Wilberne Persaud, Financial Gleaner Columnist

Persaud

In an internal International Monetary Fund working paper entitled 'Public Debt and Productivity: The Difficult Quest for Growth in Jamaica', Rodolphe Blavy attempts to plumb the conundrum of consistently high investment coupled with low growth over the years.

He points out that: "Cross-country analysis provides evidence of a significant and negative relationship between total public debt and productivity growth."

In lay language read: In many countries, when we look at the amount and growth over time of government borrowing, we find that as government debt gets bigger, productivity gets worse.

Jamaica falls into this category. He also concludes that: "Looking at the specific channels through which high debt affects productivity growth and the allocation of resources in Jamaica, the study finds that high public debt has been associated with macroeconomic uncertainty and an output structure that relied excessively on a few maturing sectors with limited scope for productivity growth.

Debt service

Furthermore, public investment has been crowded out by debt service, further adversely affecting productivity growth."

I can see no reason to doubt the validity of Blavy's research findings, his methodological schema and tools as well as the integrity with which all the above have been deployed.

But why do I not even wish to question these often controversial aspects of economic research using statistical techniques, measurement and definitions of concepts that in and of themselves often do present thorny problems? Because the results are self evident to anyone with a child's unmodified perceptive abilities.

If there are 24 hours in a day and three possible eight hour shifts, Jamaica renders two of those either impossible by reason of crime and if not, either entirely infeasible economically or devilishly expensive.

The entrepreneur must provide bus transportation for workers and security at the work premises. Traffic jams reduce the time available to do the work.

Communications are rendered expensive and inefficient by reason of bad infrastructure poorly maintained.

How do we limit productivity growth? Productivity is a measure, a ratio that links the amount of output-goods or services produced-to the amount of inputs used.

The labour productivity of a shoemaker creating 80 pairs of shoes in a 40-hour week is two per hour. When he introduces two machines that do all the cutting in bulk and stitching by computer control his productivity goes up by a factor of 10 to 20. So, productivity is a technical relationship as well.It responds to changes in investment.

Consider the decade 1987 to 1997 for instance, investment expenditure was particularly unproductive. This was a period associated with the euphoria of Jamaica's real estate bubble and the carnival of expenditure in financial services - huge buildings, real estate development on steroids of speculation, Jamaica's most pres-tigious address that was to become variously the Crowne Plaza Hotel, then the U.S. Embassy, then U.S. Embassy residences, the Island Life 'blue elephant' in New Kingston, the ill-advised investment of clients funds by Jamaica Mutual Life Assurance Society and other such displays of folly disguised as investment.

Retarded productivity

These investments did not enhance productivity. Indeed they retarded productivity by shifting resources away from productive activities.

When the bubble burst, govern-ment then came in with over $170 billion in 'new investment' to bail out customers, depositors, pensioners, holders of insurance policies who would have lost everything down to their briefs.

This money was literally a gift extracted from taxpayers for transmission to the former groups in distress. No nuclear or rocket science need be invoked to proclaim that productivity during the decades 1986 to 2006 therefore would be in the pit.

And why relate productivity to government debt? Is government borrowing used to enhance productivity? Yes it ought. But this question makes sense only if government consciously and actively tries to enhance productivity.

Over the past two decades, it seems as though major government debt, apart from the highways, has grown in reaction to impulses derived from the actions of others, to stem haemorrhages of foreign exchange, to bail out financial services' clients, to cover quasi-state enterprise losses.

Blavy did not need to spend so much time and effort to tell us what he has. But now that he has, I am sure he would be only too happy to know that we took note and adjusted our profligate ways.

Prosperity requires good, pro-active governance which by definition is minimal, efficient, transparent and across the board.

wilbe65@gleanerjm.com