Strategic thinking required to achieve economic growth

After some two years of success, we failed to achieve our primary surplus target in the March 2015 quarter. The previous JLP administration left a growing economy, generating 1.7% growth in 2011. The current PNP administration, now in its fourth year, has failed to deliver anywhere near that 1.7% growth.

It is within this context that Opposition Spokesman on Finance Audley Shaw, in a press conference last Thursday, criticised the Government and its apologists for trying to focus the country on the successes of achieving primary targets rather than on the failure to achieve growth targets. I tend to agree with Mr Shaw as while primary surplus is important, it pales in importance to growth - a fundamental raison d'etre of government. The failure to generate adequate economic growth, therefore, makes the primary surplus successes pyrrhic.

The unfulfilled growth promises require all the negotiation skills that Minister Horace Dalley can muster as public-sector unions are on a wage-increase warpath, led by JTA boss Doran Dixon instructing his members to wear black until the Government comes within touching distance of his demand for a 15% wage increase in Year 1. Speaking at the same press conference, Audley Shaw criticised Minister Dalley for his "arrogance" in presumably denying the public-sector workers their due.

Economic Programme Oversight Committee member Ralston Hyman, by supporting Dalley, has failed to heed the warning that "cockroach nuh business inna fowl fight", has also felt the wrath of Mr Shaw, referring to him as a "surrogate". Curiously, Mr Shaw's suggestion to Dalley is to grow the economy and generate more revenue to increase public-sector wages. This is much easier said than done, and Mr Shaw, in his quiet time, should reflect on the following paradox: Do we grow the economy to pay the public-sector workers? Or do we pay the public-sector workers to grow the economy?

Mr Shaw faced a similar challenge when, as finance minister, he was pressured to let off increases by public-sector union groups, some led by well-known PNP sympathisers, and a then vocal PNP opposition. At the time, public-sector wage adjustments were overdue. However, any substantial increase in the wage bill would have impacted the then IMF agreement.

Minister Shaw stood his ground with his famous words, "Not one red cent more." However, in an attempt to shore up his popularity following the Manatt-Dudus debacle, then Prime Minister Bruce Golding overruled his finance minister and granted the increase. Mr Golding's breaking of the piggy bank did not go down well with the IMF and served only to accelerate the JLP's return to Opposition. I, therefore, suggest Mr Shaw abandon his political stance and give his support to Dalley.

NO CLEAR GROWTH STRATEGY

I am now convinced that no government official has the faintest idea on how to grow the economy. The official position may be found in the GOJ's Growth Agenda Policy Paper, FY 2015-16, released by the PIOJ in March 2015. The foundations of the Agenda are elaborated in the Growth Inducement Strategy (GIS), developed by the PIOJ with wide stakeholder consultation over the period 2010-2011. Readers can view the 291-page GIS and the 71-page Policy Paper on the PIOJ's website.

According to the Policy Paper, "The strategy provides a framework to mobilise potentially productive assets and unleash entrepreneurial dynamism to generate inclusive and sustainable growth, and has the following components: fiscal consolidation, business environment competitive reforms; strategic investment projects; human capital development and protection; human and community security; and environmental resilience."

The PIOJ has admitted that despite significant achievements in its implementation, including improvement in the competitiveness of the business environment, the performance of the economy has remained subdued and the country's trade performance has been weak. Despite the poor performance, as Mr Shaw has reminded us, the PIOJ has remained upbeat, stating that the scope and depth of the Growth Agenda, if implemented successfully, will lead to a more competitive socio-economic environment that will change the business-as-usual growth dynamics and enable more robust and sustainable growth. It is now crystal clear that the Government is living in hope, presumably depending on Minister Anthony Hylton's logistics hub, to take us to the Holy Grail of economic growth.

The classic definition of strategy is a hypothesis of value creation. Government's main value creation is economic growth. By hypothesis, we mean that if one does A, B, and C, the result should be X, Y, and Z. This seems to have been lost on my favourite economist, Dr Damien King, who, on a recent radio programme, attempted to justify that the economic programme is on track because Government has been able to reduce expenditure (A, B, C) while failing to achieve revenue targets (X, Y, Z). For a programme to be on track, both the actions and the result of the actions need to be on track.

Before one can accept a hypothesis as a truism, one must first test the hypothesis. The fact that the Government tested its hypothesis by implementing the Growth Inducement Strategy, and by its own admission, has failed to generate growth, suggests one of two conclusions. Either the hypothesis was not adequately tested (GIS poorly implemented) OR the hypothesis must be wrong. Before we go searching for a new strategy, we ought to determine if the strategy has been implemented.

Production vs Consumption

A country's GDP measures the total value added by the output of goods and services. It is, therefore, quite understandable why economists tend to focus on production. The knee-jerk reaction is to have private-sector companies invest, produce more, and the country grows. Many misguided persons are, therefore, blaming our economic misfortunes on the failure of the private sector to invest.

Strategic thinkers, however, take a different perspective, suggesting that consumption, not production, is the major motivator of investment and growth. In other words, who will consume this additional production generated by the investment? With the IMF-directed fiscal consolidation sucking money out of the system to rapidly pay down the debt in a no-growth environment, there is little room for increased consumption by the local economy.

The other options, therefore, would be to produce for either the tourist market or for the export market. However, with tourist consumption highly import-driven, our best chance appears to be in the export market. Sadly, Government's export strategy appears to be languishing on the shelves of the Ministry of Industry, Investment and Commerce.

There is yet another hypothesis for growth - import substitution. This is being attempted via the agro-parks. However, with an inefficient agricultural sector, and by perennially blaming drought conditions for anaemic growth, import substitution prospects are limited.

Public-Sector Transformation

The major difference between the GIS and the Growth Agenda is that the former includes public-sector transformation. Public-sector transformation has been attempted for more than two decades with very little success, as reform, modernisation and rationalisation. Poor public-sector performance, principally caused by lack of political will to transform, has contributed to Jamaica being the second-poorest in the region, with the highest crime rates and lowest education outcomes.

Our failure to effectively transform the National Irrigation Commission to adequately mitigate drought and failure to effectively transform education are major reasons for stifling growth in the short and long term, respectively. The finance minister, in his Budget presentation, announced several siloed projects in various public-sector bodies, which had more to do with normal performance improvement rather than any fundamental transformation of the public sector.

The Government is faced with a dilemma, and the prime Minister must now make radical changes, starting with the Public Sector Transformation and Modernisation Unit, to effectively address the dilemma.

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