Time for economic independence

ON August 6, 1962, Jamaica gained political independence, and many people watched the Jamaican flag raised while the Union Jack was lowered for the last time. This symbolised Jamaica's new-found political independence and was indeed cause for celebration.

Over the 53 years since then, Jamaica has achieved a great deal and, personally, I have seen much development in infrastructure and other areas (although I wasn't around in 1962).

However, one thing that has eluded us is economic independence.

So although we were given the right to govern ourselves, we have never truly experienced what it is really like to be a prosperous country. And so we have changed from being told how to manage our economic affairs by our colonial masters, to now being told how to do so by the holders of our debt stock.

This is similar to a young man attaining adulthood, but still having to live under his parents' roof and abide by their rules, simply because he wasted his opportunities at school.

In my view, however, today we have a great opportunity to change that path of dependence and move towards economic independence. It has taken us 53 years to get here, but I think the opportunity exists now more than any other that I have been conscious of.

And I say this because the economic and fiscal programme we are pursuing allows us to change our fortunes.

The macroeconomic indicators are all trending in the right direction, and confidence -- both local and international -- is high. In addition, all of this is happening within the context of a recovering global economy and greater opportunities for Jamaica. Importantly, for the first time since 2004 we have recorded a surplus on our current account balance.

On the other hand, we also have the grand opportunity to once again snatch defeat from the jaws of victory, as we have done so many times in our past -- which is why we are involved in our 13th IMF agreement.

Economic stagnation

We are at a point where we can either do the right things to make the economy grow, or we can watch the economy stagnate. Stagnation of course means continuing economic dependence, and I don't think there is anyone who wants that to happen.

In order for us to realise the growth needed to lead us to economic independence, we must do certain things -- especially leading up to a constitutionally due election. That will require focused and strong leadership.

Both the prime minister and the minister of finance have stated their commitment to the economic programme.

The irony is that by making the right choices we can also improve the living conditions of most Jamaicans. I say most, as there are some people who will no longer benefit from being connected -- because the market will distribute rewards instead of connections. This process has already started with the legislative and fiscal reforms we have already undertaken, and so I expect it will continue.

The prime objective of any government must be to improve the lives of all its citizens. In order to do so, however, we must establish the framework for proper governance, finances, and behaviour -- just as is done in an organisation.

Here are a few things that must happen:

First, the government must have policies that facilitate greater opportunity and growth for both individuals and businesses. Fiscal policy, especially, must be geared towards that. In many respects fiscal policy in Jamaica still has the objective of revenue collection rather than economic facilitation. There is too much emphasis on penalising businesses and people for the slightest of errors, with no attempt being made to expedite their progress.

Secondly, if we are to move this country forward (even with the best fiscal policies) we must ensure that there is law, order, and discipline. We cannot continue with the mantra of "Jamaica No Problem", which everyone interprets as "Do whatever you want". So road discipline and respect for the peace and quiet of others must be at the top of the list.

The third thing in support of a disciplined society is that any progressive society must have a properly functioning justice system, from enforcement by the security forces all the way to the court system. Without enforcement, discipline does not work as justice delayed is justice denied.

Drought of action

But before we can see any serious improvement on the fiscal and competitive sides, the culture of the public sector must be transformed to one of efficiency. This is by far the biggest complaint in doing business. This has been on the table for far too long without action, and the irony is that unless we address this, then no meaningful economic development will come any time soon. This must include accountability for inaction, such as that which has led to the effects of another drought.

Leadership is of course going to be critical. Leadership will have to do the right thing for the country irrespective of the opposition or the political expediency. The country is crying out for leadership at all levels, and without it we all will continue to suffer.

All these factors are related and must be done together if we are to achieve real economic independence. Importantly, we must change the way we think and stop looking at short-term objectives while sacrificing the long-term benefits. Only then will we be truly on a path to sustainable development and prosperity.

The question is, are we committed to doing what is necessary and right to improve the long-term prospects of the Jamaican people? This is not just a responsibility of government, but for all of us to think about after 53 years of trying.

What is the correct primary surplus target?

THE primary surplus on the fiscal accounts can be defined as what is left to service debt after the government considers its revenues and expenditure on running the country. So wages, social programmes spending, and general spending on maintaining the country is taken out of revenues, and what is left is called the primary surplus.

This has been the topic of debate over the last week after five US lawmakers wrote to President Obama and asked him to lobby the IMF to ease up on the primary surplus requirement of 7.5 per cent of GDP. The purpose of lowering the target from 7.5 per cent to around 6.5 per cent would have the impact of allowing for more expenditure in the economy, which implies that there would be more money available for programmes, capital expenditure, and wages. The argument, of course, is that it would help to cushion some of the hardships being experienced by many Jamaicans.

Some people have suggested that lowering the primary surplus requirement from 7.5 per cent to around 6.5 per cent of GDP would also result in greater growth. They have pointed out that Jamaica has the largest primary surplus requirement globally, and that even Greece is not required to run such a large primary surplus, which effectively reduces the amount of government spending in the economy.

But what is the truth about the primary surplus and its effect on growth, and consequently reducing the hardship being experienced by many? Will it also allow the Government to provide greater wage increases, as some have argued? And more importantly, what is the best solution to the primary surplus that will ensure sustainable growth and development? The most important consideration is that of sustainable growth and development, and not just to think about short-term impact solely.

Letter to Obama

Last week, I was on a radio programme discussing the primary surplus level and if there was any merit in the letter sent to Obama by the legislators. The point I made is that even if the primary surplus is reduced from 7.5 per cent to zero per cent of GDP, this by itself does not guarantee growth, and, in fact, in the past we have run primary surpluses which are much lower than 7.5 per cent, and with much higher fiscal deficits. After doing that for many years we still have not seen sustainable growth rates, and since the 1960s the only respectable levels of growth we have seen occured from 1986 to 1990.

So between 1972 and 2014 (42 years), we have seen only four years of any sustained growth above say four per cent. And over those four years this was influenced primarily by a debt to GDP that climbed to 212 per cent in 1984. There is therefore no evidence that allowing greater funds for government expenditure will guarantee any sustainable levels of growth, and in fact it has worked against us as we have funded the increased government spending through debt, which has put us where we are today.

Even if we were to reduce the primary surplus requirement today, it would mean that we would have to do so either by:

1) increasing tax revenues (through compliance measures or increased economic activity). In other words, not really decrease the absolute primary surplus amount but increase the fiscal revenues; or

2) increasing debt.

Option 2 is certainly not desirable, as it would mean a reversal of what we have achieved so far and would result in a longer period of adjustment and potential hardships.

Option 1 is therefore the desirable one, and is where we need to focus.

Increasing tax revenue through compliance measures is the preferred option, especially as we see that the Greek problem is significantly caused by a low level of tax compliance; which is why what they are doing now will not work until they address the tax compliance problem. This is something that the TAJ has been working on. But the problem is that the tax policy has been more focused on targeting already compliant taxpayers and asking them to pay more -- not going after those who are not in the tax net. That policy has only served to discourage capital and new investments, which in effect has resulted in low growth levels.

The focus on squeezing more and more out of investors that are already tax-compliant ends up discouraging capital investments and causing growth stagnation.

This makes revenue from increased economic activity difficult. We have seen that every tax package introduced since 2004, with the exception of one, has not achieved the targeted revenues. The reason is simply because policy is geared at increasing revenues from those who already pay taxes, rather than expanding the net and encouraging capital investments. The result is a largely service economy with capital outflows greater than inflows over the last 42 years.

Lack of water hitting GDP

Another example of the lack of accountability that has caused loss of GDP growth is the management of the water situation by the NWC. Everyone knew from last year that the drought would be worse this year, and even with that knowledge the NWC failed to plan to address the situation. The result is that this year the drought may cost us about one per cent of GDP, as it did last year.

Therefore increasing fiscal expenditure by reducing the primary surplus requirement can actually cause us to reverse our gains if we do not change the way we look at policy, how we spend, and accountability.

There is an argument for increasing government expenditure to provide short-term stimulus, and therefore one could argue for a relaxation of the primary surplus target. But this must be done in a controlled environment and with the understanding that sustained growth will only come through increasing productivity and changing the way we look at policy. In fact, changing the attitude to capital (with policy), public sector accountability, and value for money fiscal spending will all have a greater impact on growth, even without changing the primary surplus percentage.

At this time of the programme, however, there is an argument for relaxing the primary surplus percentage as this would provide the short-term stimulus needed to drive economic activity. The impact of this, however, will have less effect than if it had been built in at the start of the programme, as it means pulling activity up from a lower level than it was before.

Productivity at the centre of economic and social success

AFTER twelve previous IMF agreements, Jamaica is once again at a crossroads. We are once again at a place where we are having a debate about how much pain is being inflicted by the agreement, with some saying that we must stay on the path of fiscal reform and others saying we must renegotiate the agreement and allow for more fiscal space for greater expenditure. Allowing for more fiscal space is of course code for a higher fiscal deficit and an increased debt to GDP ratio.

My own view is that we have been here before. In fact, since the 1970s all we have done is to postpone prudent fiscal and economic management, so that we can play the populist game and feed the welfare addiction of our political process. By doing so, we have changed the attitude of the people from one of independence to one of being hooked on welfare through government spending -- thereby creating a political culture where the supporters of the party in power get all the benefits through their party's control of the fiscal resources.

Neo-colonial dependency

In fact, our political and social arrangements have moved us from the hopefulness of independence in 1962, to a culture of dependence on government, and the government's own dependence on foreign governments and agencies. Our irresponsible actions have moved us into a neo-colonial dependency, where our constitution is merely an illusion of independence.

All of this is because we have failed to address the root of our economic and social issues -- the continuing decline in labour productivity since around 1972 (there was a brief period of marginal improvement in the 1980s). As a result we have sought to improve our standard of living by either "begging" (through grants) or borrowing. We have never really paid back our debt but have just transferred our debt from one creditor to the next. By doing so we have created one big Ponzi scheme, where what we have done is rely on geometrically expanding those who will lend us money to pay back those we borrowed from before.

This trend is unsustainable, as we are now finding out, and we have come full circle -- borrowing in the 1970s from multilaterals, then from the capital markets, and now back to the multilaterals. Throughout this whole process we have never controlled our own economic destiny, but have always been marching to the orders of foreign creditors.

Change needed

The question we must now ask ourselves is, do we want to continue this trend -- thereby mortgaging the lives of our children the way we have done with our own lives? If the answer is yes, then we can continue to ignore the issues of productivity and needed behavioural change. If the answer is no, then we must do what is necessary to change our behaviour.

Whether it is your own personal life, a company, or a country, we can only make changes to our financial outturn by changing our behaviour patterns. This is something that as a country we have failed to do, just like many companies and individuals. We cannot change a company's fortune by working diligently at expanding the operations if the business model is no longer viable. And Jamaica's business model needs change.

This is the reasoning behind the fiscal and legislative reforms under the current economic programme, and why I personally an hopeful that it will work this time. Because in the past there has been fiscal and economic reform without legislative reform. This is the first time we are seeking to change economic and social behaviour through legislation such as the Insolvency Act, Tax Harmonisation Act, Fiscal Rule, and other criminal legislation such as DNA and Plea Bargain legislation.

This will ensure that as we apply fiscal reforms to bring about more responsible financial management, we will be ensuring behavioural change for greater competitiveness. If done properly, this will have the effect of increasing productivity for labour and capital, and will result in improving our external accounts, which is at the heart of our problems.

This adjustment is not going to be easy, primarily because we have delayed it for so long and built up a lot of "adjustment pressures". But if not done, then it is gong to cause much greater dislocation in the very near future. But the adjustment is not restricted to labour and capital, as government bureaucracy also needs to make the adjustment in how they think.

I refer specifically to government's addiction to taxes, and its current struggle to change its addiction habit. This is seen in the way taxes are introduced, which focuses on earning fiscal revenue rather than encouraging private sector and economic expansion. So, we have seen, and continue to see, new tax policy that is devoid of the link between economic activity and fiscal expansion, rather than focusing on fiscal expansion at the expense of economic activity. This type of behaviour will result in continuing the downward spiral and cause the sacrifices already made to be in vain.

We must remember that we live in a global village and capital has no obligation to one territory.

So while we ask labour and capital to change their behaviour, the change must also take place in policy. To the credit of the policy makers though, I have found that this attitude is changing and they have opened the door of dialogue to a greater degree than I have ever seen before, and this dialogue is taking place not just at the level of the policy makers but the executors also.

This needed change, however, is not only at the policy level but in the way we socially interact. So things like indiscipline on the roads and persistent night noise have deleterious effects on productivity. As an example, if we had proper order and control of crime, people would find it more palatable to use public transportation, or ride bicycles, which would cut into the more than US$2 billion spent on oil each year, and increase the spending power of labour to improve their standard of living. Or if we were to dispose of our garbage properly it would improve our health environment and reduce the money we spend on health care.

This is a conversation that we need to continue, as anything we do that does not include increasing labour and capital productivity (Total Productivity Factor) will only cause pain without benefit.

Public sector wages — what are the real options?

ONCE again the public sector wage negotiation is the main topic of the day. This was also the case in 2004, when the first round of wage freezes was agreed. Then, just like today, I didn't see a public sector wage freeze as a long-term solution. In fact, the 2004 agreement never saw it as that either, as it proposed actions that included retraining public sector workers and preparing them to transition, voluntarily, to start their own businesses or seek employment in the private sector.

So what we are seeing today is not a new problem. It is just worse because we have delayed solving the underlying problems. And even if we were to get another wage freeze, or lay off workers, it still would not solve the underlying problem by itself and we would be back in this same situation within another two to three years.

What is really needed is proper public sector reform that results in performance related-pay measurements and labour market reform. It is our failure to do this, and just talk, that has led to where we are today. And if we do not carry out this reform effectively, we will still find ourselves back where we are today, because at the heart of the problem is the matter of productivity.

The approach to public sector reform in 2010 (through the centralised PSTU at the OPM) was never going to work. When I indicated that in 2010 I was told that I didn't know what I was talking about. The approach today is somewhat better, based on what I have seen, but the centralised approach is still too bureaucratic and will not have any short-term impact. The best solution is to decentralise the reform process. But that is for another article, as I want to look at the immediate options to resolve the current impasse.

Emotional responses

The response from many on the public sector wage dispute is emotional. I have heard many people say that the government should pay the public sector workers significant increases, or more than 25 per cent. When I ask them to put forward their immediate solution, bearing in mind that new taxes won't work and debt is not possible, they speak to medium-term solutions such as tax reform, public sector reform, and reducing wasteful expenditure.

One person, when pressed, even went as far as to say that people over 55 should be forced to retire and the other workers should be given an increase of at least 25 per cent. In other words, lay off other workers as long as it does not affect me. But there's no mention of keeping the most productive, or of paying based on performance.

What these responses show is that they are not supported by any thought-out solutions. One man I heard on the radio, when asked for a solution, said that the government can raise taxes -- which betrays a lack of understanding of how the economy works. That solution would cause even further hardship, not only on businesses, and SMEs in particular, but for the same public sector workers.

Let us be clear that I empathise with public sector workers, and in particular the police, nurses, and teachers. Even though these groups have demonstrated their willingness to go the extra mile, in general, the fact is that both productive and non-productive people have been grouped together, in relation to the negotiations. The result is that you apply the same compensation amounts to people with varying degrees of productivity, and the productivity level as a whole will fall.

So, because of our failure to properly address public sector reform, we are in the same place, or worse, than we were 11 years ago when the first wage freeze agreement was inked. Resolving this, however, is a longer-term solution and the chickens have now come home to roost.

The fact is that the options available to the government today are very limited. There are only two options (i) accept the government's offer, within its ability to pay, or (ii) as Minister Dalley said, if the demands are met then it means 10,000 to 15,000 jobs will be lost. Or else there will be an inability to pay.

The private sector seems to be profitable today, and the truth is that they are improving, but they are still far from where they were pre-recession. This success, however, came after much pain in the private sector, as they suffered from two debt swaps and also lost a significant amount of jobs, when the unemployment rate went close to 20 per cent. Many businesses also closed, and even today many are struggling. Every week, I get many requests from people seeking employment -- even for a job way below their training.

So what has happened in the private sector is that the market has adjusted, and as a result organisations are becoming more profitable. This is just as it happened in the US market, where job losses and business closures were rampant, and after a few years of pain the market is recovering.

This adjustment never happened in the public sector, however, resulting in the difficult situation we are in today. The fact, however, is that sooner or later the market will demand that the adjustment either be made, through public sector reform, or the suffering will continue for a much longer time. And it would have happened earlier had we not gone out and borrowed money to cover up for our inefficiencies.

Just as in 2009 myself and Ralston Hyman said (i) the debt needed to be restructured and (ii) the government would have to turn to the IMF, and we were told that we didn't know what we were saying. Approximately three months later, however, we signed an agreement with the IMF and the debt was restructured. The point being that the way to deal with the fiscal problem must be looked at practically, and not from an emotive position.

So while public sector and policy reform, is necessary for a long-term sustainable solution, the fact is that an immediate solution is necessary. In my view, the best solution for the country now, is for the government's offer to be accepted. I don't subscribe to the selfish view that we should retire the older people so that the younger ones can benefit. I know that people are having a difficult time, but trust me when I say that any significant increase, without the accompanying productivity increase, will only lead to increases in inflation and the depreciation of the exchange rate, and make it even much worse for everyone.

However, while accepting the offer, it is important for both parties to sit down and arrive at a win-win long-term solution for all. This will of course require an improvement of the trust factor between both parties, as the lack of trust for me is the most divisive factor in these negotiations.

Long-term view to solutions necessary

Recently, I said to someone that one of the challenges we have as a country is that we are too focused on immediate gratification, and not on the long-term effects of our actions. As a consequence we react to what people, or the media say, and throw out our long-term, well-thought-out plan in order to conform with the popular opinion of the moment, or to prevent the public saying anything negative about us.

This is not only a fault with our politics, but in many instances occurs in private companies also. Managers will often listen to the office talk and act based on that, rather than properly investigating and applying an objective process to finding a solution.

So, as I said to the person, it is not the best thing to manage your affairs based on what is being said, but rather manage based on whatever well-thought-out plan and long term objective you have, and ensure that you apply the right principles. You might not be "popular" in the immediate term, but that is only important if you are in a beauty contest. One of the primary responsibilities of being a leader or professional, is to always do what is right even in the face of being unpopular.

Economic climate

At the current time there is much debate about what are the right economic and fiscal policies to pursue, as there is no doubt that the economic climate is difficult for many in the labour force and some businesses. It seems paradoxical that many in the business community, buoyed by the business and consumer confidence numbers, are saying that the programme is going well and they see improvements, expecting a better economy. While there are others, and rightly so, who question the path we are on because it has become very difficult for them. Included amongst them are many well-qualified professionals.

I don't doubt that, as I have seen and heard about such situations. And I empathise with them, as there has been a significant change in the economic environment.

What we must not do, however, is bring about any radical change that will affect the long-term viability of our plan. I have seen many times in the past where at the first sign of criticism we falter and throw out all the accomplishments we have achieved. This is what leads to the view by many that new governments abandon all the good programmes and policies that are in place because of politics.

But, as I said, this is not unique to the country's governance, but also private sector companies which may have the wrong leadership; because I have found that when it comes to success, leadership is first, second, and third.

Great business leaders

And I know what it is like to come under severe criticism by people who either can't see the long-term vision, or those with different agendas. I have also had the experience of working with some great leaders, who have always looked at the bigger picture and don't worry too much about the immediate criticism.

Two such people, whom I worked very closely with on the Air Jamaica divestment, were Dennis Lalor and Don Wehby. I remember during that process that there was severe criticism from many, including comments also that we were securing financial reward for ourselves from the transaction. The irony of it is that none of the directors even received the normal stipend, and in many instances the bills were taken care of by Lalor.

In the face of the criticisms, however, these gentlemen would say to me that we have a job to do and we have to think about the long-term objective. Is it any wonder that both GraceKennedy and ICWI are very successful companies that have been around for a very long time.

I remember also when I was on the board on the Betting, Gaming and Lotteries Commission, and being much younger then I received a very important lesson from the chairman at the time, Gordon Robinson, who said to us that irrespective of what people say out there we will do the right thing -- even if it means that we will eat bun and cheese for the rest of our lives.

The fact is that credibility does not come from being popular. It comes from doing the right thing all the time.

This doesn't mean that as you go along the journey you don't make adjustments. In fact, having the flexibility to make adjustments is very important. Richard Byles always says that the economic programme is like driving to MoBay. You may change your speed or may get a flat along the way and have to fix it, but you should never forget that you are still driving to MoBay.

So we are at a critical juncture of the economic programme, and the change in the economic competitiveness, and reduction in government programmes is taking a toll. And I think we need to make adjustments where necessary but we should not make any decision that will cause us to be thrown off the long-term objectives. Any action that causes that will only lead to even greater hardship, as has happened in this country over the past 40 years.

What it will require is strong and visionary leadership. Leadership that must be able to communicate effectively -- not only what we are doing -- but the long-term objective and path to get there. Leadership that can sell this vision to the country so that they also are fully engaged.

One of the things I have always warned against, which we must not be tempted to do, is to install taxes as a short-term gap for the fiscal accounts while hurting the long-term objectives. I have seen us do that too many times, which ends up causing even greater fiscal challenges.

As citizens we also have a responsibility to engage constructively with the government. Criticism and disagreement is good but it must be done in a constructive and respectful manner, while in the long run doing what's necessary to achieve our objectives.

Public sector wage dilemma

One of the issues that has to be resolved, as we move forward with our economic programme, is the matter of public sector wages. Over the past three years, the workers have accepted a wage freeze.

Over this period the exchange rate has moved from approximately J$88:US$1 to over J$115:US$1. Also, inflation would have totaled approximately 30 per cent, which means that public sector wages would have been significantly reduced in real terms. What this means is that public sector workers would have seen a decline in living standards. This is not exclusive to the public sector, as private sector workers have not only faced wage freezes, but also job losses.

This sacrifice by the public sector workers has contributed positively to the the fiscal accounts. Over that period we have successfully completed eight quarterly IMF tests and, more importantly, the fiscal deficit balance has been significantly reduced to near balance. This has resulted in lower inflation rates, lower interest rates, increased business confidence, reducing debt to GDP ratio, and significant slowdown in the depreciation of the exchange rate.

Indicators point up

These numbers are significant, because for the first time that I can recall all indicators are moving in the right direction all at the same time. Previously we would have a combination of either (1) stable exchange rate, high inflation, high interest rates, and deteriorating debt to GDP ratio; (2) devaluation, high inflation, lower interest rates, and deteriorating debt to GDP ratio; or (3) all indicators worsening.

Another positive effect of reducing real wages has been the improvement in the balance of payments, as a result of reduced imports, caused by reduced demand.

One can therefore sympathise with the public sector workers, as significant sacrifice has been made resulting in lower living standards. The other challenge that public sector workers would face is that because of a lack of emphasis on performance compensation, persons who add greater value and go the extra mile still get the same compensation as someone in a similar pay grade who is much less productive. In the private sector this productivity is considered in compensation, for example incentive payments.

The March 2015 fiscal quarter shows that although the more important primary surplus percent target has been met, the amount was some $4 billion less than target. The implication being compressed expenditure, especially on infrastructure, in order to meet targets. This also means that in order to meet our targets at this time, the greater reliance is on expenditure management rather than revenues.

This news comes at a time when the public sector is negotiating for a wage increase and is demanding up to 15 per cent each year for the next two fiscal years. At the same time, the Government is correctly advising that this would threaten the fiscal targets and could result in us jeopardising future IMF tests.

The dilemna

The dilemma is: Do the workers have an argument for double digit increases, or is the Government correct in saying that more than 5.0 per cent would jeopardise the future targets? In the past, for example, when faced with pressure from the public sector unions, the Government would provide the increases demanded and then we'd start the whole process all over again, which is why 53 years after independence we are still in an economic quagmire.

My own view when the budget was presented is that an increase of between four and eight per cent was to be expected. This is simply because any amounts above that would jeopardise the fiscal and economic programme. Too high an increase would (i) eliminate any capital expenditure on infrastructure; and/or (ii) cause a lower primary surplus and higher deficit.

It is for this reason that the best option may be for public sector workers to compromise with the Government's position this fiscal year. This is because any increase that causes us to regress in the fiscal accounts will result in only very short-term benefits, but within a year that would be followed by higher inflation, increased debt, and greater devaluation. In very short order purchasing power would quickly be eroded. In fact, I think any misalignment now may cause even greater hardships than before.

This doesn't mean that public sector workers should continue to sacrifice indefinitely, and what I would do, if I were the union, is get a commitment from the Government that accepting the proposed increase in this fiscal year means that certain things will be put in place to ensure growth, and hence improved tax revenues.

One of the things that has resulted in this impasse, as well as the difficulty faced by public sector workers, is the failure of administrations over the years to adequately address public sector transformation. The focus of course is not on job cuts, but rather transforming the public sector into a much more productive unit, which will facilitate private sector productivity. This will of course result in greater revenues for the fiscal accounts. Bear in mind that a part of this also is to ensure that there is greater emphasis on tax compliance by persons outside of the net.

It is clear to me that any sustainable solution to public sector wages, for the benefit of both the workers and the fiscal accounts, can only happen if there is greater public sector productivity and workers are compensated based on their value added, rather than just seniority.

So I will end with what I also said when the first set of wage freezes started (I think in 2007). Wage freezes are not a sustainable solution to the fiscal accounts and will only delay the inevitable and during that time cause unnecessary suffering. If we want to see better circumstances for public sector workers and the fiscal accounts then public sector transformation must happen.

It is our failure to do this that has once again resulted in the public sector workers seeing declining real wages without any permanent solution to the fiscal accounts.

What does economic and social change look like?

PERHAPS the question I get asked most frequently is about the economy and the prospects for it. One of the things I hate the most is when people engage you on the economy and ask about the prospects, but then don't give you a chance to answer and then go on to curse everyone who is living and dead, about the difficulties in the economy. They then go into the history of our economic mismanagement and then naturally their argument progresses to placing blame on one political party or another. All of this before I have answered the question, which always leads me to wonder why they don't call a talk show to vent rather than ask the question.

Many times, however, people will have doubts about where the economy is going, and whether we are seeing any benefits from the economic programme, as admittedly things are not easy. I will be the first to admit that the past few years, since 2009, have been very challenging for some businesses and individuals.

So when I say to them that I am optimistic about the changes being made and where I see the economy going, they are surprised. Some even go as far as to say that when analysts like us speak that way, we are being spin doctors for the government. However, when we say things are not going well, under both administrations, they cheer you on. It seems they just want to hear bad news all the time. I can only imagine how such an attitude affects one's perspective.

Hope

The truth, however, is that we need to develop the ability to recognise when there is hope and when there is not. That ability helps make a successful entrepreneur, one who might be having a difficult time in their business but can still see the forest and not just the trees.

Not everyone has this ability, but what everyone can do is try to develop an open mind to see other people's reasoning. It is this tolerance of opposing views that enables us to develop our own thoughts.

The question to be answered is: are we making progress under the current economic programme? My view is yes we are, and, as I have said many times before, this time we stand a better chance than under prior IMF programmes.

Why do I think so? Because for the first time we are making necessary legislative changes to accompany the fiscal changes. And, as various analysts have said many times in the past, the only way any fiscal or economic reform can work is if it is accompanied by structural changes. The legislative agenda has provided the opportunity to change the structural environment to create a more competitive economy. So I don't think that anyone would disagree that this programme includes the much needed structural reforms.

There is also no doubt that the economic environment is getting more competitive and more challenging for many businesses and individuals. The reason for this is that as a country we were used to operating in an economy with less competitiveness, with many people and businesses benefiting from contacts and government welfare. When those avenues lessened it inevitably became a more challenging environment.

The role of bodies like the PSOJ is to help with that transition to a more competitive economy, where the playing field is level for all and the bureaucracy and societal conditions do not stand in the way of innovation or economic activity.

Recognising positive change

What we must ensure, however, is that while we acknowledge the difficulties, and the things that still need to be improved, we must also be able to recognise when positive changes are happening and the direction we are moving in. In other words, how do we recognise when an economy is positively transforming even while challenges are there. For example, in the two years after 2008, the US economy was still going through significant challenges, and the instinctive reaction globally was to move to austerity measures as Europe did. But the US administration, however, stuck to its guns, even in the face of opposition, and the end result is that the US economy is now the locomotive of the recovery.

It is also going to be very important for us not to prevent our own development, in the face of the immediate challenges, by deviating from the path we are on. Many times in the past we have embarked on fiscal and economic reform programmes, and at the first sign of difficulties we start running fiscal deficits and restart the process of decline all over again. This is how we have ended up where we are today.

I recognise the difficulties we face but all the indicators are showing me that we are on the right path. These include (i) much lower inflation and interest rates, with the difference between US$ and J$ interest rates much reduced; (ii) reducing balance of payments deficit; (iii) a more stable exchange rate; (iv) near zero fiscal balances; and (v) increasing business and consumer confidence.

But even with this, we must still recognise the challenges we have and must address. These include bureaucracy, crime, and governance. What we must do is address these challenges constructively, deliberately, and together. In other words, let us criticise each other, as this is good for progress, but let us do so rationally and constructively.

So what we must be able to do is understand that any transformation, including economic and social, to a better model, will always cause dislocation. What we must do though is forge ahead with any plan we have properly thought out, and be able to see the long-term outcome while at the same time dealing with the challenges that occur on the way to that desired outcome.

How we think impacts our development

ONE of the things I encourage my staff to do is feel free to be critical of me as CEO of the Private Sector Organisation of Jamaica (PSOJ), which leads to having an environment where we can all be critical of each other.

We therefore have an open atmosphere where we can all speak to each other about; ideas for growth: what areas we think someone can improve in and, importantly, to recognise achievements. This creates an atmosphere where everyone feels comfortable about contributing to the progress of the organisation.

I see the same philosophy with many private sector leaders I have worked with -- such as Dennis Lalor and Don Wehby -- who always ask for feedback before making any comments whenever we discuss any issue. I find that the present PSOJ officers, led by William Mahfood, are also always interested in feedback. This philosophy is what makes for their own success in many respects, as the ability to listen, especially to suggestions for improvement, is probably one of the most important traits you will see in any successful leader.

In fact, I have found that many persons who have failed have an inability to constructively accept criticism. In other words, they usually end up "shooting down" the messenger and not listening to the message. This, of course, results in them only attracting "yes men" -- when nothing could be more damaging to that person's development.

While that criticism may come across as harsh, it may be necessary given the circumstances. I we want to develop, we have to learn to listen to the criticism, rather than just the form in which it is delivered. That is not to say that criticism must not be respectful and constructive, but even that is sometimes essential for overall development.

One instance I can think of when harsh criticism is necessary is when a group of us are cycling. There may be a group of 20 to 30 people all moving at upwards of 25 mph and just 6 to 12 inches behind each other's wheel. In those circumstances, we can understand when we do something wrong and the person behind us tells us two "choice words". While we might tell them one back, we realise that any error can cause serious physical damage. In such a situation no one is offended by what they are told.

Party colours

This inability to accept constructive criticism is one of the things that has held back the development of our country. The emails I receive about governance issues are always the same, no matter which political party is in power. What is amazing is that the same person can have two very different thought processes on the same issue depending solely on which party is in power. This is one of the primary roadblocks to our own development as a people and country.

It is strange that the politicians themselves are much more receptive to the constructive criticism than the people who follow them. And it is not that the politicians tell them to think that way. In fact, it is much easier and acceptable for me to sit down with the politicians and give them my own views -- which they accept -- than to have a discussion with some other people who are supposedly intelligent thinkers.

This says a lot about our level of development as a people.

I must admit, however, that there has been much improvement since the 1970s and 1980s, for example, when we used to kill each other over our individual political views. The irony is that many of those who would want to go back to that way of thinking do not understand how much people suffered during those times, as they were either not born yet or were not old enough. I was young during the 1970s, but I can remember those days very well, and so people like me will appreciate the need for the constructive dialogue that many have sacrificed for.

Vision 2030

If we are to develop as a country and to achieve the elements espoused in Vision 2030, then we can't focus only on infrastructural and economic development, but we must also change how we think and communicate with each other.

The economic reform programme is an example. My own view is that the economic agenda, as outlined by Minister Phillips, is certainly the direction that we want to move in. Fiscal and legislative reform is essential and is a necessary ingredient to form the basis of any economic and social development. It might not be sufficient, but I don't think that there can be any argument about the need for these reforms.

There is also a need for public sector transformation, skills training, and focusing on certain strategic investment decisions, such as the Agro Parks, KCT, highway development etc.

But even though all agree that there is a need for public sector transformation and efficiency, there is disagreement when initiatives under the reform are being undertaken, without any rational explanation for the disagreement or any alternative being offered. So the question is, what is the difference to someone agreeing that greater efficiency and better management is needed in the public sector and recognising that same need for management around ChickV and the Riverton Fire -- which both cost the country hundreds of millions of dollars?

The short answer is that the only difference is our inability to accept criticism constructively, which is really what places us at a disadvantage.

On the other hand, there are some of us who will also criticise any policy put in by a government that we do not support -- even though we would support it if put in place by a government that we support. And this disease seems to be contagious as it is also affecting the US now.

If we want to move forward and develop as a country, we must be able to accept good and bad criticisms, and look at the message not the messenger.

Why won't the private sector invest?

LAST year I sat on a panel to discuss the state of the economy. Someone in the audience correctly stated that much work was being done by the government to improve the business and economic landscape, but asked why the private sector will not invest if the government has done its part.

I told him that he was also a part of the private sector and suggested if he saw the opportunity to invest, then he should not want anyone to invest before he does, and that he should make the investment. And even if he has to secure a loan, he should take the risk or he could use his savings to do so. His response was that he would not risk his meagre savings in an investment, and he didn't want to borrow any money either.

I asked him who he referred to as the private sector, as I thought that everyone who is not a part of the public sector is in the private sector.

This illustrates the view that many persons have: The private sector is someone else, not me. Nothing could be further from the truth.

Consequently if you do not see an opportunity that would cause you to risk your own money, why do you expect that there is a private sector out there that will?

But the question persists. Why doesn't the private sector step up to the plate, now that the government has done so much to facilitate businesses? However, I would pose the question this way: Is this the right time for me to make an investment, and if my answer is yes, I would ask why no one else has made the investment; not to urge anyone else to invest before me but to assure myself that my own assessment is right. I don't think that I can ask someone to risk their own money when I am not willing to invest mine.

I do agree, and have said repeatedly, that the current reform programme is moving in the right direction, with the various fiscal and legislative adjustments being made. This has resulted in Jamaica moving up 27 places in the Doing Business Report; being named the best place in the Caribbean to do business; and having business and consumer confidence at yearly highs. I get a real feeling also that businesses are looking at even more investments, which will begin to show and pay off for the economy.

We must understand though that (i) mobilisation of capital is not easy, so even when there are positive changes capital just doesn't appear out of thin air; (ii) even though confidence has improved it doesn't mean that we are now more competitive for investments than other countries, as they are not just sitting down and waiting on us; and (iii) regaining enough confidence for action is a process, as we have had more than 40 years of mistrust between the private and public sectors. If you have had even one year of mistrust in a relationship and you are making an effort to improve it, does it go back to where it was overnight?

There are, of course, many things that erode trust and confidence. These include:

* Even though this year we have had a more proactive budget process, we must remember that every year the country (including businesses) holds its collective breath about what new taxes are coming -- removing the predictability of business. Any one tax measure can change a business model in an instant.

* Many persons who invested in government paper saw their cash flows and values affected by the first debt exchange in 2010, and subsequent ones. These actions changed the return and cost of capital overnight, even though unavoidable.

* We must also remember that we have just gone through a raft of legislative changes, which still continue, and it takes time for businesses to assimilate all the changes, which is the prudent thing to do before investing.

* The bureaucracy is still a significant issue, especially for those SMEs which cannot afford a courier service. It still consumes a lot of time to pay taxes, despite the improvements by TAJ. And attempts at the improvements have not been smooth as there have been reports of challenges with the new forms and new system. The bright spot is that TAJ's response has been very good, and they continue to be an example of good customer service in the public sector. On the downside we are told that the cost of exporting to New York from the Dominican Republic is less than the cost of getting the container on a ship here.

* Crime is still a problem, even though there have been improvements. Much of the crime is domestic violence but the perception of an unsafe environment still exists.

* Last year drought conditions cost farmers significant losses, while the NWC continues to have the majority of its water unaccounted for and the dams are full of silt. Also last year ChickV resulted in an estimated 13 million man hours lost, and approximately 0.5 per cent of GDP. Between the drought and ChickV the GDP lost was around one to 1.5 per cent.

* Now we have the Riverton fire, which has caused untold health problems, and many businesses have lost hundreds of millions in revenue and citizens have lost income. Businesses also have to pay employees wages despite losing income to a crisis that could have been avoided.

The fact, though, is that there have been significant investments over the past year, but long-term investing is not like buying and selling, which is what we have become accustomed to. It takes time to show returns.

So when we next wonder why the private sector is not stepping up to the plate and investing as it should, remember that the private sector is everyone outside of government, and if we do not feel like risking our own money in investments, then why do we ask others to do so? The other way the question can be asked is, why do we not buy the domestic product even when it is much more expensive than the import, or why do so many of us choose to migrate instead of staying and helping to build Jamaica?

ICAJ 50: the accountant’s role in development

THE Institute of Chartered Accountants of Jamaica (ICAJ), of which I am the current president, is celebrating 50 years of existence, having been formed in 1965. After reflecting on the importance of the accountancy profession, and considering where we are as a country today, I thought it would be good to highlight the importance of the accounting profession to Jamaica.

This is especially in light of a problem I see many SMEs facing; that of improperly prepared accounting records. This not only restricts their growth potential but also causes challenges with accessing credit. Even when they are able to access credit the cost of funds is higher because financial institutions cannot do a proper credit assessment.

Many business people do not see the importance of accountants, and records, until it is too late. So the emphasis is on producing and selling products, or services, but no emphasis is placed on record keeping, filing tax returns, and other proper governance practices. SMEs need to understand the importance of this for their own growth and development.

This is where the accountant plays a very important role in development of businesses, at the micro level, and ultimately economic and social development.

The first thing to understand is what to look for in an accountant. Just like when you are buying an appliance there are certain brands that are tried and proven, it is also important to ensure before you buy accounting services that you are getting good quality.

Many people use accountants who are not suitably qualified to prepare their records,. I have seen this time and time again. Usually the customer complains about the accountant's service after the fact. And many times we discover that the accountants are not members of the ICAJ, and so we have no jurisdiction over them.

This is where the ICAJ, and the Public Accountancy Board (PAB), come into play, as these two bodies regulate the accounting profession and by extension issue membership and practising certificates to their members. One can therefore be reasonably assured that the quality one gets with someone holding this certification is of an acceptable standard.

The PAB is the regulatory body for the profession in Jamaica, and is so empowered to do so by law. The ICAJ goes further by certifying accountants as chartered accountants. In other words, even if you have passed all the accounting exams in the world, you cannot legally hold yourself out to be a chartered accountant unless you are a member of the ICAJ. Anyone who does that is liable to prosecution.

The chartered accountant title gives assurance to the public that the accountant is of a minimum standard, as he must pass certain exams; have a certain number of years of experience; be recommended by two members; pass an ethics exam; and not have any integrity issues.

Earning the right to be called a chartered accountant is a rigorous process, as even after all of that you are interviewed by a panel if there is anything that needs specific answers. Acceptance is not automatic.

The 2008 global financial crisis, for example, was partially caused by a lack of proper accounting reporting, as the valuation of securities was not properly reported. Assuring that they had been may not have prevented the crisis, but it would have alerted people about the problem before it became so big. In Jamaica, we would have stood a better chance than the US because of our use and application of IFRS, unlike the US standards in place at the time.

If we are going to move Jamaica's SMEs forward, then we must understand the important role that properly qualified accountants play. Look at the capital markets and companies on the stock exchange. Many people purchase shares on the exchange as long-term investments for their retirement years. The quality of the audited financial statements is very important, as if the reports are inaccurate, then it can lead to a lot of heartache in the future when and if the inaccurate reports affect the viability of the company. This is why I always urge people that the first section to look at in a set of audited financial statements is the audit report -- because if it includes a qualification it may not make sense to rely on the rest of the report.

The ICAJ and PAB recognise the need to protect the users of financial statements, and have put in place practice monitoring (quality assurance) and other programmes to reduce the risk of inaccurate reports being fed to the public. But as always it is up to the "buyer to beware".

In other words, check the credentials of the accountants you do business with -- and whose reports you rely on. One way you can do that is by checking the listing of members on the ICAJ website, or simply calling the ICAJ.

As the ICAJ celebrates 50 years of existence, it is appropriate to highlight the important role of accountants in national development. But as with any product or service, the user must be fully aware of what is being purchased.

Indiscipline and lawlessness promote social inequality

LAST week I spoke about the lack of proper parenting skills being Jamaica's fundamental problem -- and the root cause of almost every challenge we face.

The reality, however, is that much of this parenting crisis comes from a lack of discipline and order in the society, in many instances promoted by people who should know better. In other words, many of our leaders, especially policymakers, are aware of the unethical and sometimes illegal social issues we face, but do little to address them. And so in many ways, ignoring these issues means that we are complicit in the consequences.

Just last week, Gary "Butch" Hendrickson commented on something I had really not reflected on before. Butch indicated that the violation of the Noise Abatement Act was actually one of the primary causes of social inequality.

At first I didn't understand what he meant, but he went on to explain that when a child in a depressed community has to deal with music being played at loud decibels way into wee hours, that child loses a good night's sleep and is not properly prepared for school the next day. In addition, the child has to get up early and hustle on public transportation to go to school, often without the benefit of a proper breakfast.

Contrast this to a child from a middle- or upper-income family, who may live away from night noises, or whose family can insulate him from them so he can get a good night's rest and wake up refreshed and ready to learn. In addition, that child can sleep longer because he will be driven to school and will also receive proper nourishment before leaving home.

In both cases, each child is born with the same physical and mental capacity, but because of different circumstances there will more than likely be different results. The child from the inner city may rise up against the odds, but will have to do so under more challenging conditions.

It is also important to point out that apart from lack of sleep and proper nutrition, the child from the lower-income family also faces the challenge of a daily assault on our less-than- adequate and often abusive transportation system. Not only must this child wake up one or two hours earlier, but must also fight with the disorganised system, and be pushed around and sometimes shouted at by transport operators who want to maximise their earnings in the midst of the indiscipline on our roads. We can also talk about the physical danger they face with the poor driving practices of many transport operators.

This lack of order also extends to our crime problem, as the child from the inner city is confronted more directly with many of the crimes being committed and interfaces directly with the outcome of crimes -- even if not committed against him. Again, the child from the middle or upper class is insulated from many of these crimes.

Many children today face issues of abuse -- physical (including sexual) and mental. This occurs at all levels of society, creating social inequality by giving the abused child a greater reason to fail in life.

This is one of my pet peeves, as for the life of me I cannot understand why the child authorities and court system find it so difficult to come to grips with child abuse. This should be the priority of the justice system as our failure to adequately address child abuse just creates more criminal deviants in the future. Nor can I understand our failure to hold accountable those parents who take to the streets to sell or beg with their young children at their side. This is in plain sight, but nothing is done about it.

I have personally reported (around twice) a woman I see on Sundays at a gas station seated with two or three young children begging for money and food. One of the children (a young lady) seems to have grown up and is now begging as well. Still nothing is done about it

So after reflecting on what Butch said, it came home to me. In just that one comment he said a whole lot about why many families face generational poverty and failure, and why there is a divide between income classes as it relates to probability for success.

In other words, our failure to impose discipline and structure on our society has promoted the persistence of social inequality, which in turn is at the heart of our labour productivity and ultimate economic issues. No passing of any IMF test or even a proper growth agenda can solve this problem sustainably.

If we are to solve this, we must first consider it a national crisis and it must be dealt with as such by the authorities.

Just as we have a major focus on murders, we must give the same attention to indiscipline and lawlessness. For example, the stop lights in Kingston are now are like Coronation Market with window wipers, vendors, peddlers, pedestrians crossing at will, and people just seeming to be hanging out. This seems like a low-hanging fruit. If the stop lights are cleaned up, that would be such a big boost to the perception of order -- instead of ignoring it and creating an industry that we soon say we can't get rid of because it is creating a livelihood for persons.

We must also get serious about imposing the Noise Abatement Act, and understand the social inequality and injustice we promote when we allow people to disturb others with noise (not just music) any time of the day. We must also get serious about prosecuting child abuse cases, and also issue harsh penalties to adults (and parents especially) who know about child abuse and do nothing about it.

We must also support the JUTC in its effort to clean up the transport system and not allow preaching, eating, playing music, or any other disturbance to passengers. Personally, I would like to see a proper school bus system. And we must deal with undisciplined drivers and other users of the roads -- such as pedestrians who ignore traffic signs, cyclists who ride on the wrong side of the road, or people who illegally park on Knutsford Boulevard (sometimes while in the car) in plain view of police.

This is not about passing new legislation, as that is already in place. It is about the will to enforce it and to realise that our culture of giving a man a "bligh" does nothing more than create indiscipline and lawlessness, which affects negatively the same man we don't want to "fight against". It is only when we start to do this that we can provide equal opportunities to all for true social and economic development. Each of us has some responsibility.

Understanding Jamaica's fundamental problem

This year we will have the opportunity for a one and a half month debate on the revenue and expenditure estimates before the start of the fiscal year. This is very good governance practice and the minister must be commended for this initiative. No doubt over this period there will be much talk about the fiscal accounts and the economic programme. Specifically there will be talk about taxation and the macroeconomic targets such as inflation and the exchange rate.

Going out to Hellshire on Ash Wednesday though, I was reminded that the fiscal accounts, macroeconomic targets, economic activity, and crime are nothing more than the symtoms of the underlying challenge we face as a country. In fact I would go further to say that given the progress we are making on the economuc front, that if we stick to our guns then the mjor problem we will face in a few years time will not be the economy or fiscal accounts. In fact it is very possible that we wll see a much more competitive economy.

The fundamental problem we face as a country is on the social front, as based on my observations, the primary problem we will be that a significant part of our workforce will not be equipped for a competitive economy. So that even if we are to see growth upwards of 3 percent consistently, there is still a part of our population that will be marginalized. In our 52 year history, the only time that we had actually tried to address the social issues were really in the 1970s, under Manley, and even at that time it was not done with the purpose of sustainable inclusion in the economy for all but rather fixing certain social challenges faced coming our of colonialism.

I was reminded of this when i went out to Hellshire, as I think the people out there are a representation of the ordinary Jamaicans, inclusive esepcially of young Jamaicans. And this culture, although I saw it at Hellshire, does not only reside with the persons there but permeates even our work environment. So the truth is that we could possibly see economic growth with little or no inclusion of some of the population because many persons do ot possess either the skills, work ethics, or social behaviour required to compete internationally. And the end product or service consists significantly of labour or thought input, which reflect the underlying problem of our economic challenge. That of labour productivity.

When one thinks about the crimes being committed (gang related and domestic in particular) it sends us a lear message that something is wrong with our socialization process. And we must remember that economics is a social science and so what happens in an economy is highly dependent on the social skills and behaviour of the persons in the economy.

So while at Hellshire today I noticed a few things. These included (i) a man driving a bus load of people while smoking a ganja spliff; (ii) young men smoking ganja spliffs on the beach; (iii) young men with their shorts falling off exposing their underwear; (iv) women with children around them inappropriately dressed; and (v) the suggestive music being played with the young children subconciusly absorbing all the sexually explicit and violent lyrics.

The behaviour also reminded me of the conversations I have all the time with a fellow cyclist, Dr. Sandra Knight, about the significat number of child abuse cases perpetrated many times by the father who goes unpunished and the generational cases of child abuse in a single family. These of course continue primarily because no one is held accountable in the main.

This also reminds us of the 14 year old girl that was rcently killed and placed in a bag and admitted to by a businessman, but also found out that at 14 she was pregnant. This again brought home a stark reality that there has been no report of accountability for the parents of this 14 year old, which should have been reported in the investigations also. A facebook discussion on the matter also revealed another weakness as some women were saying that the mother should be held accountable and I had to remind them twice that both the mother and father should be held responsible, bringing home the fact that we are only too happy to absolve the fathers of the responsibility, even though I can say that today many many fathers are stepping up to the plate even more than many many mothers.

It seems to me therefore that none of the economic and fiscal challenges can be solved without first looking at the social fabric of our beloved country. It is certainly not unique to Jamaica, as even the great USA seems to have some significant deviant social behaviour, and we certainly don't need to adopt some of those types of behaviour. I am for example reminded that children can still freely express their religious beliefs and read the bible in schools in Jamaica, which was recently reported as a problem in a US school.

In other words if we are to truly make Jamaica the place of choice to live, raise families, work, and do business it is not only important that we focus on macroeconomic and quantittive targets, but even more critical that we address the societal behavioural issues, which I really hear no one speaking about. So children under the age of 16 continue to have children without the appropriate accountability in many instances, and a signifcant number of young men find themselves "digging out their palms on the street corner". I must say though that in all of this I do find some very hard working and focussed young persons, and they will do well based on their attitudes. But similarly there are many coming out of the universities with very poor work ethics and attitudes.

I think that in many instances that leadership is to be blamed for this and the most important leadership is that of parenting. This I think is the fundamental problem we face. We have taught our children to be many things but for around two generations now we have seen a significant decline in parenting skills. When I was growing up parents taught their children how to behave around other adults, use a fork and knife, respect for other children, and other social skills. This I think is the missing in our social fabric that contributes to our labour productivity issues that cause our economic challenges.

Who will bell the cat?

Low-hanging development options

MOST times when we speak about economic and social development, many of us think about the cost of infrastructure or costs associated with the government providing stimulus to the economy. Or if we talk about reducing crime, then one of the first things discussed is the need for more resources for the police.

The truth is many things can be done that do not require a great deal of resources. This is the same as making positive changes in an organisation. In many instances, the really positive changes that are needed to kick-start a successful organisation do not have any costs attached to them.

In fact, spending money can make the situation even worse if the requisite action is not taken to set the stage for a new development path. Similarly, we often hear that the police force and the health sector need more resources, but putting money into a broken system does not necessarily fix the problem. Leading up to the 2008 recession, for example, we saw more and more funds being allocated to health, security, and education, but those sectors actually worsened over that period.

We face a similar situation in Jamaica today. We have a broken system, and putting more money into it without the necessary fundamental changes will only cause us to be in greater debt. This is why the adjustment under the economic programme is so important — not just throwing money at each and every outcry that we hear. We have done that in the past, where we have been in the middle of an adjustment programme and as soon as we near an election, or as a sector cries out, we resume the old ways of borrowing money to ease the cries before polling day. And so we start the whole process again and again. The only difference being that we start from a worse base all the time.

Low-hanging fruit can create significant change without any significant cost. There are four main initiatives that can be taken to bring positive development. They will require strong support from the citizenry, who regularly complain about the country's governance. This is an opportunity for us to turn around the country with little involvement from politicians. But are we willing to take the personal responsibility to do this? Much of a country's development rests in the hands of the people. It is only when the people decide they want a better country that any improvement happens.

The first initiative is the cost of health. Approximately 70 per cent of the cost of health in Jamaica has to do with non-communicable diseases (NCDs), otherwise known as lifestyle diseases. These include things like diabetes, high blood pressure, and even some cancers. Jamaica • billions on NCDs each year, much of it scarce foreign exchange for treatment drugs. In addition, much of the individual health costs relate to NCDs. But the fact is the great majority of these diseases are avoidable. If we behave differently when it comes to nutrition and exercise, then the country's fiscal accounts and balance of payments would benefit. In addition, the cost of individual health insurance would be significantly reduced. No government policy can force this to happen. It is a matter of personal choice.

The second initiative relates to our environment. We know the challenge of garbage collection, and we rightly hold the NSWMA responsible when they fail to perform this critical function efficiently. But a big part of our environmental challenge comes down to our own personal choices. The degradation of the environment has a deleterious effect on Jamaica, particularly because we are a tourist destination. Apart from the negative effect on tourism, it also can be the cause of natural disasters caused by flooding etc. The result of not taking care of our environment is that it can cost us billions in f o re g o n e revenue from tourism, and every time we have a natural disaster it costs the country tens of millions of dollars. The irony is that much of the cost from environmental effects is because of actions by citizens, who pollute the gullies and other parts of the environment.

The third area is law and order. If we are to achieve vision 2030, then it is going to be important to develop a society that is disciplined and adheres to the rule of law. Indiscipline on the roads and non-compliance with the Noise Abatement Act are two areas where citizens can exercise control. Even though the government is responsible for enforcement of these laws, the fact is much of the responsibility lies with the citizens, who are the ones who break the law. This is tied to enforcement, which is a primary responsibility of the government. Another area of enforcement that we disregard but which will lead to a more ordered environment is the zoning law.

The final area is a huge negative for investments and business — public sector bureaucracy. Even though the transformation of the sector will require some amount of funds, the fact is much can be achieved by just changing the attitude of the workers. An example of where this has worked is the Tax Authority of Jamaica, which has not only made legislative changes to be more effective, but more importantly is transforming the approach to customer service delivery.

These are some of the lowhanging fruit that must be picked, to cause serious transformation in the economy and social lives of Jamaicans. Even if we were to spend money on these areas, without the change in behaviour by us Jamaicans, these areas will not improve. The role of government is enforcement, but if we as Jamaicans truly want the country to advance, do we need to wait on enforcement or should we individually be making the change?

Therefore, even while we grapple with the need for funds, we should also realise that much of what is needed to transform our economic and social fortunes really comes down to the will of the government and of us the people to want a better country.

Think differently for a better future, Jamaica

Police Commissioner Carl Williams (right) and National Security Minister Peter Bunting have the right attitude for change.

2015 is here, and we celebrate a new year and new beginnings. But what does the turn of a new year really mean?

Traditionally, we have always celebrated a new year as a new beginning, but what makes the start of a new year any different from the old year? After all, we still have the same crime problem on January 1 as we did on December 31. We still have the same leadership issues. We still have the same problems with bureaucracy (which we were reminded of on the last day of 2014 with the statement from Omar Azan).

There are, of course, some things that are different, which we can speak to. We threw out the old calendars and put up the new ones. That is if you are still from the old school where you have a physical calendar rather than a digital version. For some companies and accountants it is significant because it is the start of a new accounting year, but then again, this is not consistent with everyone.

The truth is that there is nothing different between an old year and a new year, outside of the festivities and commercial activities. When we return to work on Monday, the workload and challenges will be the same as December 31 (unless you worked throughout the holidays).

Many of us make New Year resolutions, which we carry from year to year, and each year they need to be bigger, as we have, for example, gained more weight or have not done all that we wanted to do.

So in reality, there is really nothing different about a new year. The positive about recognising a new year is that it provides for us a measure of time, which we can use to measure progress or failure.

But this measure of time is only useful if we had goals, charted a path for those goals, and made sure that we followed our plan. So a company may do a budget and strategic plan for the year, but if the management fails to follow and monitor the plan during the year, then they could come to the end of the year and realise they have not achieved it.

Similarly, a person who has a health plan, such as weight loss, needs to monitor the steps every day to achieve that plan.

Therefore, while the new year serves as a significant measurement milestone, the achievement of that milestone is reached by actions during the year. So we really don't need a new year to do this, but rather it provides a yardstick and is a good way for people to check their indiscipline.

How many of us have made resolutions in the past to lose weight, but find ourselves putting on more each year? Or how many of us have said that we want to achieve something during a year but find at the end of the year that we are one year older without the achievement?

One thing we can agree on, however, is that the new year is not a magical solution to any challenges we have.

So how do we ensure that we achieve what we want during a year? The reality is that the only thing that will allow change is for us to change our mindset and approach to existing situations. In other words, actions are most times driven by how we think about the problems.

So, if you want to make health changes in 2015, then you have to change your attitude and behaviour that cause the weight problem, which may include getting new friends who do not encourage the bad behaviour.

If we also want a better country, then we also must change the way we approach and think about solutions. This I find to be a big part of the problem we have had over the years.

We have, for example, had many International Monetary Fund (IMF) agreements and promises by politicians in previous years but have always found ourselves back in the same economic quagmire or worse. This is simply because, until the current agreement, we had not adopted a new way of thinking and doing things. And this is why many are saying that the current path, in general, does not work.

Those people are slaves to the normal ways of doing things, which is a significant reason that companies seek younger talent all the time, as they come with a different perspective, which is needed for growth.

This is not limited to the politicians, many of whom need renewal. It also applies to the public. A big challenge for me resides with public sector leadership and rules. I think there are some excellent workers and leaders in the public sector, but there are also some people who think that the role of the public sector is to prevent rather than facilitate.

For example, one of the things we must confront in 2015 is that growing fiscal revenues is not just about squeezing every last cent out of businesses in the form of taxes, but also facilitating the growth of business, resulting in a much larger base of revenue, even if it means lowering the tax take from businesses.

If we are also going to deal with the crime and law and order problems, then we must also think of a different approach. Police Commissioner Carl Williams and National Security Minister Peter Bunting, I think, have the right attitude change that will see progress in this area, and we are seeing some progress, although many are not capable of seeing change while it is happening.

There is, however, still much to be done here.

Much of the responsibility for law and order also resides with the citizens, who don't see anything they do as wrong. My challenge to citizens is that they should not support any violation of laws such as the Night Abatement Act, or driving and talking on the phone, or disposing of garbage improperly.

We must also change our attitudes to child abuse and punish the perpetrators, and those who are complicit, severely.

This responsibility even extends to not protecting people who have done wrong and supporting the rules to be implemented by the JUTC. When they start implementing these rules we shouldn't be asking for people to be given a "bligh". We must support the rules and call out the JUTC if they are not implementing them to the fullest extent of the law.

So as we start the measurement period of 2015, let us all understand that irrespective of the great plans and wants we have, that these will only be successful if we change our mindset and approach to dealing with our challenges, as there is no magic wand that is waved at the start of a new year.

Happy New Year, everyone.

2015 prospects for Jamaica

        Agriculture has a critical role to play in our development.

AS we come to the end of 2014, it is traditional for us to think about what will happen in the New Year. Apart from tradition, however, the end of a year is always used as a mark to measure progress and look towards the future.

2014 has been a year of mixed fortunes, and indeed a transformative year. This is reflected in the progress made under the economic programme, as well as the many transitions in the legislative framework, and society. For example, we saw the following:

* Economy -- fiscal improvements. The foreign exchange market went from volatility to stability and further end-of-year movements; the stock market seems to have levelled off as expected; significant improvement in the Doing Business Report; and businesses experienced mixed fortunes and a new normal in the competitive market emerged.

* Legislative framework -- much change was made in the legislative landscape and we saw many proposed legislative amendments being made, based on public feedback. Overall, however, my own view is that much progress was made.

* Society -- improvement in policing methods and lowering of crime statistics; more vibrant civil society, resulting in greater input in policy actions (eg response to Mario Deane incident); reduced unemployment and also reduced real wages; and, I think, greater effort by authorities to come to grips with some of the societal challenges, although much remains to be done and enforcement is still not where it should be.

My biggest disappointment is that we were not able to make more progress in the public sector reform and bureaucracy issues, because although some movement has been made, this still remains a major stumbling block to businesses.

I think, as we go into 2015, however, we could see further improvements in our economic and social development. But this is going to depend to a great degree on how leadership deals with the issues that will face us.

In other words, we are going to need strong leadership, which must be equitable and come down on the side of justice and fairness, as this will be the only way to balance the competing interests in the society for the benefit of the entire country.

On the economic front, I believe that we stand a good chance of a more vibrant economy as we have dealt with many of the structural issues facing the fiscal and macroeconomic environment. Although there are some significant targets remaining under the economic programme, it is my view that the significant legislative and other reforms made have laid a foundation for us to move forward positively. But this is going to depend on how we handle the advantages we have gained. These include:

1) Fiscal -- I think that the Government has made significant strides in laying a foundation to continue fiscal discipline, and we have seen the benefits in our accounts. However, we must now realise that fiscal discipline alone cannot carry us much further, as all this does is control expenditures while what is needed now is growth. So it is going to be important that we implement policies and legislation that encourage businesses to grow, and particularly SMEs. Much of the infrastructure is still not conducive to a supportive business environment, and unless we are able to change these positively, then we will come to a standstill. This is going to require continued collaboration between the public and private sectors, as one hand can't clap.

2) Governance -- There have been some stormy discussions over governance in 2014, and we must continue the dialogue to address this, as governance is going to be key to building trust, which is the basis of economic and social progress. Governance, however, is much more than at the national level and includes things like enforcing simple laws such as those dealing with road usage, night noises, and littering. It also includes ensuring that public sector bodies follow proper board and reporting governance.

3) Energy -- Over the past few months we have seen oil prices falling significantly, approximately 50 per cent, but there is a concern that consumers have not seen the full benefit. This is important to take advantage of, as falling oil prices create an excellent avenue for providing economic stimulus as it will mean more disposable income in the hands of consumers for the local economy.

4) Macro economy -- The Bank of Jamaica has a critical role to play here, as with the adjustments happening in the economy it will have to know how to tweak money supply; for example, to balance the fear of a moving exchange rate and the need for adequate liquidity. Any miscalculation could put a spoke in the wheel of the economy's development.

5) Agriculture -- I think agriculture has a critical role to play in our development, as many new enterprises can emerge from this, particularly export-led ones. The problem with our agriculture is that it has been highly disorganised and is based more on subsistence farming than large-scale farms. This is unsustainable in a competitive market, and so the agro-parks are a critical component of a future industry. What is going to be important is that we ensure that the proper management is in place to ensure that agro-parks deliver on their potential. If we are able to maximise this area, then there is also a large potential to supply local produce in place of much of the US$1-billion food imports.

6) Tourism -- This is another area of significant potential. However, our inability to enforce environmental laws, deal with squatting, tourist harassment, and littering, and develop our infrastructure is not allowing us to maximise our competitive advantage. With the opening up of Cuba to the US market, it is even more critical to have a well-planned approach to deal with this. This, of course, includes crime, which is a scourge on not only tourism but also business in general.

These are some of the issues we will face in 2015, and whether we are successful or not will depend on what leadership is provided. We have certainly shown that we have the capacity to confront issues, as we have done with the economic programme, and must now ensure this infects other areas.

As we go into 2015, however, as citizens we must also reflect on our individual responsibility to ensure we are compliant with proper law and order and do our part to move the country forward.

Happy holidays and much prosperity in 2015.

Great need to transform Jamaica's labour force

JAMAICA seems set to pass the sixth International Monetary Fund (IMF) test, underlining the fact that we have, no doubt, been making progress in establishing the framework on which development must take place.

I say this against the background that the legislative and fiscal initiatives put in place have been successful in ensuring some amount of stability and confidence in the economy. We see that there is more acceptance of Jamaican debt, and businesses are expressing the view that goods have become more competitive with the depreciation of the exchange rate.

This has also culminated in an improvement of 27 places in the Doing Business Report 2015, which is a reversal of the movement in ranking that we have been seeing in the past few years. This positive change in ranking, however, is as a result of the improvement in the legislative framework in particular. However, it has not translated itself into meaningful improvement on the ground, and this is where the challenge lies for us.

The fact is that businesses still see bureaucracy as a major stumbling block, and people are seeing a real decrease in their disposable incomes. We also note that even though there are improvements in the macroeconomic numbers, and in particular the balance of payments, the fact is that this has come as a result of contraction and specifically a decline in both imports and exports.

The challenge facing the country then, is this: How can we achieve the real GDP growth needed, which will not only ensure greater levels of income but also bring sustained stability in the economic and social framework?

At the heart of this problem is productivity, and specifically the low levels of labour productivity we have been experiencing. This speaks to the unpreparedness of our labour force to adequately compete in a global environment. We face a daunting challenge: How do we transform the labour force from low productivity to one of high productivity?

This is the only formula that leads to sustained economic and social transformation, which should be our ultimate goal. It is also this transformation that will give us the real GDP growth needed to turn around our economic fortunes.

My own experience is that while we may have greater educational opportunities available, our labour force is neither innovative nor sufficiently focused on problem solving to effectively compete globally. And if you think about it, labour is the driving force behind every product or service that is produced.

So if labour is not competitive, in terms of innovation and value-added thought processes, then the resulting product or service will not have the desired competitiveness in a global market.

So how do we transform the labour force?

The first thing we must do is understand what role we want labour to play in a highly competitive economy and society. This also means establishing some societal goals such as income levels and standard of living.

We have never really, from a policy perspective, established what is labour's role in a competitive economy, and therefore there has never really been any link between economic planning and education planning. In other words, we have failed to put our people at the centre of our development.

Second, if you want labour to be competitive, then you must create the environment for productivity, thought, and innovation to thrive. Everyone who is involved in managing people knows that if you don't have a conducive environment to encourage productivity, then people are not going to produce at maximum.

The truth is that as a country we have not created that environment over the years, and this stems mainly from distrust between the citizens and the security forces, Government, the public sector and other stakeholders.

One of my pet peeves has always been that the way we set up our laws, and rules governing public sector workers, for example, assumes that no one is to be trusted. So we have procurement rules and tax compliance certificate regulations, which seem to assume, first, that everyone is dishonest and then they have to prove honesty.

Or we have an environment where the security forces over the years have failed to win the confidence of citizens. So how can we expect a productive labour force if we don't facilitate an environment to encourage it?

Third, it is important that we create a culture of pay for performance. And I speak specifically of the public sector, where reward is more based on seniority and connections in many respects. There is a lot of talent in that sector, which will not be maximised unless we adopt the model of rewarding performance.

Fourth, we need to incorporate education plans into our economic objectives. So the monies lent through the Students' Loan Bureau, for example, should be tied to what skills we will need to move the economy forward. Government should also offer scholarships in those skill sets, instead of using our scarce resources to fund skills that are highly unlikely to get a good job, given Jamaica's comparative advantage.

The last thing I will mention, but which is very important, is that we need to create an environment of discipline and rules. One of the major challenges with labour is that people have grown up with a lack of proper values and are generally undisciplined.

This has resulted, in large part, from the fact that we do not enforce laws, which may be as simple as night noise, littering, child abuse/protection, or the indiscipline on the roads. If we do not address this indiscipline, then we are teaching our children -- our future work force -- that it is acceptable to deviate.

And so it is important for us to understand that as we move into a critical phase of the economic programme, that economic and social transformation are necessary in order to create real sustainable growth. But this is only possible if we transform our labour force into a highly productive one, which means taking the necessary steps to do so.