Needed for growth: innovative entrepreneurs

Densil, Williams, Guest Columnist

The main speakers on both the government and opposition team have made their contributions to the 2011-2012 Budget Debate. As is customary, journalists and economic/financial analysts are having a field day providing commentary and giving grades (although without a formal scorecard) to the various speakers.

While this exchange is good for critical reflection, what is most important is for the Budget process to identify the framework that will facilitate economic growth and development of the nation. The minster of finance aptly titled his presentation 'From Stability to Growth'. This seems to be the general theme that the presentations from the government side followed.

The Opposition, on the other hand, seemed to hinge its presentations on poverty-reduction strategies. The fragmented nature of the opposition presentations made it difficult to follow a coherent theme. This is possibly why most analysts have argued that their presentations were weak in the main. I still think that both Portia Simpson Miller and Dr Omar Davies put forward good proposals that can contribute to the game-changing nature of our economic conditions. I do not agree that they bottled the Budget Debate and their presentations should be put in the dustbin.

The Opposition's hammering at the poverty figures, which indicate that poverty has doubled over the last three years, cannot be scoffed at. There is no doubt that people are suffering and that times are hard in Jamaica and in most economies across the world, from the United Kingdom on one side of the North Atlantic, to the United States on the other side. However, if we are to reverse this situation in Jamaica, the only hope is to GROW the economy. The discourse on the economy will have to shift to strategies for growth if we are to help the poor. Bringing back growth, however, means that the right framework will have to be laid in order to support investment and production. This is the hard part.

Game-changing decisions will have to be made. Indeed, the prime minister sums it up nicely in what was a very pedestrian presentation. He said, "This Budget is consistent with a clearly defined, coherent strategy to fix the things that are wrong with Government, things that have humbugged investment and growth and made the Government itself a major impediment to the country's development." But what are some of the things that must be fixed if Jamaica is to lay the foundation for growth in order to help the poor and reverse the poverty that has been running north over the last three years?

The framework for growth

In this highly integrated global economy, there is no single strategy that will lead to growth. Growth is a complex phenomenon. What is standard, however, is that certain critical foundations must be in place in order to facilitate growth. Some people call this the neoliberal laundry list. These conditions include:

• Elimination of fiscal deficit and the generation of macroeconomic stability;
  
• Reduction in the role of government in the commanding heights of the economy and allowing market forces to work within the confines of adequate standards and proper prudential regulation;
  
• Better integration of the local economy into the world economy through moving up the global value chain, and diversification of the economic activities;
  
• Protection of property rights of investors and entrepreneurs and enforcement of contracts through a system that is transparent and has strong accountability so that people will have confidence and want to invest;

These conditions fit nicely into what the prime minister dubbed the core of the Government's game-changing strategy. In his presentation, Prime Minster Golding highlighted the following as critical game-changing actions that must be taken. These include:

• Eliminating the fiscal deficit and build up surpluses to cushion ourselves through external shocks and natural disasters;
  
• Reducing government borrowing so that more resources are available for those who want to invest, do business and create jobs;
  
• Reducing our debt-to-GDP ratio and the cost of servicing that debt in order that more of the taxes we collect can be spent in critical areas such as education, security and justice, health and infrastructure;
  
• Reforming our tax structure and spread the tax burden more equitably to encourage people to invest, do business and create jobs;
  
• Transforming the bureaucracy into an efficient, service-delivery-oriented institution that encourages and facilitates doing business and creating jobs;
  
• Providing a framework of transparency and accountability so that people will have confidence in what the Government is doing and how it is managing their money;
  
• Enabling Jamaica to be globally competitive in areas that will attract investment, create jobs, and provide prosperity for our people.

Now, if the Government were able to achieve these game-changing actions, it will still not be sufficient to generate the level of growth that is needed to reverse the directionality of poverty over the last three years. These conditions are necessary but not sufficient for robust growth. Robust growth is not going to come from the Government. It is the private sector that will have to deliver growth while the Government creates the enabling framework within which this must be done. It means, therefore, that the entrepreneurialism of the investment class in Jamaica and in the wider global economy will have to be unleashed tremendously if Jamaica is to see strong and sustainable growth.

More than starting a business

We cannot expect to have strong growth in the Jamaican economy if we continue to pay lip service to the concept of entrepreneurship. We tend to conflate entrepreneurship and starting a business as one and the same. Entrepreneurship has a rich history and more significant meaning and should not be used that loosely. Jean-Baptiste Say, the French economist writing in the 19th century, noted that an entrepreneur is one who shifts economic resources out of an area of lower productivity into higher productivity and greater yield. In other words, an entrepreneur is someone who creates value for society.

The concept became even more popularised by Austrian economist Joseph Schumpeter, who describes an entrepreneur as an innovator who drives the creative-destructive process of capitalism. In other words, the Schumpeter entrepreneur is the change agent in the economy who finds new markets and creates new ways of doing things in order for the economy to move forward.

Indeed, Peter Drucker, one of the most prolific management writers of the 20th century, noted that starting a business is neither necessary nor sufficient for entrepreneurship. According to Drucker, starting another restaurant (or another nightclub, or car mart - my addition) is not really innovative, nor does it have anything that is change-oriented. These will not move the economy forward seriously. These business persons will have to have the Say-Schumpeter characteristics if they are to be the catalyst that will push the economy forward.

Concluding thought

If the Jamaican economy is to move forward, domestic investors (and, I must say, foreign investors that we attract) will have to become more innovative. They cannot expect to merely open another store, expand their branch network, and employ a few more individuals in order to generate growth in the economy. These investors will have to start thinking about product development, new ways of doing traditional tasks, new markets outside the Caribbean region, recalibrating their business processes, etc. Serious strategic thinking will have to be at the forefront of our corporations. The investor class will have to start taking strategy seriously. Most companies confuse financial sensitivity analysis for business strategy. They are not one and the same.

The Jamaican economy will not grow if our investors continue to operate marginally. Bold thinking is needed. Small businesses cannot carry this country forward unless they become innovative. It is not true that small and medium-size enterprises (SMEs) will be our saving grace, as we like to declare. It is innovative firms that will be the driver of growth in any economy. Setting up a venture capital fund to finance small business is not going to be the solution to the problems in the SME sector. The evidence is clear: when venture capitalists target sectors, they generally fail. Venture capitalists have to target innovative firms if they are to survive. It is innovation that will determine long-term survival of the firm, not its size or its industry sector.

Jamaica will have to seriously think about setting up a national innovation system similar to Singapore, South Korea, Brazil and other countries in order to start driving home its importance in generating economic growth. This is the only way we will create the Say-Schumpeterian entrepreneurs that are critical to moving the economy forward.

Dr Densil A. Williams is a senior lecturer of international business and head of Department of Management Studies at UWI, Mona.