David Salmon | Are we serious about development?

Last month, one of my favourite series, Succession, came to an end. This HBO drama follows the attempts made by the Roy children to succeed their ailing father, Logan, as head of his multibillion-dollar media conglomerate. While there are many literary gems littered throughout this well-crafted show, one quote that stood out to me was when Logan told his children, “I love you, but you are not serious people.”

While used to describe Logan’s self-sabotaging children, this criticism in many ways captures the feelings of countless Jamaicans who are disappointed by the country’s socio-economic malaise. Generally, there is broad agreement that technological upgrading and upskilling is needed for Jamaica to achieve long-term development.

Yet, this goal continues to elude us even while multiple ministries, departments and agencies pursue disjointed strategies to realise this objective. For example, the Ministry of Tourism consistently argues that Jamaica should specialise in its comparative advantages: sun, sand, sea and any other pleasant sounding ‘s word’ that you can think of.

Simultaneously, the Ministry of Industry, Investment and Commerce has continued to promote the expansion of the business process outsourcing (BPO) sector. This makes sense as Minister of Finance and the Public Service Dr Nigel Clarke notes that tourism and BPO are two of the industries that generate over US$200 million of foreign exchange annually.

However, the most pressing threat to these industries’ expansion is the sustained decline in national productivity and the absence of domestic capacity. This is compounded by our rapidly ageing population. The World Bank’s 2023 World Development Report notes that Jamaica’s ability to achieve long-term growth will be impaired by this factor. Thus, expanding labour-intensive industries such as tourism and BPO is simply counterproductive with our limited workforce.

Other countries have been able to offset these challenges with immigration. While necessary, this is a difficult pill to swallow for many Jamaicans. Economist Ha-Joon Chang reveals in his book The 23 Things they Don’t Tell you about Capitalism that immigration control is determined more by politics rather than economics as politicians are often unwilling to encourage migration.

On the other hand, Dr Clarke, along with an ensemble of cabinet ministers, has touted the need to create more STEM-driven industries. To facilitate this, the minister announced in his budget presentation that the University of Technology (UTech) will receive 1,000 STEM scholarships over the next five years.

This goal, while admirable, is also fraught with challenges. For one, the supply of high school graduates is extremely limited as only 28 per cent of students who do the Caribbean Secondary Education Certificate (CSEC) pass five subjects, including mathematics and English in one sitting. Quite alarmingly, less than 40 per cent even pass mathematics.

Professor Paul Golding, former dean of the College of Business and Management at UTech, said in a recent column, “The Jamaican economy, as it is currently structured, does not have the absorptive capacity for a high output of persons in science and technology, nor are the high schools supplying the students with these skills to the universities.” In his view, asking the UTech to concentrate on STEM was tantamount to “economic suicide” given the low demand and supply in these subjects. Hence, one can reason that it will be difficult to quickly realise the government’s goal of increasing STEM graduates in the foreseeable future. Even if more graduates are trained, it is likely that these professionals would simply migrate.

So now, we must ask ourselves what industries can we focus on that maximises our comparative advantages while also acknowledges our limited skills base and declining labour supply? As it stands, we are not very competitive in many of the fields we champion.

For example, agriculture is extremely unproductive and has been so for decades. We are increasingly being out-competed in the BPO industry from countries with more cheap labour such as the Philippines. Meanwhile, the tourism sector is experiencing labour shortages as many have not returned after the pandemic.

This does not mean that we do not have certain advantages. Our proximity to the United States and several emerging markets such as Panama and Costa Rica are major benefits. We also have fairly well-developed infrastructure. Successive administrations, especially the current one, has done a commendable job in this regard. Lastly, while difficult to quantify, no one doubts the capacity of Jamaicans to take advantage of new opportunities.

These factors mean that there are several industries that we can explore, including the manufacturing of niche products, value-added services, agro-processing, software design, nutraceuticals and eventually, with more research, even pharmaceuticals.

There is a space for tourism and BPO in our future development as these industries provide a sound base to generate foreign exchange which can be reinvested in other industries. But rather than a linchpin for the country’s future, we must examine how to transition away from our reliance on these sectors.

The Caribbean Policy Research Institute (CAPRI) supports this assessment. In its publication Growthless Jobs: The Paradox of Rising Employment and Stagnant Output, CAPRI recommends that incentives including tax benefits should be shifted away from labour-intensive industries such as tourism and BPO.

PROSPECTIVE BENEFITS

Not only should we reduce these tax benefits, but I would also argue that we must invest in research and development (R&D) for new industries. Poorer countries have shown the prospective benefits from increasing R&D expenditure. For instance, Cuba is a pharmaceutical juggernaut because of its long-term investment in healthcare despite being under a crippling embargo.

Jamaica can achieve these results if it takes a similar approach. According to research done be Peter Timmer (2002), private firms in most cases recover only a small percentage of the cost of research which warrants more R&D investments to be made by the public sector. Funding for this goal can be provided from agencies which subsidises labour-intensive industries such as the Tourism Enhancement Fund (TEF).

If TEF has the resources to invest in golf courses and signs, then investing in research is a viable option. Other incentives that could be offered to companies include tax credits for investing in R&D and also pursuing joint partnerships with leading firms in other countries. Moreover, the government can encourage the formation of partnerships between local educational institutions and major overseas universities to increase scientific research.

INSTITUTIONAL EFFICIENCY

Importantly, increasing public sector efficiency is essential to any strategy for industrial upgrading. From the top down, the public sector is not productive. For example, in the 2019/2020 legislative year, the House of Representatives started on time only once. At the time, The Gleaner noted that had proceedings commenced as scheduled, lawmakers would have had an additional 24 hours or another six meetings to conduct the country’s business.

The wider public sector is also plagued by these productivity challenges. I remember a few years ago when I attempted to call a municipal corporation, I was shocked to find out that the number listed sent me to a restaurant located in a neighbouring parish. It was not surprising to learn that the phone for the municipal corporation was simply not in operation for weeks. This illustrates how ridiculously inefficient our public sector can be.

In addition, Dr Andre Haughton and Wendel Ivey noted in their most recent book, Overcoming Productivity Challenges in Small Countries: Lessons from Jamaica, that the size of the public sector can be reduced by as much as 29 per cent and still produce its current output. This means that we can achieve more productivity with almost 50,000 fewer people employed in government.

This is the time to make the public sector more efficient: shave the excess, digitise government services and cut the national public sector wage bill. These strategies must be implemented quickly if we are to overcome our current challenges. The appointment of Dr Dana Morris Dixon as minister with responsibility for skills and digital transformation is a step in the right direction. However, decisive action is needed if we are going to achieve improvements in productivity.

Time will tell whether we are serious about development.

David Salmon is Jamaica’s 2023 Rhodes Scholar. Send feedback to davidsalmon@live.com.