Tue | Nov 13, 2018

Dr Andre Haughton: Productivity and production before politics and consumption

Published:Wednesday | February 17, 2016 | 12:33 AM

How is the economy now?

The Jamaican economy is in a very fragile state, on the brink of take-off. The slightest mismanagement of economic policy, in any avenue can have an adverse impact on the progression the country has made thus far.
Albeit, the current political climate is becoming trivial; too much time is spent on partisan issues and not enough time spend addressing the real issues faced by the people of this country.
Any manifesto presented by either political party should outline, clearly, step-by-step, how they plan to maintain or improve the stability of the economy; increase the possibility of economic growth while, at the same time push further towards equitable economic development.

What are the stability issues?

Economic stability is very important to achieve economic growth over the short or medium term. A country maintains stability by ushering the smooth transition from one short-run period to the next.
Any economic policy being proposed to be administered must be in small increments and transitional. Any shocks (huge increases or decreases, at one point in time) to income, taxes or spending might destabilise the economy. If some people’s income increase significantly (by 50 per cent or more), at any one time, this positive-income, shock will lead to a shock in consumer spending; with more income, people will demand more goods and services. In this globalised environment, consumers will seek the additional good they demand from abroad, given their larger incomes. This will lead to further increase in the demand for imports as a result the country will demand more reserves to keep the currency stable. Any changes to income, tax, or any other significant economic variable must be done in increments, no huge shock to consumer spending.
The resulting impulse responses might not be favourable in the long run. Fundamentally, if Jamaica decides to increase its consumption position, it must increase production and productivity in real life, not on paper. Clear plans of actions, are, indeed important to facilitate trade and commerce, as the country continues to face growth issues.

What are the growth issues?

Production and productivity must come before consumption and politics. Production can increase in two ways through growth in the amount of goods the country produces or the amount of services the country offers. Jamaica has been aided a great deal by the fall in oil prices over the last two years, which should have helped to reduce input cost for local manufacturers and producers, but the pass through process has been slow since prices are normally sticky on the downside in the short run.
A serious economic strategy would provide incentives for businesses to move from primary to secondary levels of production where the products have value added. Policies should also be aimed seriously at reducing the level of bureaucracy to doing business.
These policies should also be nationalistic and provide incentives for firms to increase the domestic share of input in their production process.
The main driver to production is increased efficiency.
To capitalise on its productive potential, Jamaica has to be smart in its approach to production, it must ascertain which goods fetches the higher price to costs ratio and propagate these across the island.
Research, infrastructure and taxation and subsidy policy should then be used to help guide the industries forward, similar to what occurred with tobacco and sugar cane.
Mercantilism has not changed, countries are still producing the goods and services in which they have some sort of comparative advantage, and Jamaica should do the same. It hurts my heart to see basic economics being ignored in our attempt to achieve national growth and developmental objectives.

What are the development issues?

The developmental issues we face as a country are great. Empowerment and involvement of our people are scarce. The majority of youth have been left to fend for themselves, especially in the second city of Montego Bay where they are marginalised from national objectives.
For example, the tourism industry is there mainly to serve foreigners as many of the workers earn minimum wage, on contract, without major benefits and pension. Those employed in the sector cannot save, thus cannot improve their circumstances. I wish that our politicians could see themselves as leaders and have genuine concern for the people. The aim should be to make life easier, and the ability to achieve the same for everyone, irrespective of the community you are from. At some point, the politics must be integrated with effective leadership, less false pretence from both sides.


- Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email feedback toeditorial@gleanerjm.com.