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Briefing | The value of research and development

Published:Wednesday | May 25, 2016 | 5:00 AMDr Andre Haughton

Engineering economic growth is not a guessing game. The dynamics of stimulating a macroeconomy changes from business cycle to business cycle. However, one fundamental principle remains the same - sustained growth is driven by increased productivity. This allows a country's standard of living to increase concurrently.

The USA and China, for example, attribute a significant portion of their growth over the past four decades to innovation and start-up businesses that grew large through increased productivity. The technological revolution has allowed each worker to do more with the same amount of inputs, or has allowed each worker to use fewer resources to get more output. For them to have been able to industrialise, a significant number of jobs had to be created in growing sectors each year.

Consistent increased economic growth has eluded Jamaica over the past couple of decades because the country has failed to adopt the fundamental principles necessary to enhance the likelihood of growth. Economic development prospects have been poor as a result.

 

What has been

 

 

Jamaica's approach?

 

Slow technological absorption rate in some industries handicapped by the use of out-dated machinery, has contributed to diseconomies of scale in many sectors. These would otherwise be more productive if resources were available to increase the technological absorption rate. The issue is how to convert these low-paid service sector and agriculture jobs with low value-added and diseconomies of scale into high-growth, high-productive, high-value-added industries.

The concept of wealth generation for the nation has been overshadowed by a tradition of maintaining substandard infrastructure and poor social systems. research and development, and the use of such across the island has been scarce. How then does a country, with limited fiscal space, reorganise communities to emphasise increasing production via upward product diversification?

 

Where has Jamaica's employment changed?

 

A country cannot increase its output if there is not an increase in labour directed towards production. Increase in employment of shop clerks and other elementary jobs is not enough. The economy cannot grow sustainable on low-level service sector jobs. There should be a push towards increasing labour in productive sectors and industries, instead of just increasing employment in the number of sales clerks.

According to the latest labour force survey release in January 2016, the labour force participation rate increased marginally by 1.6 per cent from 1.320 million to 1.342 million compared to January 2015.

The male labour force increased by 0.9 per cent, while the female labour force increased by 2.5 per cent. Total employment rate also increased by more than 31,400 persons. A total of 8,200 more males and 23,200 females have been employed from January to January.

In terms of type of occupation, 34,700 more people have been employed to the occupation group - 'Service Workers and Shop and Market Sales Workers' - an increase of 15.9 per cent. Additionally, 28,200 more people are employed to the occupation group 'Elementary Occupations'. In contrast, 32,400 fewer persons are employed to the occupation group 'Clerks' - a 29.4 per cent decline.

There was no noticeable increase in research and development; no noticeable increase in skilled labour; no noticeable increase in professional employment.

 

What about the

 

 

self-employed?

 

Despite having a high business start-up rate, many new businesses in Jamaica either fail or fail to grow. The country is propagated by nano, micro, small and medium enterprises which, though important to sustain economic activity and to provide income to owners and employees, are insufficiently equipped to take off and become large, which is necessary if the country intends to grow. Government should assess this and provide as much support as possible. Policies should continue to support innovation entrepreneurship, and should be directed towards helping these businesses understand and equip themselves to benefit from economies of scale.

 

How shall we proceed?

 

Jamaica has grown at an average rate of 0.7 per cent per annum over the last 50 years, while China has grown at an average rate of seven per cent per annum over the last 25 years. Although there are country-specific issues that allowed China to grow at that pace, the fundamental principles of increased production and productivity remained a key element of their growth pursuits. Policies were implemented to strengthen and support technological innovation, technological absorption, increased production and increased productivity. Research and development continues to be very important.