Over the past two weeks there has been much debate about jobs and Jamaica’s competitiveness, thanks to the Global Competitiveness Report and the JEEP proposal. Last week I addressed competitiveness, and JEEP is a good follow-up discussion. Debate on both issues is welcome, and is the reason I have always called for national debate on all issues in the media and parliament. Whether it is a global report or a proposal from government or opposition, I am in support of as much debate as possible so that the people of Jamaica can be more aware of the details of what is affecting their daily lives.

I believe (thanks to the many commentaries, talk show discussions, and lobby groups) Jamaicans have become a lot more aware and suspicious of what politicians espouse, and are demanding more and more information, whether it be proposals like JEEP, extraditions, or deals with foreign companies. No longer can a politician just make an announcement and all Jamaica just cheers and goes along with it. Interestingly also, more party supporters are demanding more information when their respective party they support makes general announcements. This is a sign of emerging political maturity.

The flavour of the day has shifted from the request for brownings to JEEP, and more generally a discussion on what is good for Jamaica’s economy. It is within this context that I want to look at what is needed to restructure the economy. It is important to understand, as many commentators have said, that what Jamaica’s economy needs is not another promise of jobs or growth which will not lead to sustainable economic and social development.

Over the years we have had crash programmes (1970s), the free zone and Spring Plains (1980s), high interest rates and ICT stimulus (1990s), and promises of jobs (last election and recent JEEP). All these initiatives have come from our politicians, and that is the primary problem. When will we realise, as Tufton rightly said, that government cannot sustainably create jobs and growth without fixing the structural problems? Obama recently tried this in the US with his US$700 billion stimulus, but it was never enough to change the general economic direction of the US. The difference between the US and Jamaica is that they have money to fund such short-term programmes, or can print it. In Jamaica any attempt to create money without an increase in productivity will only lead to greater inflation or interest rates.

I am the first to agree that in a recessionary environment, government intervention is necessary to ensure that the economy does not sink further. For this reason I have always maintained that the IMF programme and tax increases were pro-cyclical and would have caused further contraction and hardship in the economy. The fact is that they did, and this in part caused some of the decline the economy saw since 2008. The major part of the decline, of course, resulted from the difficult global environment.

What we have seen, however, is that even though there has been some decline from these policies, there have been some positive structural changes, a few of which I mentioned last week. More importantly, though, is that we have seen some positive structural shifts to the GDP components, and a reduction in crime and some improvement in the culture of compliance and discipline. The most successful have been in the areas of tax administration and dealing with corruption in the police force. These are the structural issues that government should focus on and must stop trying to pick winners, which is the job of the market.

Government must therefore create an enabling environment and allow the market to work. A big part of this is of course doing away with the system of waivers, incentives, and the burden of taxes and other bureaucracy. If these remain in place, then business persons will continue to seek waivers, incentives, and try to go around the system because they can. There will be no motivation to operate in a true market environment. It is for this reason that the tax reform and administration currently being pursued by the government is a step in the right direction, and long overdue. Previously government would cherry-pick what was good for fiscal revenue, the last real attempt at progressive tax reform being in the 1980s.

So while I support the concept of stimulus, recently outlined by the opposition, the programme as crafted is flawed for the following reasons:

1. The argument of renegotiating the IMF agreement is redundant, as the agreement comes to an end in May 2012, and by the time election comes around would have either ended or already been renegotiated.

2. I disagree with the proposal that start -up businesses should get a five-year tax holiday. Every business in Jamaica would forever be a start-up. Why create a problem we will have to find a solution for? What we need is a flat tax for businesses in the first five years, which if they prove losses they can get a tax credit for. This would relieve the cost and burden also of tax administration having to go after these micro businesses.

3. Government cannot continue to seek to create private sector jobs by giving incentives. If an incentive is required to start a business or create jobs, then it means otherwise it is not competitive and does not make good economic sense, so why incentivise it (for example the recent stimulus to car dealerships)? Government needs to stop trying to create welfare programmes, which do not result in long-term economic benefits. While I agree that some form of stimulus is needed to create jobs, it must come in the form of infrastructural works, such as the JDIP, as Roosevelt did in the US after the Great Depression. What we must do is remove the politics and bureaucracy from the JDIP and allow it to work for the benefit of Jamaicans.

4. Providing a fund for small businesses is really a regurgitation of what is happening now. This government had provided $1 billion to the DBJ for small businesses. How much has been taken up? At the time I indicated it would not have made a difference because it is obvious that businesses are not motivated primarily by high interest rates or access to financing, but more importantly aggregate demand, which was already cut by the IMF programme. So even if I can get money to borrow at zero per cent, if there is no demand for my product/service it doesn’t matter.

5. The suggestion to provide banks with a tax incentive to make small business loans should not even be considered. Why would we want to incentivise risky loans? If the loan is good then the only incentive the bank needs is profit. This can lead to financial sector risk and increased interest rates.

There is more I could say but space does not permit. The argument, however, is that while some form of stimulus is necessary it must be in infrastructural projects. This already is in place in the form of the JDIP, which we need to make work. The problem we face is not 12 months from now, so if we don’t allow the current programmes to work and wait until election we won’t just need a JEEP but a whole car dealership.

The important thing for the economy is for government to focus on fixing the structural issues of crime/discipline, bureaucracy, energy and productivity in particular. This will improve our competitiveness and economic and social well-being. Jamaica has for too long been a welfare state, and this is what is keeping people in poverty.

Dennis Chung is a chartered accountant and the author of “Charting Jamaica’s Economic and Social Development – A much needed paradigm shift”. His blog is dcjottings.blogspot.com

Email: dra_chung@hotmail.com