The economics of hair and growth

Aubyn Hill,  Financial Gleaner Columnist

The issue of economic growth is now firmly at the centre of most conversations on the economy, thanks to the consistency of comments by business writers and commentators, and business organisations such as the Jamaica Manufacturers' Association, the Private Sector Organisation of Jamaica and the Jamaica Chamber of Commerce.

Economic growth has now percolated pervasively into the public sphere. Even non-economic and finance Cabinet ministers, shadow Cabinet ministers and most members of parliament now have views, and express them, on economic growth. There is a comment I recall from my days on Wall Street and other financial markets that says, "When a taximan recommends a stock to you, or a company makes a cover of Businessweek, sell the stock."

In Jamaica, the growth stock is one we want everyone to buy into as we leave 2013 and start 2014. It has to be on everyone's 'buy' list for the foreseeable future. Getting the Jamaican economy to grow is vital to reducing our national debt, to provide sustainable and well-paying jobs to our citizens, reduce crime in our country, buy back our respect in CARICOM and elsewhere, but will not be easy and it certainly will not be quick.

Jamaican growth prospect is complex

In Jamaica's case, growth is not simply about investing in the right business sectors and in the right people like, say, Singapore or Latvia. Our growth is also about cutting back on our voracious import appetites for which, ironically, we borrow money in hard currency in order to pay overseas exporters. Growth in Jamaica means we must fix our government apparatus to make them efficient and graciously responsive to our citizens and businesses. There is some movement in the efficiency and responsiveness directions - through an aggressive, positive legislative performance, for instance. However, the largely negative bureaucratic mindset needs clear direction from the top of Government in order to change, and that clarity of direction is not openly obvious.

The Ministry of Agriculture and Fisheries (MOAF), no doubt with a little help from the International Monetary Fund, has and is taking concrete steps to curb our food imports, estimated at about US$1 billion. The depreciating local currency has provided some help in that regard - a big beer manufacturer has taken steps to replace imported hops with locally grown cassava in order to avoid the increasing import bill occasioned by the sliding Jamaican dollar. The MOAF's agricultural parks are beginning to look like they will foster growth in 2014.

Inelasticity of demand for Brazilian hair

While at dinner, as a guest of friends on Boxing Day, I sat at a table with a MP and six ladies. The conversation went quickly to beauty products and hair - Brazilian hair, in particular. Since neither is a subject I can claim to have any professional expertise on, I listened intently to try to understand the economics of the business. All were young professional women and one was in the importing and selling of beauty products. She had travelled to and imported her products from many countries in the world.

The rage these days seems to be for South American hair, and hair from Brazil tops the list. The MP said that hair imports into Jamaica are about US$1 billion each year and there is no sign of decreased demands. The women at the table gave support to that big number, albeit without support from the Statistical Institute of Jamaica. The depreciating Jamaican dollar seemed not to have yet had any negative effect on this imported consumer product.

When price increases have little or no effect on the demand for a product or service, economists call that kind of demand 'inelastic'. Although the Jamaican dollar has slid appreciably in the past year and some imports have fallen off, Jamaican women seem to love and want more and more Brazilian hair.

In fact, listening to the exchange between one of our most respected hard news broadcasters, who while interviewing one of our most well-known local radio personalities, and tying in the apocryphal Brazilian hair demand which surfaced at the dinner table, I'm beginning to think that Brazilian hair may be like a bearer security. Such a security is the property of the bearer and the security is created because there is demand for it. Regulators tend to frown on this instrument since it can be used to evade taxes - much like cash.

The newsman asked the female personality how she can be happy wearing other people's hair. She didn't miss a beat and restored with clear surprise, rejection of the comment, and a measure of indignation (not the righteous variety) and said the hair was hers - she had paid very good money for it. Clearly, this bearer-bond-like Brazilian hair had passed through many middlemen or middle-women to get to his female personality. Title had passed many times.

Minister Phillips and his Cabinet colleagues may consider putting an additional tax on this hair product given the inelasticity of demand - sort of like the taxes on liquor, petrol and cigarettes, where demand is also very strong. We may not be able to label the tax on imported hair as sin tax, nor can we yet find any health reason for its imposition. The psychological effects will surface much later, maybe mainly on men since they are the ones being enticed by this product!

Since elections are a full three years away, Cabinet could employ the same female personality - who has such a common touch with the ordinary folk - to add a new term to our lexicon and fluff the tax issue on hair into an acceptable form, which means 'debt reduction and economic growth'. Economic best wishes for 2014.

Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years. Email: writerhill@gmail.comTwitter: @HillAubyn Facebook: www.facebook.com/Corporate.Strategies