PM's pipe dream - Do you really think the burden is shared?

Robert Wynter, Contributor

I really sympathise with our prime minister. I believe she genuinely wants what is best for all Jamaicans and feels the pain that most of us are feeling. However, she is limited in trying to ease that pain.

Her party's 'People Power' campaign gained traction among the voting population, catapulting her to be our Chief Servant. In trying to translate that slogan into reality, the prime minister is asking all of us to share in the burden with which the IMF has forced us to finally come to terms.

Despite her pleas, the less fortunate will shoulder the lion's share of the burden. Like many others, our prime minister and her team desire the tenets of capitalism to generate wealth and the tenets of socialism to distribute that wealth.

I get the distinct impression that most of our political leaders have not settled in their own minds the internal conflict inherent in desiring both capitalism and socialism. Burden sharing in difficult times may very well work under socialism; but will definitely not work under capitalism.

Compounding the problem, however, is the Government's charging (well above its value-adding contribution) a commission (public-sector wage bill) on both the generation and distribution of wealth to provide regulatory, social and infrastructural services. What is apparent is that both the producers and consumers have been increasingly complaining about this huge fee imposed by the middleman.

If an individual consumes more than he/she produces, he/she has to beg, borrow or steal. If I apply to borrow from a responsible lender, I am required to prove my capacity to repay before any funds are disbursed to me or disbursed on my behalf. The lender ensures this by putting systems in place (collateral) to cover the risk of my reneging on my promise to repay as agreed.

BEGGING, BORROWING AND STEALING

The government of this country has been consuming more than it has been producing for a very long time. To survive, it, too, has resorted to begging (grants), borrowing (loans) and stealing (JDX 1 and 2, traffic ticket-amnesty, etc).

Finally, a responsible lender (IMF) has forced the Government to return to a position of consuming less than producing; thereby generating adequate surpluses to repay its borrowers and to sustainably deliver on the regulatory, social and infrastructural services for which it was designed.

The IMF simply wants the Government to live within its means. Before letting off any money, the IMF requires the Government to demonstrate its seriousness by undertaking some "prior actions".

The finance minister says these are: a) a National Debt Exchange (NDX) where he is reneging on agreed interest rates to lenders; b) a new Public Debt Management and Accountability Act (PDMAA) to put our borrowing-hungry legislators under heavy manners, supposedly by placing a legal limit on how much they can borrow; c) the virtual elimination of discretionary waivers replaced by a huge fiscal (taxes plus NHT contributions) package; and d) a wage-freeze contract with public-sector workers designed to reduce the Government's wage bill from 11 per cent to nine per cent, over the life of the agreement.

All these should result in reducing our debt-to-GDP (what the Government owes/what the country produces) ratio from the current 140 per cent to 95 per cent by 2020.

DEBT AN EFFECT, NOT A CAUSE

In
her joint address with Peter Phillips to the nation two Mondays ago, PM
Simpson Miller made it clear that with the high debt, we cannot provide
the necessary education and growth required by the country. With
reports that the October-December quarter showed a decline in output,
Mrs Simpson Miller appeared to be blaming the debt on the incapacity of
the Government to address the ills that created the debt in the first
place.

I respectfully disagree with Madam Prime
Minister, as I believe the high debt is an effect, not a cause, as we
have had higher debt-to-GDP ratios in the past, with varying results.
Although seemingly obvious, Table 1 shows no relationship between debt
to GDP and GDP growth. It suggests that while high debt is not
desirable, it is clearly not a stumbling block to
growth.

Algebra tells us that there are independent
variables (those that can be changed at will) and dependent variables
(those that change as a result of independent variables changing). Both
the debt and GDP are dependent variables and cannot be adjusted at will.
In fact, GDP growth is a raison d'être (reason for
its existence) of the Government and should be an objective every single
year, not a choice.

The independent variables to be
leveraged are many, however. Aggressive tax collection, increasing tax
rates, reforming the tax system, realigning the public sector, and
creating conditions for investment, exports and productivity all have
tried-and-proven short-term impact. Transforming education and other
social areas of society will have long-lasting impact on growth and
development. To happen, these all require good governance, leadership,
management, strategy and accountability.

It is well
known that tax increases hurt the poor under a capitalist system - even
those taxes aimed at the rich. This is because price-setting in a
capitalist economy is an independent variable and is used by the rich to
pass on said taxes.

But what about the NDX? Is this
where the rich, particularly those in the financial sector, will take
some of the burden? Examining the past several years' net profits (see
Table 2) of our biggest bank, the National Commercial Bank (NCB), one
can conclude that it suffered little pain as a result of the Jamaica
Debt Exchange (JDX) in 2010; and is likely not to suffer much in the
wake of the NDX.

This was confirmed by NCB Managing
Director Patrick Hylton, who recently told journalists that the bank
will, not unlike the first time, ameliorate any adverse effects of the
NDX. How is this amelioration achieved, and from whence cometh the
resources for this amelioration?

In the period
2005-2010, NCB's profits increased cumulatively by approximately 135 per
cent after discounting inflation, while Jamaica's national income
decreased by 1.6 per cent over the same period.

Should
we blame NCB for this apparent transference of wealth from the poor to
the rich? No! Is NCB unpatriotic? Absolutely not! Is NCB being strategic
in its response to changes in its external environment? Definitely! Is
NCB purpose-driven and strategy-focused? Yes, and their executives are
rewarded handsomely for the profits generated (the bank's
purpose).

PURPOSE AND FOCUS

Whenever
a bump in the road appears, we get the usual bellyaching by those in
manufacturing, agriculture and the micro, small and medium enterprises,
a.k.a. the 'productive' sectors. Instead, they ought to take a leaf out
of NCB's book by each looking critically at their respective entities
and making the necessary strategic responses to the changes in their
external environment.

We also need the same approach
by the leaders and managers in each of our ministries, departments and
agencies. Jamaica will not grow and develop because of any of the prior
actions agreed by the IMF and Jamaica. Instead, we need to be
purpose-driven and strategy-focused in all we
do.

Until such time, the burden will not be shared by
all.

Robert Wynter is managing director of Strategic
Alignment Ltd, which facilitates organisational transformation. Email
feedback to columns@gleanerjm.com and
rob.wyn@hotmail.com.

• Table 1: Debt/GDP vs
  GDP Growth, 1981-2010

Source:
Ministry of Finance website

• Table
  2: Net Profits of the National Commercial Bank,
  2006-2011

Source:
NCB annual reports