Voting for growth and development

by John Rapley

Last week, I suggested that the most important contribution the next government could make to national development would be to transform the productivity of the public sector. That is where it has the most levers to apply, and it is a change that would quickly feed into the economy as a whole.

It seems that both sides of the political aisle are now talking the language of productivity, but I can't make out how either intends to tackle the challenge. Perhaps they don't want to say more than they have to, because they fear losing votes if they speak too candidly of their plans.

But from what I can tell, from my admittedly distant remove, the PNP will use memoranda of understanding (MOUs) to tackle public-sector costs, and the JLP will reduce the wage bill through attrition.

Complex as industrial re-engineering is, the basic goal is straightforward. Increasing productivity means that for the same price (taxes), you get more, or better, public services. Both parties seem to suggest that they'll maintain current levels of service delivery, and reduce costs, thereby having the same effect.

Well, I'll wait to read the fine print.

From what I've seen, in Jamaica and elsewhere, either approach can inadvertently worsen, not improve, productivity. When governments negotiate MOUs, often the quid pro quo is that there is some ease-up in output to compensate for the sacrifices. Meanwhile, MOUs often end with 'back pay', bringing the wage bill back to where it was. As for attrition, if it phases out unproductive workers, but fails to reward productive ones - and that, too, is often a trade-off - output can decline even faster than costs.

So I'm not sure anyone has a solution to this conundrum. Other governments are dealing with the same challenge at this moment. They're not finding it easy, and it's not clear they are rising to the task either.

In Italy, rather than take on public-sector unions, the government is raising taxes further, which will only slow down the country's already decelerating economy.

In Greece, the freezing of public expenditure is eliminating new hires, thereby preventing young and energetic talent coming into public employment. It's not at all obvious those left in their positions are going to transform the public sector.

In fact, what is emerging in the European austerity drives is a new cleavage. Whereas those of us teaching political science today grew up with the orthodoxy that the political split of modern societies was between owners and workers, a new fault line has quietly emerged: the ins and the outs. The ins are those business owners and unions which, whether through government contracts, concessions, waivers or employment, have their fingers in the nation's tax pot.

The outs are those who are left to fend for themselves in an environment in which taxes are rising, costs are up, and services down. It's an increasingly brutal world. In Greece, the suicide rate has shot up as young and mid-career Greeks, the opportunities that fattened their elders now cut off from them, despair at their prospects.

Preferential policies

I'm willing to bet the problems in Jamaica are not dissimilar. A young person graduating into this environment is finding it very difficult to get a decent job. Yet there are people making good money in Jamaica, often from quiet but entirely legal deals they work with the Government. Politicians state publicly that business must pay its fair share of taxes, then quietly favour their friends and donors with waivers and preferential policies. Or they say they won't penalise public workers, while leaving those in the informal sector to fend for themselves.

I'm willing to bet that both sides of the aisle have their political constituencies, and worry about rocking the boat because they don't want to anger the ins. The ins tend to organise, and vote. The outs tend to migrate, or abandon the formal system altogether. But until a strategy is proposed that spreads the benefits of the public sector more widely, rather than targeting first the ins, Jamaica's future will look little brighter than Greece's or Italy's.

John Rapley is a research associate at the International Growth Centre, London School of Economics and Political Science. Email feedback to columns@gleanerjm.com and rapley.john@gmail.com.