Shaping a future to overcome the past

Claude Clarke, Guest Columnist

This is part one of a presentation at a Stocks & Securities leadership and economic growth forum titled 'How to Win in a Tough Climate', on Thursday, March 14.

When I was invited to take part in this forum, I didn't know what I would say until I received a quite unexpected email from someone I had not heard from for almost 20 years. He describes himself now as an international technocrat. But I remember him as someone with an interest in politics and a passion for Jamaica's economic development.

Among the things that struck me in his email was the reason for his decision to leave Jamaica. He had written a paper recommending that Jamaica examine the economic strategies employed by both Ireland and Trinidad and gave it to his minister. The minister's response was to remind him that the Trinidadian governments that implemented those reforms each lasted only one term. And that was that.

I mention this email because I believe that that minister's reaction aptly illustrates what has been responsible for Jamaica's economic failure over almost a quarter century. I know there are many who believe that our economic woes merely reflect the current global economic downturn, but they are just plain wrong. Our problems started long before Lehman Brothers collapsed in September 2008. We just need to remember that, during the 1990s and 2000s, while the world economy, including Latin America and other Caribbean countries, were enjoying healthy growth, Jamaica's economy was stagnating.

But our political leaders have been perfectly happy to hold power without doing anything to effectively address this persistent failure to simply keep pace with the world. Not that there weren't persons like my disappointed friend to point them in the right direction. But for every one like him, there would be 10 to tell the Government exactly what it wishes to hear and what would be more likely to give it another term in office. It is this type of politically driven management that has paralysed our economy these many years.

However, as Jamaicans committed to our country's development, we cannot allow this economic paralysis to continue. The support I see at a forum like this that seeks to determine "how 'we can' win in a tough climate" is certainly sufficient evidence to give me hope that there is a desire to cause our political leaders to move in a direction dictated more by Jamaica's economic interest than by their political fortunes.

But if we, the people, are to make a difference, we must begin with a strong dose of realism. Jamaica today has found itself firmly behind the economic eight ball.

We are losing the battle in trade, not only with the world, but with our small Caribbean neighbours. Our trade deficit has been as high as 43 per cent of our GDP; and with little CARICOM, it has already been over US$1 million. We are losing not because there is anything wrong with us as a people but because we cannot organise as a country to compete. And unless we organise ourselves to compete, we will continue to be left out of the world economic game.

Valuable productive skills

We compete for capital to produce, but don't get it because here, capital used for production does not provide a competitive return. We compete to attract and retain valuable productive skills but can't, because without capital invested in productive activity, there is little opportunity to beneficially employ such skills. So we lose more than 80 per cent of our best-educated graduates to other countries.

And no game can be played without rules. We need a social environment of order and trust in which the rules of the game are clear and consistently applied. But instead, what we have is disorder: a dog-eat-dog, every-man-for-himself environment that is fed by the dearth of legitimate economic opportunity.

These are the three core ingredients of a successful economy: financial capital invested in production, motivated human skills productively employed, and an environment of trust and order. And all three are tied together by the first: attracting capital to production.

And when we ask why capital won't come to production in Jamaica, the answer is simple. Production in our economic environment is not sufficiently competitive to give capital a satisfactory return.

The absence of these three critical ingredients in our economy is why we have been unable to produce goods and services to export or to compete with imports to satisfy our own consumption needs. It is that simple. And that is why it is so difficult to understand why our governments and their advisers have not directed their attention like a laser to the task of making the Jamaican economy competitive.

Our governments, over the years, have thought it sufficient to identify what they regard as economic winners: industries, sectors and companies that they determine will succeed and channel resources from other areas of the economy to help them. But this approach has a major weakness. There is little evidence to suggest that governments are any good at business.

A long time ago, before I entered government, I was a passionate believer in that approach. But I was disabused of that belief when, while in government, the leader of a visiting World Bank delegation respectfully challenged it by pointing out that South Korea had a different experience.

He told the story that South Korea had set out on the same path at the beginning of their development drive after the war.

They had developed an impressive list of winner industries that were given government support. But in reviewing the economic results a few years later, they were amazed to find that performing above all the winner categories they had selected was the category called 'other'. And among the individual products within that category, the most spectacular success was a product we see a lot of today, human hair.

Businessmen's opportunity

No politician or government technocrat or committee could have seen what the eyes of motivated entrepreneurs saw. Across the Pacific Ocean was a very rich country where millions of relatively affluent women wanted long hair and didn't have it. At the same time, South Korean teenage girls, as a rite of passage, were cutting off their long hair and throwing it away. The businessmen who recognised and pursued the opportunity of putting these two phenomena together for profit didn't need government to move resources from other areas of the economy to subsidise them.

All these Korean businessmen needed was a competitive economic environment and access to markets.

I never forgot the lesson of that story. No country needs government to tell its business people what will be profitable and what will not.

Our government has spent massive sums in this endeavour to pick economic winners, and has gone even further and itself taken on the role of entrepreneur, squandering billions of dollars of Jamaica's resources in the process.

Much of our staggering debt today represents the costly result of that folly.

What the South Korean government and other Asian Tigers realised is that by far the most important agent of economic development is a competitive domestic economic environment in which the inputs that go into the production of a country's goods and services are priced competitively against those that go into the production of similar goods and services produced elsewhere. That is what underlies competitive firms, competitive industries, and successful countries.

It is what allows domestic production to withstand the challenge of imports and to penetrate external markets. That is what ultimately leads to economic success and prosperity in a country.

And just as it is not true that picking economic winners is the key to economic success, it is also not true that economic growth requires mega projects, which is what our Government now seems to be pinning its hopes for growth on.

Quite to the contrary, the experience of most successful developing economies is that it is the abundance of thriving small and medium-size businesses that is the greatest contributor to, and result of, a thriving economy. Small and start-up businesses multiply and grow in a competitive economic environment like mushroom in compost-rich soil. They generate jobs at a higher rate than large businesses and provide a stronger base for popular participation in the economy, resulting in greater social harmony.

An uncompetitive economic environment, on the other hand, kills private initiative and discourages business start-ups, because they cannot get inputs into their businesses at prices that will allow them to compete and turn a profit.

One example of how a competitive economy fosters activity at every level is what used to be known in Jamaica as a 'pants-length man'. The pants-length man could once be seen on any commercial street corner selling lengths of suiting material for making pants and suits. His sales kept hundreds of tailors and thousands of their workers employed and economically engaged. Today, the domestic tailoring industry is gone, and the pants-length man is no more.

Yet, in places as advanced as Hong Kong, Singapore and South Korea, this very same activity has developed and morphed into a highly lucrative same-day tailoring sector that spawned a thriving export business, delivering thousands of suits to visiting business persons and overseas customers. That transition to exports did not occur in Jamaica, because the pants-length man and the tailors he supplied were driven out of business by imports from countries with more competitive economies.

Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.