The People's National Party (PNP) administration typically likes to point to big infrastructural projects such as Highway 2000 as major achievements and to tout them as critical to Jamaica's growth and development. Judging from the success of the party at the polls, voters for the most part, it would appear, agree.
But a recent study by the Inter-American Development Bank (IDB), unveiled at a recent economic conference in Kingston by Ms. Dora Currea, the head of the bank's Caribbean operations, may well provide reason for the administration to reconsider such judgements and to question whether there ought to be a review of Jamaica's development strategies.
The conundrum faced by the IDB researchers, and the Finance Minister, Dr Omar Davies, is the country's continued weak economic growth despite its high levels of foreign direct investment (FDI) and relatively strong capital formation, averaging four per cent and near 30 per cent of GDP in recent years.
In other countries with these levels of investment, annual growth would be expected upwards of six per cent a year. Jamaica has struggled to achieve GDP expansion of two per cent or more.
Ms. Currea and her colleagues at the IDB offer an important and perhaps insightful perspective. Bureaucracy, they suggest, impose high transaction costs on business, leading to informality and anaemic growth in the formal economic sector. Indeed, prior to this recent analysis of the performance of the Jamaican economy, the IDB had estimated that the informal sector accounts for about 40 per cent of the country's economic activity.
According to the IDB's report, Jamaicans invest a huge amount of time and energy in tax avoidance and keeping their businesses in this grey zone.
Usually, the incentive for business to enter the formal sector is to assure access to loan capital and the legal system so as to enforce contracts. In Jamaica's case that incentive is not powerful enough for people who operate small enterprises to brave the bureaucracy and a complex taxation system with high rates of taxes.
Indeed, the IDB study highlighted the example of the complicated process of land titling and registration, which is not only slow but costly. Yet the country's land represent the largest pool of capital resources, which is under-utilised because it is mostly unavailable to be used as collateral for credit.
Against his backdrop, the IDB has recommended, among other things, the reform of the tax and financial systems, a flattening of bureaucracy and a modernisation of the legal arrangements.
These prescriptions are neither new nor even radical, having been repeatedly proposed in many quarters. Our governments have often declared themselves to be acting on them.
What is clear, and highlighted by the IDB study, is that with the public sector accounting for 39 per cent of GDP and the grey or informal economy accounting for an estimated 30 per cent of the country's output, real expansion is being stifled by a pervasive bureaucracy.
The victims are jobs and the creation of wealth. An appreciation of this should be a powerful incentive to change.
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
