By Dennis Chung, ContributorRECENTLY I was involved in a conversation re the creation of jobs in Jamaica, discussing the fact that some imports were cheaper than local products. It was suggested that Jamaican companies should purchase local goods even if more expensive than the imported ones.
I argued that this was not consistent with an entity's profit motive, and private enterprise would always seek out the best value for money. My response was shot down as unpatriotic and a disregard for Jamaica's future.
BUY JAMAICAN
There has recently been a campaign to buy Jamaican as a means to support local economic activity. At best this can only be temporarily sustained if the perceived values of Jamaican goods are lower than the foreign ones. I use the term value as a product can be more expensive yet have greater utility. An example, which every curried goat lover will understand, is that local mutton, although more expensive, is more desired than the imported one. The key being that the taste value of Jamaican mutton is seen as greater than the cheaper import.
There is a definite need to create jobs in Jamaica, but is the best way to do so via supporting inefficient industries? Governments protect local production using tariffs which make imported goods more expensive than their local counterparts. This has been a practice of Jamaica for decades. The idea is that while protection is in place the local producer will increase his/her efficiency levels to be able to compete fairly with the imported product. By no means should this be a long-term measure, as it will result in highly inefficient industries that will only be a burden in later years. An example of this is the sugar industry, where we have subsidised it with hundreds of millions of dollars and created an internationally uncompetitive industry.
Even if in the short run Jamaicans support products solely on the basis of nationalism, this cannot be sustained while we have a free market economy where imports are allowed. Developing economies will always produce more efficiently and be able to sell to us at lower costs, nullifying the effect of tariffs in the long term. The longer local products are protected the higher is the cost of living, and persons who purchase Jamaican goods will see a reduction in real income and eventually buy cheaper imports. The truth is that if we support inefficiently produced local products for prolonged periods then we are only shooting ourselves in the foot.
JOB CREATION
If this is the case, then how do we embark on a path of job creation and increased economic activity? This is accomplished in developed countries by the constant introduction of new enterprises to the economy. During the booming American economy of the 1990s there were a host of new entities born, as evidenced by the growth in listings on the stock exchanges. Many of these enterprises will not survive, but some will, thus creating new sustainable employment. It is the micro enterprises of today that are the large corporations of tomorrow and are responsible for the creation of the majority of new jobs in a well-oiled economy. These companies are usually created by young entrepreneurs because of their creativity and flexibility. It is for this reason that many companies hire young professionals to assist in their business development.
If the Jamaica Stock Exchange (JSE) is to be used as a guide (See Graph A), we have not been successful in this area. The table shows that since January 2000 the JSE has added five new listings, while four companies have been de-listed and trading in one suspended. One implication from this is that we are relying on large established companies for job creation.
BUSINESS CYCLE
The development cycle of organisations shows that large companies will not create jobs at the same rate as new enterprises, and to move from one cycle to a next a company must rejuvenate itself by developing new or changed products. This was evident in many successful American companies such as Phillip Morris, Chrysler, Wal-Mart and General Motors. These companies have not necessarily changed the core business but over time have added products or changed the packaging, sometimes by way of new enterprises within the group. This is similar to the way in which new companies emerge and, in fact, for all intents and purposes we could say that these companies are new.
The problem with large companies is that they reach a plateau in their development and to make the transition to the next stage they have to adapt to changing market conditions or create new products or markets. Graph B shows the typical cycle of a company, where in cycle 1 the company reaches its maximum level and to grow must make the transition to cycle 2. In their development, however, the rate of job creation slows and even job losses occur as they strive to become more efficient and use added technology. This inevitably causes unemployment, as in the United States, but at the same time jobs are created by new companies.
This key ingredient is missing from the Jamaican model. New companies are not encouraged because of high interest rates and bureaucratic obstacles. This is the only way to create jobs at the rate we need to. We must facilitate an environment where entrepreneurship is encouraged, else the economy will continue to stagnate and suffocate on its own inactivity. In the long run we cannot sustain our economy if we buy only because a product is Jamaican. It may be necessary to support local products at this time but it must be more certain than an appeal to Jamaicans to buy Jamaican. Government should do this by attaching tariffs to imports in order to allow Jamaican companies some breathing space to grow.
This, however, will have a negative effect if it continues indefinitely as organisations will have no drive to become efficient, thus creating more expensive goods and so a timeline for the end of tariffs must be in place. In conclusion, then, the protection of any local industry must be strategically assessed and determined on a
specific timetable so that in an effort to protect jobs we do not jeopardise them in the long run.
