Friday, February 17, 2017
It’s that time of year again when businesses and people get edgy, and in some cases hold off on plans until the minister of finance speaks and reveals the tax package.
The fact is that tax policy has a direct bearing on economic growth and development, which is something our governments have failed to understand, as tax policy over the years is devised through political statements on platforms rather than through consultation with the technocrats.
So the politician gets on the stage and gives an impossible directive such as ‘ye shall fly’, and then says to the technocrat that they need to make them fly, even while it is not possible.
The consequence of this type of approach is that we have a tax framework that doesn’t encourage production and development, but rather takes pride of place in the 2016-17 Global Competitiveness Report as the third most problematic factor to doing business in Jamaica. And in fact it has consistently been in the top five most problematic factors over the years.
Obviously this means that politicians do not read this report, because if they did we would have done something about it years ago.
This is why when the Matalon report came out in 2007, and the Private Sector Working Group on Tax came out with their 2012 report, the Government just cherry-picked what they wanted from it and ignored the statement that the measures would only be effective if implemented as a whole. The fact is that the expediency of funding the budget was more important than long-term development.
Today, because of this naÃ¯ve view of our policymakers, we still grapple with the same fiscal challenges we had 10 or even 20 years ago. So today we are faced with a budget deficit of close to $20 billion, and an expected tax package in the billions of dollars. And as usual, tax policy is merely a mathematical and allocation exercise, rather than one geared at driving growth.
One of the major challenges facing the Government over the years is that of low tax compliance. This is evident in the fact that even though the employed working force is estimated at 1.15 million people, just over 320,000 (around 27 per cent) are registered for payroll taxes.
But last year, instead of going after compliance, it was easier to impose a higher tax rate on people above the $6-million level. The promise, though, was that the move would be temporary — as the minister committed last year that in the upcoming year these people would enjoy the full $1.5-million threshold and the rate would not be increased. This is expected to be so as the minister is someone who sticks to his commitments, as evidenced by the $1.5-million threshold implementation.
What this would mean is that the additional $19-billion income tax increases on individuals should come from compliance measures, given the low percentage of people working who are registered for PAYE.
When I do some analysis on the revenue estimates for 2017/18, however, it again betrays the intended policy to move towards indirect tax, as the 2016/17 direct tax as a percentage of total revenues is 27.8 per cent, while the 2017/18 estimate is 29.8 per cent — suggesting a move in the opposite direction. This of course needs explanation.
This math exercise every year, in my view, speaks to the lack of innovative ideas and vision of our leaders over the years. Any society that is concerned about development and growth does not look only
short term at revenue collection and expenditure management, but addresses its mind to what needs to be done to encourage growth.
This is where I think our governors continue to fail us.
It is not all bad news, however, as since the economic reform programme started in 2013, we have admittedly seen legislative and fiscal changes to encourage growth and stability. But in my view it is not fast enough to cause the paradigm shift we need. And unless we start doing what’s necessary to cause this paradigm shift, we will remain behind our competitors in terms of development, which we must understand is relative.
Every year we continue to play a wait-and-see game to find out which sector is going to be called upon to finance the budget, but the truth is that our time is not being efficiently spent doing so.
The debates and analysis will continue in the media about what taxes will be raised and which ones will decline (mainly because of political announcements). But there is not enough talk in the media about the need to use tax policy to drive growth.
We have seen examples of the Employer Tax Credit resulting in Corporate Income Taxes increasing, and the tax incentive on the Junior Stock Exchange resulting in significantly more employment, payroll taxes, and consumption taxes. But yet still we have not embraced the fact that if we were to make the tax environment more competitive, primarily with lower rates, then we may actually see more economic activity. Again, just look at the Global Competitiveness Report.
The conversation we therefore need to have each year is not one about wondering if the minister is going to ‘hit me’ this year, but rather what tax policy should be introduced to spur development.
In Panama, for example, the law protects investors on the same terms as the investment was made. In the US tax rates are set out three to five years in advance. Therefore, investors and people can plan their business and have confidence that the decision they make today will not be altered by any political decision for the next five years.
This is the “alternative fact” of what budgets and debates should be about. For this to happen though we need to change how we think. In other words, we need to have a vision for development.
We need to not continuously seek to place one group against the other. And we need to understand that encouraging capital to make as much money as possible is to the benefit of the whole society.
The question therefore is: is it possible for us to make this paradigm shift in our thinking and reveal the “alternative facts”?
Friday, February 10, 2017
On February 23, 2007, in my piece called “No public law and order”, I wrote:
“Any effort to permanently deal with…criminality in this country,must not only be addressed at hardened criminals, but must of necessity include an assault on the breakdown of law and order generally. We need to put a stop to the manufacture of criminals by discontinuing the corruption in the public sector and enforcing discipline in the society…Unless we can address these issues we will not be able to maintain discipline in the society. And if we cannot have basic discipline, then these same undisciplined people will grow up to be hardened criminals. What happens is that people will continue to buck the system as much as possible to see what more they can get away with.”
So far we have not managed to address the problem of indiscipline, which has in fact worsened, and like night follows day, we also continue to reap violent crimes with greater intensity. It is therefore no surprise to me that crime is at higher levels today. And, additionally, we see more violent crimes.
A recently released study by the IDB also shows that crime costs Jamaica four per cent of GDP every year, which approximates to $60 billion annually.
At the same time that we are losing $60 billion annually from crime, we are trying to find $16 billion in the fiscal accounts to deliver on the promise for an increase of the income tax threshold to $1.5 million per annum.
The solution to finding this additional $16 billion is that we may have to raid the funds from public sector bodies like the NHT and increase other consumption taxes.
It is therefore obvious to me that the reason for having to squeeze the hapless taxpayers, instead of being able to reduce taxes is the result of very poor governance/public policy over the decades.
This responsibility does not lie with any one administration, as the crime that we are reaping today is the result of poor public policy for more than 40 years. I would go further to say that the responsibility for this is not just with the politicians in Parliament, but also the public sector bureaucracy that has been charged with executing public policy.
In an interview with Minister Bobby Montague, on my TV programme
On Point, he made the very telling statement that we must ensure that we take the time to craft a correct strategy to tame this crime monster once and for all. Because, in my view, crime-fighting policies and initiatives over the years have been woefully ineffective.
For decades we have had several anti-crime police squads with various acronyms. We have imposed numerous states of emergency and pieces of legislation, which in most cases have only served to cause increased strain between the Jamaica Constabulary Force and the citizens.
Over the years, Jamaican citizens have also contributed to the crime problem by seeking to support the politicisation of crime. So when one party is in power they seek to criticise the ruling party — not because any careful analysis is done, but because they are not supporters. As citizens we also support indiscipline. As one person on social media said to me, why do we want to further oppress the transport operator by imposing increased fines for littering or traffic offences? The answer is that if you don’t want to pay the fine, then don’t break the law.
Recently, for example, the Minister announced the acquisition of two boats and an aircraft to monitor the borders. There was immediate outcry from some people, who if they really thought about it would understand that unless we secure our borders, with 145 illegal points of entry, then taking guns off the street will be meaningless, as they can be easily replaced.
But while we continue to announce initiatives to solve crime by deploying more security forces, having a zero tolerance approach (which we should always have had anyway), and putting more resources into crime, I still think that we have failed to address the root causes of crime. And so our efforts will be like treating the symptoms of an illness without finding out what is causing the illness.
As I pointed out in February 2007, the nourishment for crime is the lack of law and order in our environment. This is what, as a country, throughout all our crime strategies, we have failed to address. So while we roll out multiple crime plans, we have never in any serious way addressed the matter of road indiscipline, squatting, night noise, or child abuse for that matter.
The evidence is clear. We have failed to address the deficiencies in the Road Traffic Act and Child Care and Protection Act with any urgency, or in the same manner we pass legislation for retroactive taxes. We have failed to ensure that there is peace and quiet in communities, thus ensuring greater productivity.
And even though we are now talking about child abuse, because it is the current topic, we have not discussed the need for parents to be held accountable for the abuse of children, such as putting them on the roads to sell various items when they should be in school or at home studying. We have not discussed holding parents accountable for children not attending school regularly.
Like any other problem, one can only solve it in a sustainable way by identifying the root cause and taking steps to fix that root problem, while at the same time dealing with the symptoms.
So here are questions to ponder: Is it possible to solve crime without addressing the matter of accountability of parents for their children? Is it possible to solve crime without ensuring that we have a very orderly society, such as the way people drive on the road and ensuring proper zoning and noise levels? Is it possible to solve crime without a properly functioning and efficient justice system? Is it possible to solve crime without ensuring that the people asked to uphold the law (the police) enjoy acceptable working conditions?
The February 2007 article was written 10 years ago, and is as relevant today as it was then. The crime problem has not been solved, and during those 10 years we have spent a lot of resources and had many crime plans.
Still, crime worsens.
In my view, we have failed to address the social issues and law and order challenges, which are the root causes of crime. And, I should add, the main reason for our perpetual fiscal budget challenges.
Friday, January 27, 2017
Page 3 of the Wednesday, January 25th, Jamaica Observer, had two very disturbing reports.
The first referred to a 15-year-old who is unable to read and write, because his mother had no money to send him to school, and his father had basically abandoned him. In addition, the mother, who is not working, has several children and his older siblings are in a similar position.
The second story is about a Pentecostal pastor who was convicted of having sex with a minor.
These stories follow the revelation of the sexual misconduct allegations against three Moravian Church pastors, in all cases involving minors. In this case, it also features a mother who has 11 children, who is also not able to take proper care of them, and no mention of the father, or fathers.
Around the same time, a news report revealed that both the OCR and CDA, were playing “bureaucracy tag team”, while a seven-year-old girl was allegedly suffering abuse at the hands of a predator. After seven months, they had not located the child despite having the contact details for the person who had made the report - and within one night of the news item the child was found.
The authorities have launched an investigation into the case of the seven-year-old, and the Government has also promised to assist the mother of the girl involved in what is now known as the Moravian Church Scandal.
Both responses I think have fallen short of what they should be, as in the former case there was no urgency in the form of a timeline given to completing the investigations, or even any suspension from “front line duties”, as done with police, even though the abuse of a child is one of the worst crimes.
In the second case, I would have wanted to know what was the investigation into the neglect by the mother. But this is a day in Jamaica.
And after all of this, the question being asked is, has the church failed us? With much debate about the inadequacies of the church, as if it is the church that is the responsible gatekeeper for law and order in the country.
The fact is that all these cases have more to do with a lawlessness society, and lack of order, than any teachings of the church.
What we must not continue to do is divert the responsibility of governance from where it should reside, which is the Government and Parliament, as these are the institutions with the power and authority to effect law and order, and hence create values in a society.
The church like any other institution is nothing more than a microcosm of the society. This also applies to a school. So, that when up to a few years ago, 70 per cent of our children were leaving high school, without one subject, the ultimate blame is not the school, but rather the system that has caused the school to produce that output.
Until we understand this fundamental point, we will be forever chasing our tails, and eventually end up repeating the cycle of the past 40 years.
The fact is that the cases above have more to do with the policies pursued by Government over the past 40 years than the failing of any church or school, as the same leadership in the church and school was created by the policies (or lack thereof). So a teacher or pastor, who has underperformed, was not isolated from the environment before.
In fact, one could also argue that if the church and school were absent then the situation may be much worse than it is today. Just as a senior policeman said to me - even though people may say that the JCF is dysfunctional, what would happen if we did not have the “dysfunctional) JCF in place?
Therefore, in order to solve the problems of murders, child abuse, road indiscipline, and disorder generally we must, in my view, go back to the problem of Government policy.
So even though we create a police force, OCG, Public Defender, OCA, and other such institutions, if the Parliament each year refuses to provide adequate resources then how do these institutions function effectively?
And even if we go further and provide the resources to all these institutions and they do their job effectively and carry persons to the court, but because of inadequate resources and action, the justice system is unable to deliver judgements for at least two years -then once again the result is disorder.
And even if we assume that the resources are made available, and the justice system works efficiently, another challenge we have is that we do not proactively put legislation in place. Effectively taking years to debate and have legislation passed.
Also, when we look at the economy, even when we make all the sacrifices under the Economic Reform Programme, if we fail to put the legislation in place to deregulate capital or achieve public sector efficiency, then there will be no sustainable growth and development.
In the end everything that happens in a society comes down to policy developed by Government, and functionaries, and importantly also how Parliament governs and debates when they meet every week.
We only need to look as far as the United States and see what effect the policies espoused by a President, or the House of Representatives, have on markets and whether capital stays in the country or not. Or what effect laws passed - such as on abortion, or the mere appointment of a Supreme Court judge - have on the behavior and values in the society.
In the end it all comes down to policy, as this is what affects long term behavior and what a society turns out to be.
Unless we realise and address this issue then a focus on church or the JCF will only be a superficial solution.
Friday, January 20, 2017
I have often wondered why we Jamaicans have always been able to recognise our problems but we have never been able to solve them.
We constantly pile up study after study, we form multiple commissions to examine the same problem year after year, with maybe a different title and a new set — or a new generation — of people. And so we go along our merry way, having the same problems in 2016 that we had in 1962.
Because we are a “bright” and creative people, we always seem to articulate the same problem very well in different ways. The result is that we never recognise what the fundamental cause of our problem is, because we somehow always focus on the symptoms, which we articulate so well.
So after numerous Commissions of Inquiry and piles of commentary and reports on what our problems are, we still face the same challenges year after year, disguised in different suits.
One such criticism that is now in vogue is the ineffectiveness of the Jamaica Constabulary Force (JCF) at solving crime. And I would be the very first to admit that the JCF has significant challenges, and has arguably had a leadership deficit over the decades, as no one person can be held accountable for the current state of affairs. It is also true that no one political party can be held accountable for our economic and social challenges, as they have both made unwise decisions over the years, not only as Government or Opposition, but also as Parliamentarians and representatives of the people.
The JCF, therefore, can be seen as the driver of a car that is in a race and going at 50 mph, while everyone else is going at 80 mph (globally). The car is not performing at optimum capacity because it has not been serviced, it has very old tyres, and it is sputtering because it has been filled with “bad gas”.
People look on and say the driver is not the best, and he/she needs to be replaced because the race is being lost. All this time there is no realisation that if you change the driver, even though he/she may have some clear deficiencies, it will not make the car go any faster. And in fact one cannot do a proper assessment of the driver’s ability if the car is in such a poor condition.
Similarly, it is always very easy for us to blame the JCF for the high levels of crime in the society, because they are the most visible part of the justice system. But we fail to recognise that the justice system, and I should say the law and order environment, is much more than the JCF. In fact, the JCF often intervenes when everything else in the chain of that system has failed.
So the policeman is not there to prevent crime, but rather to arrest it. Therefore, shouldn’t the emphasis and discussion be around crime prevention, and hence what sort of system needs to be in place to achieve this?
In my view, it makes more sense to do what is necessary to prevent crime than to put all our resources into solving it, because by then you would have already had a victim. This approach would also place less stress on the JCF and would allow them more opportunities to solve crime, and would also allow us a fairer chance to assess their performance.
One example is the derelict traffic ticketing system and Road Traffic legislation we have in place.
I have been able to get information from the JCF that between the period November 2010 and April 2016, 45 people in the Corporate Area and St Catherine had more than 500 outstanding tickets each. The total number of outstanding tickets for these 45 persons was an unbelievable 30,757, or an average of 683 tickets per person. And this doesn’t include drivers with less than 500 tickets outstanding.
To drive the point home even further, an example was given of one person who the ticketing system showed was issued 117 tickets of which 103 remained outstanding. After being arrested he was taken to court, where 78 warrants for disobedience of the summonses were issued and he was fined $90,000 for 78 tickets. He had another 22 matters outstanding, and the next day was fined $25,000 for 9 matters. On that same day I am told that he was committing the same offences for which he was brought to the court.
The result, the police say, is that his behaviour is now mimicked by most of the other illegal operators, as all the passengers want to take his car because of how quickly he gets them to their destination.
This example shows that there is a problem with legislation, as the long delay in passing the Road Traffic Act causes uncertainty in fines, and ties the judge’s hands as to whether to suspend the licence or seize the car. The passengers also contribute to the lawlessness because they know the man is an illegal operator and that he breaks the speed limit, but they gravitate towards him. It has also resulted in everyone now behaving in that manner because that is what the customer demands.
The result is that we have an accepted chaotic transportation system overrun by illegal operators and a sympathetic public.
We then say to the police,”Why are you not solving this problem?” We might as well just ask them, “Why aren’t you able to carry water in a basket?” The Parliament fails to provide the proper legislative framework and resources (as the ticketing system does not link the various arms of the justice system and tax system), the police are asked to work in very unfavourable conditions, and the public is supporting lawlessness.
At the end of the day, however, some politician will go on a platform and say the Government is not solving crime, the Government and people will say the police are inefficient, and we will call for a commission of inquiry, create another report, and still have the same challenges we have had for the past 40 or more years. And in the end we will be no better able to properly assess the effectiveness of the JCF, although we may end up implementing some changes when we really don’t know how effective they will be.
Another year has passed, and as usual at the start of a new year we wish each other much prosperity and make new (or, more likely, repeat) resolutions about how we intend to improve ourselves. At the start of the year many plans are made around how we intend to improve our money management, health, and social lives.
Our leaders also deliver messages that speak to the need for us to work together to achieve prosperity and ensure that every Jamaican has an opportunity to be the best they can be. The political leaders also take jabs at each other and give all the reasons why either party will be better for Jamaica, and ensure a better path for all, even though over 54 years we have not had the evidence of the prosperity promised by either, year after year.
In fact, with a few adjustments we may be able to replay today the New Year’s messages done 25 years ago and they would still be very relevant — the reason being that we have not really done anything to address the fundamental cause of the challenges we have faced for the past 40 years.
Today, however, most will agree that we see a light at the end of the tunnel, which seems to be daylight and not the usual train that has always been at the end of our previous policies.
This is because approximately four years ago we decided to make a fundamental shift in our governance and focused our attention on inclusion of all stakeholders in our development, maybe because we had no other choice.
However, the inclusion of all stakeholders through institutions such as EPOC, ESET, and the Partnership for Jamaica were instrumental in placing us on the path we are on today.
And so today we are optimistic that we will exit the tunnel and see daylight and not be mowed down by a train, as we have become used to. This is because we have seen where the previous government made the decision to forge ahead with the necessary reforms, and inclusion of the entire country. And the current government showed the political maturity to continue the major fiscal and economic programme and other things such as continued board appointments.
Both must be commended for this, as this is what made the difference, and changed the course of our destiny in 2016.
What this change has done though is turn the car away from driving off the cliff and point it away from disaster — and in fact, we have started to point the car in the right direction. However, we are still very close to the edge of the cliff and must now start to move the car away from the cliff and drive away from it.
It is also essential that this happens in 2017, as anything that remains stable is really “progressing backwards”, somewhat like the term “negative growth” that economists love to use.
So to even remain stable we must move forward somewhat; and to make progress, it means moving forward at a minimum pace, and to win the global competitive race we must move forward at a minimum-plus pace (the plus of course being a pace above the global average).
When we go back to basic economic theory (which has always applied to us), this can only happen if we recognise that a country’s competitiveness is determined by how it capitalises on its comparative advantages.
This means that our development requires us to maximise the value from our areas of comparative advantage, which we have not done in the past, and what some of the legislative changes (Harmonisation Act) seeks to do.
Before I mention these areas though, it also means not making some of our sectors that provide the “veins with blood” to be at a disadvantage compared to other countries. I speak specifically about the financial industry, which is significantly constrained by taxes and bureaucracy, way beyond our competitors, even while we expect capital to flow.
This expectation is as logical as the NSWMA trying to collect garbage without any garbage trucks, and must be fixed.
So if we are to move forward at a competitive pace we must focus on our areas of comparative advantage, which are primarily tourism, agriculture (in niche areas) and the BPO sectors. All of these need the “blood” provided by the restricted financial industry, but, very importantly, also need productive human resources at the base.
But over the last 54 years it is this human element that we have “oppressed” — by not providing opportunities, allowing police brutality and inhibiting growth in other ways such as bureaucratic inefficiency and increased taxes and cost of living.
As a result of this we today have a population that has a relatively low literacy rate, falling labour productivity, increased labour force informality (which means no retirement income plans), one-third living in informal settlements, and a limitation being imposed on their full potential.
Is it any surprise then that UHWI cannot perform major surgeries because of a shortage of specialist nurses, when just a few years ago some of our politicians were encouraging training professionals for export to get the crumbs of remittances instead of the bounty of their contribution to development? And then when they leave, based on us supporting that policy, we are surprised that we have none here to keep the health sector going.
For me, therefore, our greatest asset is the people of Jamaica and policy must do everything to ensure their security, as espoused in the EGC’s call to action. It is the citizens, and their development, that societies are built on and we must do everything to ensure that their long-term prosperity is not sacrificed for short-term objectives.
This is the challenge I see for 2017, because the way we approach citizen security and opportunity will not only affect the outcome of the EGC’s 5 in 4 objective, but will also determine the country’s long-term viability.
This calls for a fundamental policy shift as was done in 2013 when oversight of the economic programme was given to private citizens through EPOC.
Monday, November 28, 2016
Last week I was driving around Montego Bay with the NSWMA regional manager and stopped by the Retirement dumpsite. As I drove around, I thought to myself that much of the challenges we continue to face — at the NSWMA, and nationally — have so much more to do with the lack of order, discipline, and civic pride (or I should just say how people are brought up), than it has to do with resource availability.
As I visited the Retirement dump, it was clear to me that not only does it need a lot of work, but that many of the environmental conditions as it relates to the people and children have been ignored. People are allowed to live around and on the dump, including children, which is a major health hazard waiting to happen. In fact, children there play at the dump as our own children play in our yards or parks.
This, I think, speaks to the ineffective way in which we have sought to enforce environmental standards – by focusing on it after events happen, than being proactive and ensuring that people do not live in these conditions.
But then again, can we blame the people who are to enforce environmental standards when people are allowed all over the country to squat where they please? Maybe this is just another squatting community in the eyes of our local and central government.
As I drove around Montego Bay (in order to view the numerous complaints we get about garbage pile up in the city), it became very clear to me that: (1) the problem of garbage pile-up has less to do with the NSWMA and more to do with our means of disposal; and (2) that based on how garbage is disposed of, we can never afford enough trucks to keep the city clean.
All around the town I spotted people just dumping garbage in piles on the roadside outside of shopping centres, and even where skips were visible, more garbage was thrown outside of the skip than in it.
I was also told, and saw for myself, that NSWMA trucks were picking up the garbage. Then by the time we drove past a few hours later, more garbage was piled up. So, in fact the truck sometimes must make two trips per day.
Based on what I saw, there is no way that NSWMA can provide enough trucks to manage this situation.
The way we dispose of our garbage requires significantly more resources for the NSWMA, which eventually means that Government inevitably has to raise taxes as the cost of providing the service is much more than anticipated.
I hope everyone sees this link.
The main problem, as I see it, is the lack of enforcement of order and discipline in the city, which is not peculiar to Montego Bay. The maintenance of public order is the main responsibility of local government, and this is where I think local government has failed. This responsibility also must rest with local and not central government.
The problem we have with local government is not that it is irrelevant, but that it is dysfunctional. So, in my view, what we need to do is to get local government to work and we would see a significant improvement in our economic and social development. This is because no economy or society can move forward without law and order.
The question, therefore, is why can’t this be done by central government and just get rid of local government? This is the argument that many people make, but this again can lead to greater inefficiency and facilitate corruption. This would be because the other advantage of local government should be a check and control of central government. But this has not worked, as many times it seems as if local government is nothing more than an arm of central government, especially when they are both run by the same party, and it seems impotent when controlled by the Opposition.
The reason for this ineffectiveness is because there is no independence of local government. So when both branches of government are controlled by the same party, the fact that it is the ruling party that appoints candidates for local government makes it an extension of central government.
And when they are both controlled by opposing parties, the central government many times starves local government of resources because the local government funds are controlled by the former.
This is the challenge that local government faces in Jamaica and why it is ineffective.
What we need to do, therefore, is carry out proper reform which would then make local government more effective and accountable to the people, such as direct election of mayors by the people rather than “the chosen one” from the political councillors. In that case, it wouldn’t matter to people who controls the councils, as the mayor would be independently elected by the people.
If this were so, then local government would be much more effective in things such as proper zoning, enforcement of order (such as removal of illegal vending), and clean commercial areas.
This lack of any autonomy for local government is evident in the debates, where much of the debate has centred around things being done at the central government level, rather than anything to be done at the local government level.
The reason for this is simply that parish councils are basically impotent on their own as all the action happens at central government.
Until this is addressed, we will continue to have weak and ineffective local government, lack of public order, and possibly the continuation of improper waste disposal — partly because of lack of effective local government and partly because of the lack of pride by our people.
Monday, November 07, 2016
Last week, I ended by speaking on the point that if we are to see true economic and social development in Jamaica, this can only come through increasing our competitiveness as a country. The only way for us to do that is to target the categories of Efficiency Enhancers and Innovation in the Global Competitiveness Report (GCR) ranking, as our improvement has been in the category of Basic Infrastructure primarily.
In other words, what we have been doing over the past four years is creating capacity (such as through institutions and infrastructure development) and macroeconomic and fiscal stability.
This has caused us to see improved confidence and thus increased investments and a return to growth. (It is reported that in the September 2016 quarter, year over year growth was 2.3 per cent annualised. This, however, reflects the bounce back from the drought that affected agriculture and so a more normalised growth may be under two per cent — still a significant development.)
So if we look back at the areas of Basic Infrastructure, we would have seen significant five-year improvement in the pillars of Macroeconomic Environment (17 per cent improvement) and Health & Primary Education (38 per cent).
However, when it comes to our Institutions and Infrastructure, we have only seen five-year improvements of eight per cent and three per cent respectively. A further analysis shows that of these four basic infrastructure pillars, only Health & Primary Education is in the top 50 rankings, with Macroeconomic Environment at 112, Institutions at 73, and Infrastructure at 77.
So even though our overall improvement has come from the basic infrastructure category primarily, the fact is that the improvement does not mean that we are where we should be as our institutions and infrastructure primarily remain serious impediments to development. In fact, the recent occurrences in the “X6 court case” and the unacceptable situation at the Firearm Licensing Authority prove that our institutions remain a problem.
In the area of Efficiency Enhancers, we even have a more serious issue, as in the pillars of Higher Education & Training, Technological Readiness, and Market Size, we have seen five-year declines of 13 per cent, five per cent, and 17 per cent respectively, and rankings of 90, 77, and 119. These are pillars that are essential for improved competitiveness and are therefore a serious concern, and they must be targeted if we are to improve our international competitiveness to create sustainable growth and development.
In fact, the area of Higher Education is of primary concern, as there is no rich country that has a relatively undereducated labour force. I was just this week having a conversation with someone about the future of driverless cars and robots doing most of the menial tasks which Jamaica embraces as job creation. Our labour laws, for example, have helped to impoverish our labour force by creating greater informality in the labour force and lowering productivity. This has all been done with good intentions (and to get votes), but it has had a distortionary effect on the labour market and created less value.
Under Efficiency Enhancers we have seen five-year improvements in the pillars of Goods Market Efficiency, Labour Market Efficiency, and Financial Market Development of 11 per cent, 10 per cent, and 16 per cent respectively. However, the rankings for Goods Market Efficiency (61) and Labour Market Efficiency (60) are still out of the top 50 countries, and show that much work needs to be done, primarily from the regulatory side to improve.
The Innovation and Sophistication category shows five-year improvement in both pillars of Business Sophistication and innovation of 14 per cent and nine per cent respectively. This, in my view, reflects the natural improvement in the private sector, which controls the movement in these pillars. The problem with these is that they are both out of the top 50 countries, at 57 and 70 respectively. Even though they are not where we want them to be in the rankings, my own view is that if we were to create a friendlier and less inhibiting environment, through better regulations and lower entry barriers, we could see a more significant improvement in the Innovation category.
The table shows us the lowest ranked areas from the 2016/17 GCR report (over 100). What it shows us is that the challenges we face for competitiveness, which negatively affects our economic and social development, is primarily because of crime and justice, fiscal management, and government policy.
We all know about the deficiencies in the justice system, and the crime challenges, but as an example, the approach of tax policy in past years has been to raise the taxes every year on people who are compliant, largely ignoring the non-compliant and the fact that higher tax rates drive capital away from the country. The recent successes of the Employment Tax Credit and moves by Tax Administration Jamaica at compliance and ease of paying taxes, show that lower tax rates and easier tax systems do increase compliance and collections.
There is a lot more that could be done in terms of a detailed analysis of Jamaica’s lack of competitiveness, and hence lack of development, but space does not permit. Suffice it to say that what we must do is not just celebrate the headlines but take a strategic and surgical approach, to look at what are the factors that prevent us from achieving the growth and development we need — and then implement policies specifically to improve those areas.
This is the only way for us to get to where we need to be as a country to ensure prosperity for all Jamaicans.
Thursday, November 03, 2016
Recently the World Economic Forum released the Global Competitiveness Report 2016/17, which showed Jamaica improving its ranking from 86 of 140 to 75 of 138 countries. This was an improvement from 67 per cent to 54 per cent in the ranking.
A few days later the World Bank released the Doing Business Report (DBR), which shows Jamaica falling two places, in the ranking, from 65th of 189 to 67th of 190 countries. This is a marginal slipping in the rankings.
Of course what we normally do, when these reports are published, is to look at and comment on the overall ranking primarily, and most times do not take the opportunity to look at the details to determine what must be done from a strategic point of view to address these issues.
A part of that deficiency may be that we don’t seem to set any real targets to improve in these ranking — as we always have discussions without any real understanding of the details behind the rankings and what must be done to improve in the rankings.
So we don’t, as a country, set ourselves targets in terms of where we want to be in say five years in the ranking of both the GCR and DBR reports.
As an example, I haven’t heard any real talk about an objective of being in the top 50 countries in the ranking in both reports. So a strategic goal could be to say that in three years our objective will be to be in the top 50 countries, and what that will mean for Jamaica. And then we may go further to say that within 10 years we want to get to the top 25 countries.
This would naturally be what private sector organisations do, as do individuals in their own life plan. But as a country it seems we never create a vision of where we want to be in a defined timeline, and get the population to buy into it. One may say that we have the Vision 2030 objectives — but the truth is that it is a well-kept secret from the general population.
To properly understand where we need to go, we must of necessity understand in greater detail what the current status of our economy is. And this can helped by looking at both the GCR and DBR reports, instead of just looking at the headline ranking. Because if one looks behind the overall ranking I think it gives a very good indication of what areas we must focus on if we are to realise Vision 2030, which is just about 14 years away.
One of the questions I always get is: if Jamaica is touted as doing so well, under the just- ended IMF agreement, then why are we still grappling with economic growth? In fact, even though we have seen a return to growth, the fact is that the average is still not much more than the average growth rate over the past 40 years. The reason for this, I think, can be answered by further analysis of both the GCR and DBR.
If one looks at some of the details behind both reports, you will see that the challenges highlighted are similar in both reports. Both the DBR and GCR reports identify that inefficient government bureaucracy is a major issue, and the GCR report goes on to highlight significant deficiencies in the justice system and crime as issues.
Both crime and inefficient government bureaucracy have been the two most problematic factors to doing business in Jamaica for years, and yet we have been unable to address these challenges.
If one were to really think about it then, the real challenge we face is a lack of proper governance, as both crime and bureaucracy are consequences of poor governance.
This is a conclusion I had come to in my book,Charting Jamaica’s Economic and Social Development, where it became clear that the real challenges of social and economic development stem from our constitutional politic arrangements.
It is not practical, however, to address it by trying to change our constitutional arrangements, as neither political party will want to do that, as they want to preserve power. So the next best thing to do, which has been the trend, is to strengthen the institutions around our current political systems, and in so doing remove some of the stranglehold of our political system (read the book Why Nations Fail).
It is this strengthening of our institutions (as depicted in the table showing the five- year trend in the GCR) that in my view has resulted in greater confidence leading to enhanced macro-environment and market conditions. In other words if we did not move to develop institutions like the OCG, public defender, INDECOM, Charter of Rights, and more recently EPOC and ESET, then we would have had worsening social and economic conditions. This would in turn lead to loss of confidence, lack of investments, and further impoverishment.
So what the table clearly shows is that Jamaica has been improving steadily in the GCR ranking, moving over the five years from the 67th to 54th percentile.
But even with this steady improvement, Jamaica has still struggled to find any significant economic improvement. What should also be noted is that the more significant improvements over the period occurred when we started the IMF agreement in 2013, which saw the strengthening of institutions (mentioned above) and more oversight by the private sector and civil society.
If we are to see economic and social development in Jamaica, then we must fiercely go behind the overall ranking and, secondly, put action in place to bring us into at least the top 50 per cent of countries for doing business.
Even though we have seen continuous improvement in the GCR ranking, it should be noted that the improvement primarily takes place in the Basic Requirements category — where over the five-year period we have improved 24 per cent from 114 of 144 to 75 of 138 countries measured. However, in the categories of Efficiency Enhancers and Innovation, over the period we have seen a decline of one per cent and improvement of 11 per cent respectively. The problem being of course that global competitiveness means that we have to do well with Efficacy Enhancers and Innovation.
It is this lack of development in these areas that, in my view, has caused us not to grow at acceptable rates.
(Continued next week)