Sun | Aug 20, 2017

JMA pushing a Trojan horse

Published:Sunday | August 10, 2014 | 8:00 AM
Current JMA president Brian Pengelley (right) and past presidents Doreen Frankson and Omar Azan (second left) have been criticised for their appetite for tax exemptions and sweeteners on behalf of manufacturers. They are seen here with Pastor David Henry. - Rudolph Brown/Photographer

Damien King, Guest Columnist

Contemplate the noble entrepreneur. He starts with an idea - a way to do something better - cheaper, faster, stronger, prettier. He gathers up capital and takes a risk. If his idea is faulty, he will lose his money. HIS money. He will be poorer. Perhaps wiser, too, but that doesn't provide shelter from the rain.

If his idea is good, though, it creates wealth. It does so by exploiting the gap between how much customers value his product and the cost of producing it. That gap is shared between his customers, who are now getting better value, and himself, who earns a profit.

Now turn 180 degrees away from that admirable vision of the idea-generating, risk-taking, wealth-creating business person, and there stands the Jamaica Manufacturers' Association (JMA). From its public pronouncements, it seems that the purpose of the JMA is only to carve out a protected, non-competitive economic space where, as much as possible, the costs and risks of production are to be foisted on everyone else and with the cooperation of the Government.

For some time now, nearly every call coming from a JMA president has been for some special, manufacturers-only, or worse, JMA-members-only facilitation, whereby they are exempted from the taxes, duties, interest, rent, and what-have-you that every other business person in every other kind of business has an obligation to pay.

INDUSTRIAL PARKS

In 2002, Claude Clarke called for the Government to build industrial parks that enjoyed duty exemptions for the manufacturers (Gleaner, November 5, 2002). In 2004, Doreen Frankson's call was for a special, low-interest-rate window for manufacturers (Gleaner, July 2, 2004). In 2006, Frankson wanted all imports that compete with any Jamaica-manufactured product to be banned. In 2008, Omar Azan persuaded the Government to exempt manufacturers from the customs user fee (Gleaner, December 17, 2008). In 2012, Azan lobbied for exemption from import duties for all raw materials used by manufacturers.

Brian Pengelley, in 2012, wanted manufacturers exempted from import duties, value-added taxes, and even dividend taxation (Gleaner, March 4, 2012). And now, for his second term, Mr Pengelley wants a special window at the Bank of Jamaica where, not even just manufacturers, but only the JMA membership, can get privileged access to scarce supplies of foreign exchange (Gleaner, January 17, 2014).

The JMA's website proudly itemises the long list of exceptions (www.jma.com.jm/index/incentives-available) that it has persuaded Government to grant. Most of them state the explicit qualifying condition, "must be a manufacturer". Worse, some can be accessed only through the association itself. This is stunning, considering the JMA is not a state agency, but nonetheless has become an arbiter of privileges granted by the State.

What's wrong with all this? Every time the manufacturers get an exemption from the general costs and conditions of doing business, the effect is that the costs and conditions for businesses in other sectors get worse. Other businesses pay for the manufacturers' privileges. Every tax exemption for manufacturers means that everybody else's taxes have to be higher to achieve budget targets.

When the JMA membership gets privileged access to foreign exchange, less will be available to flow to the cambios for farmers, artists, and hairdressers to buy. A pool of funds that can be borrowed at a low rate of interest by manufacturers must be financed at the higher rate of interest that is the cost of capital in the rest of the economy. The manufacturers' bills will be paid with YOUR money.

This is the problem with the JMA. It does not want a better business climate; it just wants everyone else to hold its umbrella. To the extent that the JMA's lobbying efforts are successful, the 'playing field' to which it often refers will be tilted away from all other businesses and towards its own goal. That noble entrepreneur with a new idea that happens to be in a sector other than manufacturing will pay more taxes, face a higher interest rate, and find it harder to procure foreign exchange.

Manufacturers always push the idea that manufacturing is exceptional, that it is a more valuable form of economic activity than agriculture or services. The self-evident and contrary truth is that a hundred dollars of wealth created by a manufacturer buys the same amount of happiness as a hundred dollars of wealth created by a day spa. Nearly three-quarters of Jamaica's total production is in services. There is no economic basis for creating privileges for manufacturers to the detriment of the rest of the productive sector.

The JMA wants you to 'build Jamaica, buy Jamaican'. Just don't buy the JMA's Trojan horse.

Damien King is head of the Department of Economics at the University of the West Indies, Mona campus. Email feedback to columns@gleanerjm.com and damien.king@uwimona.edu.jm.