At 50, Jamaica still not truly independent

ON August 6, 2012, Jamaica will celebrate 50 years of political independence. I deliberately say political independence, because after 50 years we still have not come to grips with how to manage our finances, and consequently our economic fortunes. In fact, we have never truly been economically independent, not even in the booming 1960s, and so we can safely say that we are still economic slaves.

In the 1960s, even when we were growing at rates in excess of 10 per cent per annum, we still were supported to preferential rates for sugar and banana, and so we never really stood on our own two feet fully. During that time we were learning to walk, and started to creep with help from the old colonial masters. Today, as a 50 year-old adult, we still remain on the breast of other countries, and so in our 50th year of self- governance we are clamouring for support from the IMF.

Jamaica has made much progress over the 50 years, but a lot of the development is as a result of debt, not earnings. (Photo: Aston Spaulding)

There are some who like to hide their heads in the sand and say that we have much to be thankful for as we have achieved much. They point to our sporting and cultural success; the amount of road and building constructions; more access to communications, cars, and other luxuries. I, for one, would never deny that Jamaica has not made progress because we have in many respects.

We have become a very powerful international brand; a lot of development and institutional establishment have taken place; there has been much social and legislative improvement; our tourism product is number one; and we have seen a lot of commercial development.

However, when one looks at development and success, it is never done in isolation. So while there is no denying that we have made much progress, the truth is that a lot of the development we have seen is as a result of debt, not earnings. This is tantamount to a person of 50 years having a house, car, and other assets, as a result of either debt from the bank (loans) and/or gifts from his parents (grants). He has not, however, developed enough to be able to afford these things from his own ability to earn.

Also, development and success must be seen relative to others. In 1962, Jamaica was seen as the jewel of the Caribbean, and in fact we were visited by Lee Quan Yew,

as an example when he was developing Singapore. Secondly, we were in a position to refuse Federation with other Caribbean countries because we were fearful that their poorer economies would have been a burden to us. Well, today much of our economy is owned by two of those economies — Trinidad and Barbados.

* In 2012, our GDP per capita is the same as it was in the early 1970s — 40 years later.

* We have one of the highest murder rates in the world.

* We have one of the highest debt-to-GDP ratios in the world, and only recently we were being compared to Greece.

The fact also is that when you look at the areas of our excellence — sports, tourism, culture, and music — these are all based on the exploits of individual Jamaicans, and has nothing to do with any support structure provided in the Jamaican environment. In contrast, the Jamaicans who have done well in these areas, such as Bolt, Ottey, Powell, Fraser-Pryce, Louise Bennett, Bob Marley, Butch Stewart, Ranny Williams, etc, have all done so in spite of the many challenges faced in the Jamaican environment.

Our governance has failed us miserably, so that 50 years after colonial rule, we still find that the lower-income classes are discriminated against. We have areas (inner cities) where many Jamaicans cannot go to. In fact, we have greater access to other countries than we do in these areas within our own country. We find almost on a daily basis that there is a conflict between the police and our citizens, or we find that our governance is executed in such a way that we find it easy to tarnish the name of people, as a result of our political parties or bureaucrats believing that they have a right to impose anything they want on citizens who do not share their views.

So 50 years later, our citizens are still under a form of colonial rule.

Fifty years after, we have a school exam in place (GSAT) that encourages class discrimination, as based on the school you end up at you are seen as either having a future or not. I am happy to see that Minister Thwaites is trying to change this because we cannot continue to expose our young to this type of discrimination.

And if we talk about business development, we see that the businesses that dominated close to 50 years ago are virtually the same that exist today. Little or no private sector innovation, which is reflected in the number of listings on the equities markets over the period.

Back to the issue of discrimination, though. This discrimination is reflected in how we treated the issue of the Jamaica 50 song. My main issue with the nonsensical approach to this Ja 50 song business is not the play out of the polarisation of the people by the arguments about the song, but that we ignored the festival song competition as the avenue to select the song and chose to give the spoils to a select few. The competition has historical value and I think it would have been best to choose the Ja 50 song from this competition, and provide a cash prize of around $2 million, and so open it up to the creativity of our Jamaican citizenry. This for me was a reflection of how we have developed.

The governance that has got us to this point also manifested itself in the disgraceful behaviour in parliament a few weeks ago, when there was a blatant refusal to obey the rules (law and order) by those who are supposed to uphold it.

So after 50 years, and being born after Independence, I think Jamaica can be the best place on earth to live if we take our governance seriously. We still have the potential to be the most attractive place on earth to live, but we must all take responsibility by realising that we are all Jamaicans, and not two tribes living in one country. If not, then in another 50 years the children will be asking about the lost 100 years of Independence.

Competition is important for development

THE Global Competitiveness report is one of the most important guides in determining the development of a country, as it is international competitiveness that drives a country's net earnings and investment attractiveness.

This in turn affects foreign exchange availability, exchange rate, fiscal earnings, standard of living, etc. This is why my view is that a focus on the balance of payments (BOP) is much more important than the fiscal accounts. In fact, the policy in Europe of focusing on the fiscal accounts have resulted in a double dip recession in that region, and they will have a difficult time coming back from that policy error in my view.

The tourism sector is an example of what competition can do for the consumer and productivity

It is this lack of competitiveness that has prevented Jamaica from seeing the development it should have. No one can argue that Jamaica has not seen development since 1962, however, development should never be looked at in isolation. And certainly, relative to other countries, we have done very poorly, which is why many Jamaicans look to migrate in search of better opportunities; often to even some of the countries that were less off than we were when we decided against Federation with them.

It is also this lack of competitiveness that is causing Rusal to close its Ewarton plant. It is this lack of competitiveness why we have to constantly be providing incentives and waivers for companies to invest in Jamaica. It is this lack of competitiveness why an all- inclusive room in Jamaica sells for just US$250 per night double occupancy, while a room alone in downtown Miami sells for US$300 per night. It is lack of competition why our electricity bills are so high, causing a relatively lower standard of living and uncompetitive output.

On the other hand, it is competition that has caused Jamaicans to have so much access to telecommunications and Internet service, which has resulted in improved infrastructure for business, and attraction for investment. Prior to this, I am old enough to remember when you had to wait years, sometimes, to get a telephone, or when you were charged when someone called you on your cellphone.

If we therefore want to improve our competitiveness and see development, there are a few things which we must do.

The first is that we need to ensure that the regulatory environment is changed to encourage competition. In the 1990s we took measures to liberalise the economy, but we failed to ensure that we had the regulatory framework that would allow us to benefit from liberalisation, while at the same time protect us from the excesses of liberalisation, hence the 1990s financial crisis.

This is why the initiative by Paulwell to bring competition to the energy sector is critical, as without it there is no guarantee that the present monopoly will deliver the best service and price to the consumer. Even with all the PR they are doing now, it is not sufficient to rely on the good deeds of a monopoly, as the behaviour of the consumer in a competitive environment is always more efficient. And in a world that is highly dependent on technology, energy is the new factor of production.

But we must go further in changing the regulatory framework, to encourage competiveness. The financial sector is probably one of the most important in driving development, as it allows for access to the necessary fuel for businesses, which is capital. This is one of the reasons why the US is able to see a proliferation of startup businesses after the financial crisis, and why companies there can expand into global powerhouses so quickly. It is capital that gives legs to ideas. However, if you have limited avenues to access capital then what will happen is that capital stays mainly with businesses that have reached a size where they are uncomfortable with risks and new ideas.

Governments here have attempted to deal with this deficiency by providing access to special funds, through avenues such as the DBJ, but these routes are laced with bureaucracy and are inadequate. The last attempt to allow any increased competition in the financial sector was in the 1990s, prior to the financial crisis, under Davies. In my view, despite the crisis, it was the right thing to do. The problem was that the regulatory environment did not keep pace, guarding against excesses. But like everything in Jamaica, if a good idea, like this instance or Spring Plain, doesn't work, then we kill it, as we do not have a culture that encourages innovation.

Another important issue to be dealt with, if we want to see greater competitiveness and development, is the justice system and law and order. If we really want investments and competition in Jamaica, then court cases can't take years to resolved, and employees can't take companies to the Industrial Disputes Tribunal, on frivolous charges, costing the company significant legal costs and time without the possibility of recovery.

Also, we can't expect greater productivity if the rights of citizens are not given prominence.

In addition to bureaucracy and crime, the Global Competitiveness Report, highlighted the taxation system as one of the top three inhibitors to improving competitiveness in Jamaica. The system and face of the tax system in Jamaica has improved significantly, thanks to the new TAJ. However, my own view is that the effective tax rate in Jamaica is relatively high when compared to the disposable income and government services offered in other countries. This makes a difference as to where people, who have the choice, choose to pay taxes.

So until we make this a more competitive economy we will be forever chasing our tails and trying to find a solution to our BOP and fiscal deficit. No amount of new taxes, government incentives, or austerity will solve the problem. These only amount to resistance against the powerful, invisible hand of the market. Until we fix the structural issues then for another fifty years we will be moving from crisis to crisis.

The telecommunications sector and tourism are examples of what competition can do for the consumer and productivity, although I think we could enhance the values if they were not subject to so many taxes. We however need to go a step further to ensure this continues.

For telecommunications to improve and have greater competition, the coming number portability is a necessary step. In addition, however, we must have a situation where there is a sharing of the cell site infrastructure. This will reduce the entry, and operating, costs for new entrants that may not have the capital of major players. It will also further reduce the cost and bring newer technologies to consumers.

In the tourism industry, if we are serious about maintaining our comparative advantage, and increasing earnings (not necessarily number of tourists, but dollars per tourist) then we should be strict about our environmental protection, developing proper infrastructure in our tourist towns, and for once address the tourist harassment situation.

All these things we must do however, only if we are serious about growth and development.

A financial look at a possible growth strategy

OVER the last two weeks I looked at a possible growth strategy for Jamaica, and focused on five ministries from which I think the growth impetus can come. These are energy, transport, security, justice and tourism. A question was asked by a reader: Why not mention agriculture also? I do agree that agriculture, is a significant growth area, but the truth is that agriculture depends on what happens at security, energy, transport, and tourism before it can really get started.

The point, therefore, is that if we focus our limited resources on fixing the areas under these ministries, then it will provide a push for the other ministries, and so in a sense these ministries should, in my view, be the focus of fixing the structural deficiencies that prevent growth.

The austerity measures that were being pushed by German Chancellor Angela Merkel were going to result in a further deterioration of the EU economies, and the debt crisis. (Photo: AP)

Someone else asked about finance. True that finance can affect the environment that creates interest in investments, and how capital moves. The fact, however, is that given the fiscal constraint faced by the Government, there is not much that finance can do to positively impact growth directly. It can only serve a role by facilitating the changes needed in these five ministries through providing the much-needed resources.

Before I look at what a financial perspective on growth can be, it is important to mention that the recent EU summit clearly demonstrates that the austerity measures that were being pushed by Germany were going to result in a further deterioration of the EU economies, and the debt crisis. A continuation of the policies would also have led to reduced global confidence and acceleration into global recession again.

The leaders recognised this, and took a common-sense approach by providing a stimulus fund to prop up the fragile EU economies through the banks, and the floating of bonds. This of course means more debt immediately, but the truth is that the debt crisis cannot be solved without incurring more debt. It may seem contradictory, but it is really the only common-sense approach.

In Jamaica, it seems clear that the crisis we face cannot be solved by just a focus on the fiscal accounts, and therefore, the element of the budget that focused on the energy, transport, and tourism projects are critical. The Government has apparently realised this and the focus has shifted (from my perception) to a discussion on the energy initiatives and projects. And I hope that the media can focus on this, as the discussion about which song should be the Jamaica 50 song is really a waste of time, as without growth we may not have energy to sing anyway.

Over the next six to 12 months, we should focus on energy and transport on two fronts.

First, aggressively move households towards renewable energy solutions. This should be done through education, government funding, and private funding. The monthly payment on a loan to install renewable energy will, in all probability, be less than the savings on the JPS bill. Retail consumption is 30 per cent of our US$2-billion import bill, or US$600 million. A reduction of 30 per cent usage amounts to US$180 million ($16 billion) per annum, which goes directly to increased disposable income.

Second, improved public transportation system, which again accounts for 30 per cent of the oil bill (US$600 million). If we can again implement "park and rides" and penalise persons who want to drive into New Kingston and downtown, during work hours, through access fees, we may be able to save another 30 per cent of the US$600 million bill. Again, another US$180 million that goes directly to disposable income.

The other benefit of an improved transport system is the increase in productivity. For example, the implementation of a properly run school bus system, which I am sure parents would pay for, would significantly improve productive hours used to pick up children, in addition to the increase in productivity from decreasing traffic congestion. Assume a 5 per cent increase in GDP from this, then you would be looking at an increase of approximately J$55 billion.

Studies have consistently shown that crime robs the country of approximately two to four per cent of GDP. Based on discussions, I am confident that the security minister is serious about improving "law and order" and reducing the scourge of crime in the country. And he is supported by probably the most effective police commissioner we have ever had, and we must all support him to ensure that he continues his work, as we all have a personal responsibility to help with solving crime. Let's assume that at the low end of the estimates we can improve GDP by two per cent. This amounts to $22 billion in GDP growth. This is also justification for providing the needed resources to security to put proper mechanisms and structures in place, as the payback on even loans for this initiative will no doubt be greater than the cost of the loan.

The intention of Justice Minister Mark Golding to promote an aggressive legislative agenda is also necessary, as our archaic laws stifle business opportunities. What he also needs to focus on is ensuring that the courts move with alacrity, so that cases are not adjourned continuously, delaying justice and costs, which in my view is greater than the cost of going to the Privy Council. These initiatives will also significantly positively impact tourism and and agriculture. Let us also assume that these initiatives conservatively spur a one per cent GDP growth. We again would be looking at a $11 billion GDP growth.

These are what I think can be the direct impact of focusing our resources. However, these initiatives will no doubt cause a chain reaction in things like new investments, and reduction in prices, such as real estate, if we can free up the resources kept locked up in the inner cities.

We would therefore be adding a minimum disposable income increase of $32 billion, which, assuming a low multiplier effect of two, could see around $64 billion being added to GDP. This would be in addition to the GDP increase of $88 billion from the initiatives mentioned before. The total GDP increase would be $120 billion.

Assuming the tax take of 29 per cent from the economy, then this would provide an additional $34.8 billion in fiscal revenues. This would enable the government to reduce tax rates and encourage even greater investments and spending, creating a positive spiral of economic activity.

While the numbers may not be exactly what would happen, it does show the virtue of economic growth as the solution to the global crisis, as opposed to the fiscal austerity path Europe so wisely curtailed.