Tweet
In economics, trust is a matter of course
Published: Sunday | January 19, 2014
Claude Clarke
Jamaica's economic crisis is no illusion. It is as real as the pain a child feels as she goes to bed hungry. And it will take perpetual vigilance to ensure that the situation is speedily improved and not worsened by government policy errors. In a properly organised country, the roles of government and private sector are discretely different. It is the business of the private sector, operating in its own interest within the laws and policies of the State, to maximise the utilisation and productivity of capital. It is Government's responsibility to create the policy and institutional framework within which business, in pursuing its objective, is encouraged to operate in a manner that advances the social and economic goals of the country.
It is as natural as night follows day that people will act in their own self-interest, and the private sector can always be trusted to do that. The Government needs to get accustomed to this fact and realise that business people can be counted on to prioritise what they believe is best for them, in just the same way that politicians are motivated by electoral success.
A prudent government will seek the advice and support of all interests in the society: the owners and managers of capital, as well as those who market their labour and skills. However, none but the Government can determine policy and organise the institutional framework within which private interests are best able to advance the public good. A government which surrenders that responsibility to any single private interest no longer deserves the people's trust.
Equally, government will only be as good as the governed are vigilant. And the society, led by a responsible media, serves itself best by continuously and scrupulously questioning and challenging the government's policies and actions to ensure it remains faithful to its duty to work to meet their reasonable economic and social expectations.
A society that remains silent and accommodating in the face of government policies that undermine the capacity of the economy to grow, as occurred during the 1990s, renders itself the architect of its own destruction. The disaster of FINSAC, the 150 per cent of GDP debt, and the chronic economic uncompetitiveness it produced are the consequences of such neglect.
DUTY OF THE PUBLIC
To expose the weaknesses and shortcomings of government's policies and their likely destructive outcomes, and to propose better alternatives, is the duty of a responsible and engaged public. And to dismiss constructive public commentary when it does not accord with the views of some corporate or political interests is dangerously irresponsible.
The suggestion that today the Jamaican Government has already done all it can and that it is now up to the private sector to follow through and make recovery happen is absurd. It would absolve the Government of its responsibility for creating the policy framework to induce private capital to invest in production. It also takes no account of the Government's important role in harmonising the natural and healthy pursuit of profits with the objective of national development.
GOV'T DELUDING ITSELF
Government is also deluding itself if it believes that private capital will ever be prepared to behave against its own interest in response to exhortations from the State. It is irrational to believe that astute business people will be prepared act with any other aim in view than to optimise the return on their capital.
This is why it is essential that Government shape policies which make it financially attractive for business people to invest in production. To believe otherwise is to be lost in Wonderland. A declaration that 'the government has done its best' relieves those in whom the people have invested their trust and treasure of their duty to develop the economy and place that responsibility on the shoulders of private individuals whose first duty is to preserve and grow their capital.
During the 1990s, when the productive foundations of the economy were being gutted by Government's policies and actions, even while the world was experiencing one of its greatest economic booms, media and private sector alike cheered the Government for being on the right track and exhorted the public to stay the course. That course was the road to a crippled productive machine, a chronically uncompetitive economy, and a debt of 150 per cent of GDP, under which all of us now suffocate.
I have long campaigned for government action to turn our economy around. The call for the removal of all government taxes and fees from the cost of production has received some response from government. The appeal for the exorbitant cost of financial and other domestic services which weaken productive competitiveness to be reduced has not been addressed.
The plea for macroeconomic measures to create a structurally competitive economic environment has received no more than tepid response. The request for our foreign trade relationships, including CARICOM, to be addressed to improve the competitive position of our producers has been ignored.
Now the reasoned case for tax incentives to be designed to specifically attract investment capital to production is being ridiculed by those who would be expected to demand meaningful reform by government.
There is no hope for the economic recovery we yearn if all these areas of policy are not fully addressed. And the growth required to give our hungry children hope for the future will not happen.
SIMPLISTIC in the EXTREME
The view that all that is needed is for the Government to collect more, spend less and pay down our debt is simplistic in the extreme. The belief that if corporate taxes are lowered, investments will flow into production; and will result in growth, flies in the face of empirical evidence.
This has never worked in Jamaica. And there is strong evidence that the present budget and debt crises in the United States had their genesis in the reduction of taxes for corporations and high-income individuals under the George W. Bush administration.
British economist Lionel Robbins defined economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses". Trust in economic behaviour is only a matter of course.
Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.
http://jamaica-gleaner.com/gleaner/2...cleisure2.html
Published: Sunday | January 19, 2014
Claude Clarke
Jamaica's economic crisis is no illusion. It is as real as the pain a child feels as she goes to bed hungry. And it will take perpetual vigilance to ensure that the situation is speedily improved and not worsened by government policy errors. In a properly organised country, the roles of government and private sector are discretely different. It is the business of the private sector, operating in its own interest within the laws and policies of the State, to maximise the utilisation and productivity of capital. It is Government's responsibility to create the policy and institutional framework within which business, in pursuing its objective, is encouraged to operate in a manner that advances the social and economic goals of the country.
It is as natural as night follows day that people will act in their own self-interest, and the private sector can always be trusted to do that. The Government needs to get accustomed to this fact and realise that business people can be counted on to prioritise what they believe is best for them, in just the same way that politicians are motivated by electoral success.
A prudent government will seek the advice and support of all interests in the society: the owners and managers of capital, as well as those who market their labour and skills. However, none but the Government can determine policy and organise the institutional framework within which private interests are best able to advance the public good. A government which surrenders that responsibility to any single private interest no longer deserves the people's trust.
Equally, government will only be as good as the governed are vigilant. And the society, led by a responsible media, serves itself best by continuously and scrupulously questioning and challenging the government's policies and actions to ensure it remains faithful to its duty to work to meet their reasonable economic and social expectations.
A society that remains silent and accommodating in the face of government policies that undermine the capacity of the economy to grow, as occurred during the 1990s, renders itself the architect of its own destruction. The disaster of FINSAC, the 150 per cent of GDP debt, and the chronic economic uncompetitiveness it produced are the consequences of such neglect.
DUTY OF THE PUBLIC
To expose the weaknesses and shortcomings of government's policies and their likely destructive outcomes, and to propose better alternatives, is the duty of a responsible and engaged public. And to dismiss constructive public commentary when it does not accord with the views of some corporate or political interests is dangerously irresponsible.
The suggestion that today the Jamaican Government has already done all it can and that it is now up to the private sector to follow through and make recovery happen is absurd. It would absolve the Government of its responsibility for creating the policy framework to induce private capital to invest in production. It also takes no account of the Government's important role in harmonising the natural and healthy pursuit of profits with the objective of national development.
GOV'T DELUDING ITSELF
Government is also deluding itself if it believes that private capital will ever be prepared to behave against its own interest in response to exhortations from the State. It is irrational to believe that astute business people will be prepared act with any other aim in view than to optimise the return on their capital.
This is why it is essential that Government shape policies which make it financially attractive for business people to invest in production. To believe otherwise is to be lost in Wonderland. A declaration that 'the government has done its best' relieves those in whom the people have invested their trust and treasure of their duty to develop the economy and place that responsibility on the shoulders of private individuals whose first duty is to preserve and grow their capital.
During the 1990s, when the productive foundations of the economy were being gutted by Government's policies and actions, even while the world was experiencing one of its greatest economic booms, media and private sector alike cheered the Government for being on the right track and exhorted the public to stay the course. That course was the road to a crippled productive machine, a chronically uncompetitive economy, and a debt of 150 per cent of GDP, under which all of us now suffocate.
I have long campaigned for government action to turn our economy around. The call for the removal of all government taxes and fees from the cost of production has received some response from government. The appeal for the exorbitant cost of financial and other domestic services which weaken productive competitiveness to be reduced has not been addressed.
The plea for macroeconomic measures to create a structurally competitive economic environment has received no more than tepid response. The request for our foreign trade relationships, including CARICOM, to be addressed to improve the competitive position of our producers has been ignored.
Now the reasoned case for tax incentives to be designed to specifically attract investment capital to production is being ridiculed by those who would be expected to demand meaningful reform by government.
There is no hope for the economic recovery we yearn if all these areas of policy are not fully addressed. And the growth required to give our hungry children hope for the future will not happen.
SIMPLISTIC in the EXTREME
The view that all that is needed is for the Government to collect more, spend less and pay down our debt is simplistic in the extreme. The belief that if corporate taxes are lowered, investments will flow into production; and will result in growth, flies in the face of empirical evidence.
This has never worked in Jamaica. And there is strong evidence that the present budget and debt crises in the United States had their genesis in the reduction of taxes for corporations and high-income individuals under the George W. Bush administration.
British economist Lionel Robbins defined economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses". Trust in economic behaviour is only a matter of course.
Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.
http://jamaica-gleaner.com/gleaner/2...cleisure2.html
Comment