Thu | Aug 24, 2017

Martin Henry: What should we be doing for economic growth?

Published:Sunday | April 24, 2016 | 4:00 AM
Prime Minister Andrew Holness greets Daryl Vaz during the March 7 swearing-in ceremony of new Cabinet ministers. Vaz’s superministry focusing on economic growth and job creation might become a bureaucratic mine field, writes Martin Henry.
Martin Henry
1
2

We are not likely to see any sustained economic growth anytime soon.

And this is not just because global conditions are bad, and are projected to stay bad for a while. There can, in fact, be opportunities in bad global conditions. Increased domestic food production and consumption at lower prices are real possibilities for us. As is high-end tourism with fewer but bigger-spending visitors.

Economic growth will remain elusive not just because our own macroeconomic numbers are bad. Some of them, like inflation, the net international reserves, lending interest rates, energy costs, and the debt-to-GDP ratio, have been moving in the right direction, with inflation and interest rates at historic lows, the NIR at a historic high and growing, and the debt-to-GDP ratio inching down although still the fourth highest in the world. The JPS, in advertisements, has been crowing loudly about the reduced cost of electricity, which is really because of the sharp drop in global high prices, not greater efficiency in generation and transmission. And as we know with oil, what goes down must go back up.

Growth, strong and sustained, will remain elusive not because we have not embraced greater fiscal discipline under IMF superintendence. We've been doing our best and passing the IMF tests even if it kills us. And the Economic Programme Oversight Committee, made up of state and private-sector monitors, has been generally quite happy with the 'progress'.

Breaking with our bad growth numbers of the last several decades is going to be quite a challenge. And it won't be simply economic.

Just to note, in last week's column, 'Why hasn't the economy grown?' the conversion of my table showing GDP growth by year dropped the minus signs, leaving the data in a proper mess. GDP growth for 1980, for example, was - 4.041 per cent, a long shot different from +4.041 per cent, eight percentage points difference. For 1988, the figure was - 3.993 per cent.

I just love this reporting accuracy to three decimal places in the official statistics! Dazzle without any great meaning. The numbers are simply bad, and reporting them to the thousandths doesn't improve them. We've grown used to searching for growth armed with a fiscal magnifying glass and crowing over the little that we find that the unaided eye can't see.

 

HIGH PUBLIC DEBT

Let me remind you of the World Bank assessment in its March 30 Overview of the Jamaican Economy: "For decades," this development bank says, "Jamaica has struggled with low growth, high public debt and many external shocks that further weakened the economy. Over the last 30 years, real per-capita GDP increased at an average of just one per cent per year, making Jamaica one of the slowest-growing developing countries in the world."

And at the moment, the bauxite industry is basically mothballed; sugar has hit the skids both in local production and international market prices; the banana industry has been blown away by hurricanes and international market transitions and simply cannot compete without preferential market access. And it is very doubtful if the tourism industry is profitable at all without the state subsidies the sector enjoys as a matter of rights and demands, a subject which it is heretical to raise but to which I shall return at some point having raised it.

Unemployment remains at its historic average level of around 14% of the official labour force, which excludes all adults, hundreds of thousands of Jamaicans, who are neither working nor looking for work. The youth cohort, the most recent beneficiaries of massive state investments in education for growth and development, are particularly hard hit, with their unemployment rate some two and a half times the national average. And some 388,800 of them are neither working nor looking for work and not enrolled in any education or training institution. They have simply dropped out of the labour economy and become statistical noughts.

The prime minister's answer is to create a Ministry of Economic Growth and Job Creation under his own wings, with three ministers without portfolio attached in an ill-defined concoction. This is not a formula for growth. It is a formula for confusion. For uncomplex reasons, it cannot work. None of these grand cut-across ministry experiments have worked. Not Mobilisation with D.K. Duncan in the 1970s. Not Planning, Production and Development with P.J. Patterson in the 1990s.

This arrangement is more likely to be an impediment to growth rather than a facilitator of it. Any growth achieved will be in spite of the grand cut-across and cumbersome growth ministry rather than because of it.

 

SMOOTH INTERFACING

We know from management that organisations function most effectively when their units have very little overlap but smooth interfacing at clear boundaries. Economic growth and job creation are not portfolios or discrete units. They are results, not structures, or even functions. The prime minister's ministerial underlings will be falling over each other. And that grand ministry will only be able to function at all by interfering with the portfolio structures and functions of line ministries and with the responsibilities of their ministers.

At the best of times, Cabinet is not a pacific place, despite the public faÁade. The prime minister has, with this cut-across Ministry of Economic Growth and Job Creation, just created more reasons for the unsheathing of ministerial daggers and the unleashing of confusion in public administration organised on the Whitehall model of discrete ministries, departments, and agencies of Government that are held together at Cabinet.

If my analysis last week of the social, political, cultural, and values reasons why the economy has not grown has any merit, achieving greater and more sustained economic growth will absolutely require more than getting the macroeconomic numbers right. In fact, the hard macroeconomic numbers cannot be got right, and kept right, without taking care of these soft factors as a matter of urgency and priority.

At the top of the list is movement towards creating an ordered and orderly society in which an economy can thrive through cumulative human effort directed towards personal human ends. As I said last week, "The society - and not surprisingly its economy - is one of high levels of disorder and insecurity."

The surest signal, the biggest red flag, in Mr Shaw's Budget, signalling that it is not, and cannot be, a growth Budget and that it is no radical break with the past is not in the standard economic numbers, not even the deep cut in the capital Budget, which we would expect to drive economic growth activity, but in the contraction, rather than expansion, of budgetary support for security and justice and the absence of programmes for the restoration of public order and public safety. These are the most critical confidence factors in an economy and the most fundamental duties of the State and Government.

 

STILL BEING DUPED

In the face of the clearest of evidence that the expenditure on education, for example, has not yielded optimal return on investment, measured in terms of economic growth, increased productivity, and increased employment, we are still being duped into believing that the way forward is diverting more budgetary support into education, including seeking to remove auxiliary fees in secondary schools. We have taken this route rather than boosting support for law and order, rules enforcement, increased public safety, and effective and efficient delivery of justice, by top-slicing other budget lines as I have repeatedly proposed and demonstrated its feasibility.

The murder of two prominent businessmen last week, Trevor Meikle in Mandeville and Nicholas Jones in Runaway Bay, again drives home the inextricable link between crime and violence and the economy, which Mr Shaw, Mr Holness, and the Government ignore at their peril - and ours.

Fiscal discipline and debt management aside, investment ambassadors and a ministry of growth, greater investments in education and training, ill-afforded state support provided for production sectors, the Jamaican economy is not going to get up and go even under favourable global conditions. Not if our Government does not give priority attention to the negative social, political, cultural and values and attitude factors, the lawlessness and disorder that have so hurt our progress and prosperity over so many years and made us a case study for the whole world.

- Martin Henry is a university administrator. Email feedback to columns@gleanerjm.com and medhen@gmail.com.