously suffer from low growth and deteriorating social conditions is the result of spending more than we earn. So in our over 50 years since Independence we have run a fiscal surplus, maybe six times, which means that for over 45 years we have been borrowing money to live. If that happens in your own household, then you will soon lose everything and become indebted to creditors.

The other thing to understand is that this predicament has resulted from governance that seeks to satisfy political party die-hards, which see politicians seeking to please persons through handouts rather than encouraging them to work. So, for most of our independent history, the budget has been

crafted around welfare-type programmes rather than creating policy initiatives that will encourage production and productivity.

The irony is that it is not the Government that ultimately pays for this welfare, but the productive class, which has resulted in:

* The economic decline of the 1970s;

* The debt increases from the 1980s to present;

* The financial crisis of the 1990s; and

* The two debt exchanges.

In other words, when government runs into fiscal problems, all they do is impose a tax (one way or the other) on the productive class in Jamaica, in order to continue the support of those who are least productive.

The result is that we developed an unproductive society, where capital and other resources are not allocated to where they are most productive, but rather, allocated based on political and other governmental policy decisions.

This fundamentally is the reason our economy and society are where they are. That is because we have failed to create a policy environment that encourages the factors of production (capital and labour) to move towards where it is most productive. So capital, for example, was concentrated in government paper, because it was the best value-added return and crime was a turn-off for real investments, and labour moved to where it was more protected than productive, or we failed to lend money through the Students' Loan Bureau with any link to development.

The problem we face today is that if we want to, in a sustainable manner, positively develop our economy and society, there will need to be a fundamental shift in policy and values. This is directly linked, in my view, to our legislative framework and policies (economic, fiscal, and monetary). In other words the framework, or environment, that Government puts in place will determine if capital moves from the sidelines (eg in US$ assets) to real investments and if people find it more productive to work, or find it more profitable to be in crime or other non-productive ventures.

For example, because Jamaica is well-known for music and sports, and because of the demand, a lot of money is made from it, then naturally youngsters look towards music and sports as viable careers to pursue.

What it means is that, in order to change the economic and social situation in the country, we will have to do the necessary policy adjustments that will change the way we behave when it comes to allocation of capital and labour, and how we interact with each other socially.

This is what is being attempted with the current IMF-influenced economic programme and the legislative reforms taking place. I am of the view that the fiscal and legislative reforms under the IMF-programme are the right way to go. Many may wonder how I can say that if the result is economic hardship, particularly the continued slide of the dollar. But the fact is that the Jamaican economy has been inefficient for so long, and the resources so misallocated, that any form of adjustment is going to cause some pain. What we do know is that the fiscal adjustments being carried out by Peter Phillips are necessary, because if we continue to spend more than we earn, then the result is going to be catastrophic. The adjustment that we are seeing is a shift of our resources from unproductive to productive purposes. So we are seeing more companies looking towards export, and we are seeing more young persons starting their businesses.

What we are also seeing is greater economic hardships, a devaluing dollar, and higher interest rates. So the question is: How do we do the necessary adjustments and at the same time minimise the pain, and dislocation, that the necessary adjustments cause?

What we must understand is that the only way the economy will grow is if the private sector, and in particular the SME sector, becomes more vibrant. So large companies (that have matured in the Jamaican market) will inevitably turn towards other markets, as this is the best value added for them. The greatest growth, however, is going to come from facilitating SMEs to start and grow into large businesses, just as in the

US where we see small businesses through the stock exchanges, have grown into international businesses. This is the way to reduce unemployment and create greater economic activity.

This, however, is only possible if we have a business climate that encourages capital, and labour, to move towards establishing new SMEs. This means an environment where SMEs can flourish and grow. It does not mean handouts, but rather, providing cheaper electricity, more efficient bureaucracy, a more efficient justice system, transparent governance, and improved law and order.

It is my view that much progress has been made in this area, but it needs to be faster in order to compensate for the inevitable decline we see in economic conditions because of the necessary fiscal adjustments.

In other words, because of the fiscal adjustments and reform programmes, we have seen capital move out of government paper and that capital is going to find a home that gives the best value for risk. At the moment, what we are seeing is that capital is shifting to US dollars, which is what is causing the rate to move.

Therefore, what we need to do is create an environment where business and consumer confidence is such that capital will want to move to real investments. This means that policy initiatives must be focused on creating an environment of efficient and friendly bureaucracy, competitive energy cost, law and order, and important reforms, such as a competitive tax environment. Unless we make the changes to create a competitive environment for businesses, then we will not be able to create sustainable growth and development.

So, in concluding, I can say that the direction of the reforms under the IMF programme is the correct way to go. We must, however, be careful about how we manage the transition and ensure that we create the environment to encourage the allocation of capital and labour to productive investments.

Development can only happen with trust

IN my article last week, I looked at the role that behaviour plays in economic growth. This week I will focus on the critical nature of trust, or confidence. As I have stated on many occasions, economics is all about how we interact with each other, which means that economies, and ultimately economic development, are the outcome of the behaviour of people.

Similarly, whether a company is successful or not really depends to a great degree on the interaction between its employees and other stakeholders. In other words, it would be very difficult for a company to progress if the employees did not trust the boss, and there were no rules governing how persons should behave towards each other. This not only relates to how we work with each other, but also how we interact socially outside of work.

People have no obligation to interact with each other outside of work, but the truth is that it can assist significantly with productivity if persons working together develop a healthy social relationship outside of work related activity. This is something I say to younger professionals all the time, using the example of men who went to the same high school or have always played sports together.

What this social interaction around school or sports does is create an element of trust and commonality between individuals. So the person I attended high school with over 30 years ago, or the person I trust to ride in front of me when I am going at over 30 mph, is naturally someone I will be very comfortable dealing with in a work environment. This is referred to professionally as networking, but really goes beyond networking. It really is developing a deep confidence in someone whom you must in other important aspects of your life.

So in the cycling example above, if every week that I ride with someone, I trust that they are going to point out any upcoming obstacles in the road (pothole or oncoming car), or trust that they won't be slowing down in a manner that will cause a fall, then what this does is develop a belief in what that person says to me. In addition, if every week we have a common purpose of surviving the ride unharmed, then when it comes to work the relationship will be much enhanced.

This is why I think that being involved in sports (especially team sports) at an early age in school is so important to professional and social development. Team sports teach you to rely on, and trust, others. This interaction also teaches you whom to trust. This, of course, is something that I find has been missing from schools, as many parents focus their children on academics only, without understanding the importance of sports to social development, and also physical development.

This supports the argument that one of the most important policy initiatives that recognised the importance of relationships in economic and social development were the Values and Attitudes and PALS initiatives that were developed under the PJ Patterson administration. My own view as to why they didn't have the intended impact is simply that they were not enough of a priority for most of us, but rather just seen as a Band-Aid solution.

It would seem to me, though that this is a fundamental challenge that Jamaica, and the world, faces. We only have to look at what is happening in Washington where grown men (and I mean men as I don't really see any women involved) are unable to arrive at a consensus. The result is that many of the citizens who elected them are being negatively affected, and more importantly, the fragile global recovery is being threatened. What is amazing is that both sides want the same objective - an improvement in economic and social conditions - but are still unable to arrive at an agreement. And this same scenario has been playing out every year.

Contrast this to when Gingrich was the speaker of the House and Clinton was president. They both said they were able to resolve the matter because even before the lockdown at the time, they constantly dialogued with each other.

In other words, in the latter case, there was greater trust between both parties, and so they felt a greater confidence in what they were saying to each other. In the current case, however, there seems to be a total breakdown of trust, when you listen to the commentaries.

This of course is no different in Jamaica, where everyone is labelled either PNP or JLP, or even within the parties, where once there is a challenge of ideas there is a total breakdown of relationships between persons who were allies the previous day. This also can be seen in the relationship between trade unions and management, in both public and private institutions, or even more critically, the relationship between citizens and the police force. And we then wonder why we are unable to solve the crime plague.

This lack of trust of everyone has even found itself into our public sector rules, where, because of the lack of trust, we have managed to set up rigid procurement rules and then have seen the need to set up more than one level of managing the rules because we don't necessarily trust one organisation to oversee the process. So we have the OCG, NCC, and Cabinet all overseeing the procurement process.

The result of this lack of trust is that there is always suspicion of everything that is done in this country, and so when political parties change they dismantle even good programmes because they do not trust anyone who wears a different colour shirt. We therefore create layers of control (bureaucracy) to compensate for our lack of ability to work together, just as would be done in a company where there is a breakdown of trust between workers and management.

The consequence of this is, of course, that we spend many unproductive hours trying to discredit each other. Then we wonder why we are unable to make any progress.

Behaviour's role in economic growth

LAST Saturday I was with my cycling group for the ride out to Palisadoes and back. After getting to the airport roundabout we usually turn and go back to Harbour View before heading back to the airport.

While going around the roundabout, a man who was on a bicycle, heading towards Port Royal, also started to go around the roundabout. He, however, went around from the right side, while the approximately 20 cyclists correctly went from the left to go back to Harbour View. On seeing the 20 cyclists approaching him, at a pretty quick speed, he started to curse us, using some words that cannot be mentioned now, for fear of the Broadcasting Commission.

One of the greatest challenges we face as a country is how we hold the human resources accountable for their action, says Dennis Chung.

If he had followed the rules set out by the road code, then there would not have been any encounter, and he would not have had to utter such words, which could have led to further confrontation. In other words, if he had followed the rules, then there would have been perfect order, and peace would prevail.

However, in true Jamaican style, he chose to verbally abuse us although he was wrong and we were right.

I am sure that we can all relate to that situation in Jamaica, where persons breaking the rules abuse the other party. So, for example, you are driving and going within the 30 mph speed limit, but you are going too slow for the taxi man behind you who calls you all sorts of names while overtaking above the speed limit and where there is an unbroken white line. Or, as many young men can attest to, someone claiming to be the police wants to get information from you and you ask for identification and you are abused, even though the law requires that it is produced.

More commonly we can refer this to a situation where you walk into a tax office and while you are waiting in line, the person at the counter is on the phone speaking (obviously not work-related) or is chatting casually with a fellow employee.

All these instances are cases in which laws and processes are in place to ensure that there is order and that things are done efficiently, but the behaviour of the persons charged with the responsibility of carrying out the function, according to law, cause the inefficiency.

I believe that this is one of the fundamental challenges being faced by the bureaucracy in Jamaica today. It is not that we need more laws, or that processes are not in place, but rather that they are just not followed. So it seems to me that one of the greatest challenges we face as a country is how we hold the human resources accountable for their action. Which, of course, speaks to the problem of enforcement.

One glaring example of this, which may cost the country approximately one to two per cent of GDP growth, is the development approval process. Recently, I was alerted to the fact that development approval takes approximately nine months (at best) to process. This is not because there are not processes in place, such as a computerised tracking system, but rather because of the lethargy in ensuring that the approvals happen in a timely manner.

In fact, my understanding is that there are many millions of dollars in economic activity tied up in the bureaucracy of the approval process. This of course is at a time when there is fiscal tightening happening, causing a contraction in economic activity, which has resulted in six consecutive quarters of negative growth, and the highest unemployment levels in 16 years. And all we have to do to ease some of this pain is just to ensure that the already existing tracking system and processes are used, which could see the average approval time reduced from nine to three months, which is where it can easily end up.

This of course is not just a Jamaican problem, as we see in the US where grown men, knowing that the citizens of the US and the world are depending on them to reach a compromise, for their livelihood, cannot do so because of egos. We, of course, need to be careful of how we criticise them as we behave the same way all the time. It is estimated that if this continues for another week it could cost about one per cent in GDP growth, or even worse, if not resolved within two weeks, could lead to a global economic problem.

These examples illustrate the direct impact that behaviour has on economic growth. Many times we forget that economics is really about human behaviour, and that the macroeconomic measurements we like to speak of, are really nothing more than the outcome of how we behave.

Understanding this, it is therefore very important for us to consider the behavioural effect of policies on economic outcomes. I say this because when we sit down to think about the reform programmes being implemented, we should not keep our eyes fixed just on financial targets but on, more importantly, behavioural targets, which in turn affect financial targets.

So, that tax reform will only be successful when they encourage capital to move from the sidelines, or from overseas, to real investments in the country. Law enforcement is only successful when it causes orderly and compliant behaviour, which results in the citizens holding the enforcers of the law in high esteem and confidence.

So as we consider our economic future, let us look towards the current stand-off in the US as a behaviour we do not want to adopt, as it is clear that economic growth depends critically on influencing behaviour in the direction of greater productivity.