Jamaica Gleaner News - Many opportunities to prosper from crisis - Part 1 - Sunday

Dr Trevor Hamilton, Contributor

The world economic crisis is not discriminatory. Every country will experience major challenges, ranging from minor setbacks to major disasters, depending on the soundness and innovativeness of its domestic policies and economic-management strategies. I want to use this article to present a simplified analysis of Jamaica's policy actions and their implications and to point to some painless solutions that would benefit all.

Here is the situation. Government's response to the crisis with a supply-containment policy is probably the only one in progressive economies (certainly in CARICOM). It is the same policy that was used in the 1990s while the world economy was booming and it yielded negative economic performance, as well as thousands of disenfranchised homeowners, and FINSAC-1.

The policy-management strategies at this time put most resources in idle mode and exposed all those with credit. It will land the economy in FINSAC-2, higher unemployment, homeowners' disenfranchisement, banking crises, higher crime rates and larger fiscal deficits. We have to put all our resources to work and produce our way out of the crisis. This is the only viable option that Jamaica has at this time.

Table 1 represents my forecast of the outcome, based on the present supply containment policy regime.

The table predicts that present economic management will produce almost all losers, except the cash-rich (who represent less than five per cent of Jamaicans) and FINSAC-2. All policy-shapers - business leaders, government, economic planners, social advocates, critical thinkers, labour leaders - should immediately work in partnership to avoid the predictions if they believe that these are going to be the most likely outcomes. The outcomes from their formulated solutions should be reduced government fiscal deficit, increased employment, reduced corruption, reduced poverty and reduced crime, which are all intertwined national imperatives.

I am using this forum to point Government to some exciting, innovative, low-pain high-gain solutions for Jamaica at this time. They will have far-reaching impact on the reduction of corruption, poverty, fiscal deficit, unemployment and underemployment, crime and excess liquidity. I, however, warn that my proffered solutions are not conventional or abstract. They are practical and guarantee short-term benefits. They are opportunities staring us in the face. These and many others are the only way to produce our way out of the crisis.

I am pointing Jamaica to 10 solutions, which represent a very short list of those available among my countrymen. They are presented and summarised as follows:

PROGRAMME 1:

Divest over 300 government activities, which it cannot capitalise to provide good service, reduce the prevalence of corruption, improve public-investor satisfaction, reduce fiscal deficit and create jobs.

I worked as a privatisation adviser to the National Investment Bank of Jamaica in the 1990s. There, I identified over 300 activities, that should be divested for these reasons.

These activities need to be identified, (again) and promoted as opportunities for domestic private investment. This programme would yield these benefits:

Corruption would be significantly reduced because it is buoyant, mostly where government cannot modernise its services to meet customers' expectations. In other words, corruption is an alternative modality for delivering service to those who can pay for preferential treatment. Hence, when government modernised passport and the registrar general's operations, corruption reduced significantly in those areas of activity. However, at the transport inspection depots in Kingston, the dilapidated facilities which were built over 50 years ago to inspect and certify about 40,000 vehicles, are, interestingly inspecting and certifying about 230,000 today (assume 60 per cent of the almost 400,000 done in all parishes).

There would be increased opportunities for local investors to invest their excess liquidity, which could eventually reduce the need for the present monetary policy, which puts all resources into idle mode.

There would be increased revenue to government and reduced public expenditure on these activities.

There would be expansion in employment when these activities are modernised.

The economic sectors would experience less bureaucracy and could, therefore, implement business decisions faster.

PROGRAMME 2:

Implement an employment redundancy transformation programme to retrain redundant employees for new-economy jobs or put them into their own businesses.

This programme, in essence, should exempt personnel made redundant from taxes on each dollar of the redundancy pay that they would invest in a retraining programmess or personal businesses. This is consistent with the Government's granting of tax holidays, free land and subsidised training of staff for foreign investors.

This programme would:

Increase employability and sustainable employment.

Increase central government's revenue potential.

Reduce the rate of the working poor and poverty, in general.

PROGRAMME 3:

Create a no-pain high-gain tax system for the large and growing number of self-employed.

Self-employed, micro and small businesses, which account for over 40 per cent of GDP and growing, could incur around seven per cent or more of their operating costs to become tax compliant. For example, a small enterprise earning $10 million probably incurs a cost of $7 million. To become tax compliant in the present complex system of paying taxes, the small enterprise would have to employ a full-time accounts clerk - $500,000 plus associated costs per year. Since this is a high cost, the micro business, like most other account workers, avoids paying taxes and consequently, government loses billions of dollars. There may be over 350,000 individuals and own-account micro enterprises in the economy.

The no-pain high-gain tax system for this sector should be that all self-employed and micro enterprises get licences to do business. The government should put them into earning bands and charge an all-inclusive amount each year (payable quarterly) at the time of renewing their licences. It should be unlawful to do business without a licence.

PROGRAMME 4:

Lay off 30 per cent of civil servants under a civil servants enablement plan.

Government could reduce its workforce by 30 per cent and retain, if not increase, its present level of productivity, while it gives the laid-off personnel the opportunity to be re-trained for sustainable employment or entrepreneurship under the following regimes:

Exempt the taxable portion of their settlements expended on retraining and/or investment in a business.

Make them eligible for the GOJ-secured low-cost loans for business.

Make them automatically eligible to bid for the over 300 government activities to be divested.

Let them participate in employee share ownership programmes where possible.

This programme would reduce public expenditure, increase public-sector productivity and transform underemployed persons into sustainable employees, entrepreneurs and employers.

PROGRAMME 5:

This is a reinvention of trade unions to represent the large and growing own-account workers.

The conventional unionised wage labour force would shrink dramatically. The workforce would be increasingly self-employed, knowledge-driven occupations. People would be self-employed through subcontracting, outsourcing, the contracting of services, or as conventional independent operators. This large new-economy workforce would need a wide range of services that the unions have the best potential to advocate, broker, mobilise, represent, facilitate and oversee.

These include health and pension plans, equality in government procurement of services, occupational licensing, contract negotiation, free movement in CARICOM, reciprocities with Europe under the Economic Partnership Agreement, marketing and clearing-house facilities for contracts, and representation in fair-trading cases. If the unions do not re-engineer along these or similar lines, they could become endangered within the next five years as their traditional product - advocacy - is no longer viable by itself.

This required re-engineering would need an injection of critical thinking and institutional capital, which should come from SMEs, international donors, the unions, the universities and the Government.

Part 2 will be published next week.

Trevor Hamilton is president of an international management consultancy in Palm Beach, Florida, and which has offices in the Caribbean. Feedback may be sent to columns@gleanerjm.com.