Breathing new life into the economy

Dennis Morrison, Contributor

The latest hot topic in local business circles is the set of proposals from government planners aimed at inducing economic growth, which has been hit by three years of continuous decline, rising poverty and unemployment. It is going to be a mammoth task to breathe new life into the Jamaican economy, given the combination of an uncertain external environment and critical problems that beset the main working parts of our socio-economic system.

If we are to be realistic, we have to recognise that successful development models of the last 50 years have been based on strategic alliances between the State and private sector that allow capital and entrepreneurial talent to be directed to the potential growth points of economies. This might sound too simple a formula, but it is the essence of the process of transformation that has propelled China, for example, to its miraculous growth since the 1980s.

With the Jamaican public sector caught in a straightjacket of limited discretionary spending, mounting debt and scarce entrepreneurial talent, it does not have the wherewithal to drive economic growth in the way that state sectors have brought dynamism to several emerging economies. Simply put, the failure to modernise the Jamaican public sector over the last 35 years has been the biggest failure of policy. It has left the sector to wrack up huge losses, and unable to build the reservoir of talent and experience needed to manage a vibrant economy.

The result, therefore, is that it now lacks the capacity to mobilise fresh capital for key infrastructure development, a pre-requisite for achieving international competitiveness in leading export sectors and for raising efficiency in production for the domestic market. We are also woefully short of resources to finance expenditure for education and security, areas which are now major impediments to achieving the levels of productivity and stability required to propel economic growth.

Leading examples

East Asian 'Tigers' of Malaysia, Singapore, South Korea and Taiwan are leading examples of how efficiently run state sectors have managed the core functions of government (education, security) while acting as strategic planners and mobilisers of investment. In these countries, the state sector was a strategic partner in energy-supply developments, a decisive factor in the competitiveness of an economy.

The Jamaican State, on the other hand, has fallen down on the core functions and run public entities inefficiently under all political administrations. It has lost on major divestment deals with the private sector (Air Jamaica, banks, sugar industry). Joint-venture initiatives have also been costly (hotel investment). In recent times, however, there has been notable success in mobilising foreign direct investment in tourism, telecommunications, airport development and other infrastructure.

The weaknesses of the Jamaican private sector are no less constraining to the role it will be expected to play in stimulating economic growth. By and large, it has been slow to adopt modern business practices and to collaborate in carrying out research and development relevant to local production. Elements within the exporters and manufacturers remain active, but these and other business groups have lost the dynamism of another era.

The irony is that liberalisation of trade, the financial sector, and foreign exchange, for which the private sector lobbied hard, was a double-edge sword, hurting manufacturers while expanding the financial sector's power in the economy. Financing has been biased towards trade while production activities have been starved of capital, yet importers of motor vehicles, who are still lobbying for policies that would stimulate increased imports and energy use, would seek to exacerbate this problem.

Major disadvantage

It is abundantly clear that high energy prices are a major competitive disadvantage for Jamaican businesses, both in the domestic market and for exporters. Change in the dynamic of the local economy is heavily dependent on the modernisation of the energy sector, and this, too, should provide investment opportunities for locals. But if the experience of the liberalisation of the telecommunications sector is any guide, locals may allow them to pass to foreigners.

In spite of the state-of-the-art telecoms infrastructure laid down in Jamaica, the information and communication technologies (ICT) sector has so far not attracted the local investment anticipated. The sector has been identified as one that could help jump-start growth, but detailed analysis is needed to pinpoint the critical success factors. Why, for example, are local private-sector interests not moving more aggressively to build office space needed for ICT operations as some foreign entities have done?

Where the external environment is concerned, some positive news came last week with the announcement of increased numbers of new jobs in the private sector, and lower new jobless claims in the United States. This was tempered by the report of falling house prices and continuing weakness in the housing construction sector, which is one of the drivers of that economy.

On balance, the picture is one of continuing steady improvement in the overall economic situation of our major trading partner. This is important, especially to our tourist industry, which relies on the US market for six out every 10 stopover visitors to the island.

Dennis Morrison is an economist. Email feedback to columns@gleanerjm.com.