Choose logic over magic

Claude Clarke, Contributor

It was revered conservative US President Ronald Reagan who, in making the case for laissez-faire economics over government regulations, introduced the concept of 'the magic of the marketplace'.

Who could have resisted the rhetorical power of his words: "Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success - only then, can societies remain alive, dynamic, prosperous, progressive and free?"

But perhaps because I know magic is illusion, the concept of magic guiding the marketplace has never appealed to me. The idea is, in fact, ludicrous and can in no way provide a foundation on which to set economic policy. That is why it is never enough for Government to simply focus on economic fundamentals and leave an economy's navigation on autopilot.

After a full year of drifting on a no-growth, contractionary economic path, April 3 this year, when the estimates of expenditure for the financial year 2014-15 are tabled, may well be the Government's last best chance to move the economy off its International Monetary Fund (IMF)-prescribed autopilot and steer it towards growth and development.

BOAT WITHOUT A RUDDER

There is no gainsaying the importance to a country's economic health of the low-inflation, low-debt, low-deficit formula prescribed by the Fund for Jamaica. But even with the healthiest economic fundamentals, if Government is not actively steering an economy towards increased real economic output, these fundamentals will be no better than a perfectly serviced boat without a rudder.

No matter what the economic fundamentals, it is human behaviour which determines how an economy functions. And it is the job of Government to manage its economic affairs in a manner which influences people to act in ways that best serve the objective of economic growth. People act in their own self-interest, and there is often no consonance in the interests of individuals, groups or sectors. It is Government that must reconcile these differing interests so that the actions people take best serve the development of the economy.

Some will always be prepared to advance their own interests, regardless of the effect on the economy as a whole, but Government has both the responsibility and the power to protect and advance the interest of the whole economy.

However, in exercising this power, it is well for Government to acknowledge that fundamental to human nature is a proclivity to make self-serving choices. And that economic policy, to be successful, must appeal to that basic instinct.

Used with care and skill, government's two most powerful economic tools - the power to tax and to spend - can be used to exploit that instinct for the common good. With these tools, policy objectives and personal interests can be harmonised. It is the Jamaican government's ability to achieve this harmonisation that will determine whether the economy continues to stagnate or will finally begin to grow. It's all about what government action influences people to do.

MORE THAN A MANTRA

That is why the prime minister's oft-repeated desire to "balance the people's lives while balancing the books" must be more than a mantra; it must become the central pillar of economic policy.

The idea must be regarded not simply as a call for welfare and aid for the poor, but as affirmation that successful economic outcomes cannot be achieved without the people's full participation in the economic process.

At the centre of human nature is the desire and need to create economic value; whether by performing a job, pursuing entrepreneurial or creative endeavours, or through professional practice. And it should be the objective of economic management to formulate and organise policies that will make the fulfilment of these basic human desires possible for every citizen.

It is the collective output of people which determines the wealth of a nation. And it is Government's central economic purpose to engage the full productive potential of the people in order to maximise the economic performance of the country.

Notwithstanding the need for Jamaica's fiscal accounts to be righted and the debt to be reduced, if the prime minister's words are to have meaning, her finance minister must create opportunities for the citizens to contribute to the process of economic development.

Her mantra will be of no value if she does not insist that economic policy and governmental actions attract private capital to those activities which engage the productive capacity of people to increase national economic output. To expect that bringing Government's revenue and expenditure closer to balance and reducing the size of the national debt can by themselves accomplish this is to commit to the illusion of magic.

WHERE'S THE LOGIC?

No, what Jamaica needs today is not magic, but logic. The logic that people can be relied on to do what is in their interest; and that if a government designs policies that make the production of real value the most financially beneficial in the economy, they will create real wealth. The logic that every Jamaican has productive capacity and that policy which engages that human capacity will not only result in greater production, but higher employment and stronger social cohesion.

Some months ago, I told the Jamaica Manufacturers' Association annual awards banquet that Government had placed so high a priority on meeting the IMF targets that it set up the high-powered Economic Programme Oversight Committee (EPOC) to monitor its performance, but that, for the more important objectives of economic growth and balancing people's lives, no such body was thought necessary.

Why has Government not prioritised economic growth and the balancing of people's lives? Why has it not made similar efforts, as with EPOC, to ask producers to assist in developing policies to achieve productive growth?

If Government's economic planners were guided by logic instead of magic, it would know that a tax code which incentivises investments in production and lifts the productivity of people would best enable it to meet its IMF obligations on a sustained basis. It would be driving policies to end the wasteful and costly economic arrangement that sucks capital away from productive activities into domestic services, leaving the economy less able to employ our people and compete with foreign production.

My hope is that the economic policies to be introduced in this year's pivotal Budget will be subjected to a litmus test informed by the logic of the prime minister's words. Will the policies provide greater opportunity for people to use their productive capacity? And will they create greater productive value for the country?

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