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Stabroek News

No need to raid our pension funds
published: Sunday | July 30, 2006

Ken Jones, Guest Columnist


Jones

The Prime Minister's controversial plan to use the nation's pension funds to stimulate business is both unnecessary and unfeasible. There is enough investment money around without anyone having to touch the funds set aside by people for their old age. And in any event, the growth and prosperity of private business does not depend so much on state financing as it does on the creating of an investment climate in which enterprising entrepreneurs, large and small, can use their initiative to do business.

There are already several good and proven programmes for encouraging business in Jamaica. Apparently, these are to be side-stepped to make way for some new untested scheme closer to the liking of those who have never run a business. More than 50 years ago, the then government introduced the Pioneer Industries Law. Later, there was the Industrial Incentives Act, and between these two, business flourished, jobs were created and exports grew.

DECLINE

This advance went into decline when the stifling hand of government began to impose burdensome taxation by way of National Insurance, National Housing, Education Tax, and GCT on everything. On top of all these is the cost of setting up business, income tax and a cess on any profit that the beleaguered investor might make. Obviously, the way to stimulate business is to remove or adjust these shackles and to provide incentives to earn. This must be better than offering pension money as loans to be repaid under high operational costs and other onerous conditions.

This policy of putting state funds at the disposal of private enterprise had to be taken to extremes during the 1970s when private investment funds had dried up because of political rhetoric and action. The desperate government responded with programmes such as community enterprise organisations, ill-organised cooperatives, Small Enterprise Development Corporation and the National Institute of Craft. They all failed miserably because the administration at the time was unwilling or unable to differentiate between viable projects and hair-brained schemes. This latest venture also is doomed because, as the Prime Minister is projecting, it is not a serious plan for economic growth and job creation, but a simplistic proposal to help the poor.

Lest anyone get the impression that I am being harsh on the government of the '70s, I offer proof of the sour pudding. The incoming administration of 1972 had focused its campaign on the premise that the prosperity of the country was not being properly shared. However, five years later, with prosperity halted and reversed, the Government badly short of money, began talking about economic recovery and was exhorting the population to 'tun you hand mek fashion' in order to cope with shortages and hard times.

More proof: For 1979, the official Economic and Social Survey recorded the following:

"The performance of the manufacturing sector for 1979 was below 1978. The sector continued the decline noted in previous years. There were decreases in the production of sugar, molasses and alcohol; carbonated and alcoholic beverages; edible oils and fats; textile products and footwear; dairy products including condensed milk, butter and cheese; construction materials (steel and cement); certain chemical products like fertilisers, aluminium-sulphate and soap, and miscellaneous manufacturers - stoves, motor car batteries, tyres and tubes, and glass. Production of bagasse board ceased in November 1979 because of a decline in demand."

LESSONS

The lessons from those times seem not to have been learnt by this government, which happens to include many of the very law-makers who participated in the crash of the 1970s. And today, instead of trying to reinvent the disaster, they might usefully consider the examples set by the legislators who administered our affairs in the years after Adult Suffrage. Those earlier political representatives included people who appreciated the complexities of business and others who had themselves successfully practised the principles of enterprise. They saw no need for government to capitalise business when banks and other financial institutions were already there for just that purpose. Their plan for helping the poor was to encourage persons familiar with commerce and industry, to train and support new investors and to help provide a climate conducive to growth and expansion.

Immediately following its election to office under Adult Suffrage, the Bustamante government began a programme of encouraging the establishment of business in Jamaica. In 1949 it introduced the Pioneer Industries (Encouragement) Law, which attracted many new ventures. This was updated in 1956 and by 1967 there were about 21 flourishing new companies operating under its aegis. In addition, there was the Industrial Development Corporation (IDC), established in 1952, with responsibility for "stimulating, facilitating and undertaking the development of industries in Jamaica."

The Industrial Incentives Law was passed by the Norman Manley administration in 1956, and together with the Pioneer Industries Law and other programmes, offered the business community a range of incentives including exemption from customs duty on building materials and plant machinery or appliances. There was relief from income tax by writing off a substantial percentage of capital expenditure. And for companies engaged in exports there were further concessions regarding the importation of raw materials and fuel. Meanwhile, the IDC offered assistance with the provision of factory space, the financing of plant and machinery, market surveys, feasibility studies, engineering services and some loans. If all these conditions are made available now, there should be no need for government to introduce some new plan that requires the raiding of the people's pension funds.

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