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Jamaica's global competitiveness

Published:Sunday | September 21, 2014 | 12:00 AM
Ann-Marie Nicholas-DeSouza, social worker at the Ministry of Labour and Social Security, explains the benefits of the Programme of Advancement Through Health and Education (PATH) to 74-year-old Amy Hunter of Content Gate, Harkers Hall, while others wait for details on the scheme. A strong social safety net is also key to the drive for growth, writes Claude Clarke. - File

Claude Clarke, Guest Columnist

It is not surprising that the Government has seized the chest-beating opportunity provided by a generally positive change in Jamaica's standing in the latest World Economic Forum Global Competitiveness Report (GCR). It is what governments do when tangible evidence of economic success is not available.

Until the publication of this report, nothing resembling a credible plan from the Government to improve the economy's competitiveness had been seen. However, now that the Government seems anxious to embrace the goal of competitiveness, perhaps it might favour us with a coherent plan.

Apart from providing bragging material for the Government, the GCR provides a wealth of valuable information that could help our policymakers to design a strategy to achieve economic competitiveness and growth. The most important lesson is that in building an economy, it is best to focus on the foundations. A country in the early stages of economic development, as Jamaica is, needs to prioritise the economic factors that are described in the GCR as "basic requirements".

They include: (1) The institutions responsible for facilitating the efficient conduct of business; (2) the infrastructure which enables the movement of people, goods, information and energy; (3) the macroeconomic environment, which determines the cost at which business inputs are delivered; and (4) basic health and primary education services, which ensure the people's preparedness to produce.

The relatively high standard of Jamaica's ports no doubt scored positively in the GCR's assessment of the physical infrastructure supporting external trade. However, the internal transport infrastructure critical to the productivity and competitiveness of our cities is clearly in need of urgent improvement.

The development of our telecoms sector would also have been a factor in our upward movement on the competitiveness ladder. And though it is difficult to discern the reported gains in our health-care services, it is heartening to note the sustained improvement in "health and primary education" reported in the GCR, which should augur well for our future economic strength.

By contrast, however, the report shows no indication of meaningful change in the institutions that serve the economy. This is critical to the ease of doing business in the country, and is of considerable concern.

For an economy at Jamaica's stage of development, macroeconomic competitiveness, the condition which most directly affects the price of inputs to production, is most important. But it is in this category that we score lowest. Although Jamaica's score in this category improved, it is the area in which we performed worst among the 144 countries included in the report.

While any upward movement in competitiveness is good news, it is not very comforting when improvement is caused less by a reduction in the cost of productive inputs and more by significantly reduced government expenditure on the vital but manifestly inadequate social services that support the economic well-being of the society, particularly for the poorest among us.

IMPROVED FISCAL SITUATION

What emerges is that our improved standing in the GCR was substantially the result of the dramatically improved fiscal situation. That is, of course, very positive. But the means of achieving it could very well carry the seeds of economic decline.

The almost complete elimination of our budget deficit puts us near the top in this segment of the macroeconomic environment index, at number 21, but we are ranked near the bottom of the list of 144 countries in all the other segments.

The question that remains is whether the strategies employed by Government to accomplish this improvement in our extremely low ranking in macroeconomic competitiveness are economically healthy or sustainable.

The lower budget deficit was not achieved by reducing the cost of Government's bloated bureaucracy or improving its efficiency. Nor did it come from increased revenue collections. Instead, it resulted from slashing the funding for essential services like health care and sanitation and could threaten the gains that have been made since 2010 in the "health and primary education" segment of the report.

Inadequate social services diminish the welfare of the poor and exacerbate their poverty. Extreme income disparity has been shown to impede economic health, and the most productive economies are those with relatively narrow income spreads. The social capital underlying the success of the world's wealthiest nations cannot be attained when large swathes of the economy are mired in poverty.

I am, therefore, perplexed that the administration is prepared to starve the country's already inadequate social framework although it acknowledges that a strong social infrastructure is the foundation for economic growth.

For economic recovery, Jamaica will require a harmonious social environment and an economy that has the full involvement of all social classes. To be sure, the accretion of capital is critical for investments to take place. But organising the economy to ensure that the spread of incomes does not exclude large segments of our society is essential. Balancing these two imperatives will be the real test of this administration's economic management.

CONTRACTIONARY POLICIES

Government's role should not be to squeeze economic activity, as its contractionary policies now do, but to incentivise increased activity in areas of the economy that generate real wealth and employment.

There is no crime in favouring the economic activities that are universal drivers of economic growth: goods production and export services. The real harm is done when Government chooses from this broad economic category individual industries and enterprises to be winners; moving resources to them and away from others within the same group.

Although South Korea's economic success relied substantially on government's support for heavy-industry and industrial exports, the underlying strategy was to make the economic environment competitive so that productive activities of all types and sizes would benefit. This is why, despite the fact that employment by large industrial corporations has fallen by 2% annually for 15 years, the growth of small and medium-size businesses has sustained the employment rate and kept income disparity in check. The society has remained stable and the economy has continued growing.

If the Jamaican Government is prepared to learn from the lessons in the GCR and from the experience of countries that have succeeded economically, we stand a chance of truly triumphing in the race toward global competitiveness.

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