Recent events in the Jamaican economy have brought to the fore, the need for a serious and nuanced discussion on what the Government, as one of the actors in the national economy, should be doing in order to facilitate economic growth and development. The Government's decision to: withdraw its original plan to build the infrastructure for the LNG plant, sell the Government's share in the loss-making Clarendon Aluminum Partners (CAP), approve the merger between Digicel and Claro, have sparked debate. The discourses however, suffer from a major shortcoming which is a clear philosophical understanding of the role of government.
The role of government in an economy is a long-standing debate that can be traced back to Adam Smith's 1776 classic, The Wealth of Nations. Since then, it is clear we have not settled in our minds the real function of government as one of the main actors in the economy. There are still schools of thought as to what a government ought to be doing in an economy. The schools of thought have varied from the left which posits that government should do everything in an economy. Put differently, government should be the sole arbiter in the distribution of the scarce resources. On the other hand, the views on the right postulate that the government should merely play a facilitatory role, that is, setting the frameworks so markets can work efficiently. In essence, government should get out of the way of the market and leave it to distribute the scarce resources in the economy. This way, the resources can generate optimum returns and make citizens happy. Put differently, the right is of the view that the freer the market the more efficient will be the allocation of resources. Persons on the right generally point to the United States (US) as the example of little government intervention and economic prosperity while those on the left like to point to places like France as exemplar of a country where government intervention is strong and the economy is doing well. Despite these examples, intellectually and empirically, we have not settled on what governments should be doing in an economy.
For at least the last three decades, free-market principles which basically argue that government should merely facilitate the development process through the setting of regulations and allow private sectors to invest in the productive capacity of the economy to propel economic growth, have triumphed over planned economic management philosophy where the government dictates the allocation of resources and plan the investment landscape in the economy. As a result, today, we basically hold strongly to the view that free-market principles should be the foundation on which we anchor the functions of the government.
A facilitator of development
Following this logic therefore, the government's role should be one of a facilitator of the development process and it should not be involved in investments in critical areas of the economy such as health care, education, energy etc. These investments should be the purview of private enterprises. All that the government needs to do is to set the regulatory frameworks to guide the way private investors will make their investments and operate. This prescription seems to have delivered growth especially in larger and more developed economies where the institutions are strong, infrastructure is well developed, governance systems are strong and, macro-stability (economic, social, political, regulatory etc) exist. However, a closer reading of the script will reveal that the one-size-fits-all philosophy on the role of the government is not only wrong but also dangerous. There is a burgeoning body of evidence which suggests that modification of this free-market fundamentalist approach to the role of government in an economy is in order.
State capitalism in places like China, Brazil, Singapore and other emerging economies provide good counterfactual to the notion that Government cannot be efficient in the allocation of resources and generate economic growth. Governments in these economies are striking a balance between what sectors are ripe for Government intervention and those that private investors can take on. This type of private-public partnership, led by the State bureaucracy, has provided a new approach to how governments should act in shaping the landscape for growth and development. It helps ease the burden of the public purse and allows for governments to balance books, which is a strong precursor for economic stability and growth. Importantly, this model of governance is even more attractive for poor and developing economies where the private sector does not have the appetite and the capital to invest in large infrastructure projects and other critical services that citizens must access such as health care, education etc. This public-private partnership will allow the State to invest in strategic areas that private money does not find attractive, for example, investment in large infrastructure such as roads. Private capital can invest in other areas such as information technology, financial services, agro-processing, among others, to drive growth and development.
So, if we are to think seriously about the role that government ought to be playing in the case of small economies like Jamaica, one can conclude that government ought to be a strategic partner in the development process. This strategic partnership will see the government taking on investments in the critical areas that are considered to be strategic to the development of the country but which private investors do not have the appetite or the capital to engage in.
One of these critical strategic areas that come to mind in the case of Jamaica is energy. In Jamaica, we all conclude that the price of energy is one of the most onerous factors that impact the competitiveness of our local businesses. Our firms find it hard to compete because they cannot produce at competitive prices due to the high cost of energy. This also impacts the output levels of these firms, allowing them to produce less than their capacity because of the high cost of production. In turn, this lower-than-desired output will impact economic growth. Clearly, it is no surprise Jamaica's economic growth has been so paltry over the past 30 years.
take a lead role
To deal with the energy issue therefore, the State has to take a lead role in not only facilitating private investors but also becoming an investor in certain aspects of the energy value chain. Local private investors do not always have the capital and the appetite to make the large investments that will be needed in a sector like energy. Given its strategic importance in the drive for economic growth, the State will have to lead the way in building out the necessary infrastructure needed to facilitate the private investments in other areas of the value chain. This will be an area where public-private partnership will be necessary to drive economic growth in a country like Jamaica. Given the strategic importance of energy, the Government of Jamaica cannot leave it solely to the private sector to invest in the entire value chain. Government has to become a strategic partner in this industry.
It is urgent that the Government of Jamaica and governments in other similar small economies, start a discussion on what their role should be in a changing economic landscape. The traditional polarity where governments see themselves on the right or on the left is becoming extinct. The new conceptualisation of ggovernments becoming a strategic partner in the development process needs to be embraced. This new thinking will help governments reduce their debt burden, their fiscal balances and lay a stronger foundation for economic growth.
Dr Densil Williams is a senior lecturer of international business at the Mona School of Business and Management.