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Speeches & Transcripts

How Implementation Deficit Stymies Jamaica’s Growth: Global Testimonies of Change

June 26, 2012

Giorgio Valentini, World Bank Country Representative, Jamaica & Guyana (with program responsibilities for Trinidad & Tobago & Suriname) PSOJ/JMMB Annual Economic Forum Kingston, Jamaica

As Prepared for Delivery

Ladies and Gentlemen  

It is a great pleasure to be invited here today and I am delighted to see the strong interest from the Private Sector in implementing an innovation and economic growth agenda.

My challenge today is to present some ideas on how to stimulate changes in Jamaica that could lead to achieving knowledge society status. One could frame it as either a status or an objective depending on one’s perspective. Nevertheless this would be a highly desirable outcome for Jamaica’s society and a necessary one for a globally competitive Jamaican private sector.  In fact, the private sector must drive for such a transformation but for this to be effective, to disrupt the Jamaican status quo in Jamaica.

The current status quo wobbles on four legs:

(i)         Accepting and adapting to decades of weak growth (surprisingly, many people think that this can still go on) with avoidance to addressing structural reforms and balancing austerity measures with growth opportunities;

(ii)        Focusing on the local market instead of the global markets. Global is the new local today. Jamaica is not just an island geographically but also an island in the global economy.

(iii)       Lacking an innovation system and a operating in a fragmented policy framework. A modern government would be able to focus on policy development for competitiveness while it invests in public goods—primarily infrastructure, health and education—that are fundamental for competitiveness.

iv)        A mismatch of skills between the local private sector and the global economy needs. There is talk in Jamaica about nuclear energy and computer chip manufacturing, but where are the skills to realize this?

Before addressing these points, let me step back to last week. It is now exactly one week to the date since we wrapped up the launch event of the Caribbean Growth Forum right here in Kingston, producing a pool of the collective wisdom of more than 200 persons from across the region.

The vexing issue of low growth in the Caribbean is certainly not new, nor are conferences purporting to address the attendant issues.

In fact, in an interview published in yesterday’s edition of the Nation News in Barbados, CEO of the Caribbean Development Bank, Dr. Warren Smith said this, in response to his expectations before the conference and his perspective on the outcome after.

“…when I was coming here I thought the biggest challenge that we would have is to be able to convey the message that this was not going to be another talk shop. That we are going to be able to leave here with a greater sense that we would be able to address the problem of implementation….Well, I don’t know if we have achieved that, but I think we have a better understanding and appreciation of some of the issues surrounding that. We have a reputation in the Caribbean of being very, very good talkers. We are very good at conceptualizing issues. We are not as good, I think, at implementation and execution. So that is part of the subtext throughout much of the discussions.”

That pretty much summarizes the rationale for a forum such as this, directly from the mouth of a Jamaican, living and working in the region and armed with knowledge and experience to make a sound judgment.

During the same week, we also heard the story of Mauritius from Financial Secretary Ali Mansoor at the CGF deliberations at UWI and at a dinner roundtable organized by the Caribbean Policy Research Institute (CaPRI) last Tuesday night.

In this regard I must refer to a 1960 prediction about the future of Mauritius by a Nobel Prize winning economist, James Meade. In his report to the government of Mauritius he stated unequivocally that the island's development prospects would be bleak. From his perch, Mauritius was too dependent on one commodity — sugar, to emerge from its economic woes. He also identified vulnerabilities of overpopulation, and potential ethnic tensions.

 A year later (1961) and 7 years before Mauritius gained its political independence, Meade is quoted as saying:

“It is going to be a great achievement if [the country] can find productive employment for its population without a serious reduction in the existing standard of living…. [T]he outlook for peaceful development is weak.”

 James Meade has long since been proven wrong. He was wrong not because he miscalculated Mauritius's adverse inheritance following independence but because, he overlooked, in his otherwise thorough analysis, the determination of the Mauritian people to succeed. It is a national trait I have observed right here in Jamaica as well.

The similarities however go well beyond that. It is also an island with a small population, and also dependent on tourism because of the sheer beauty of its natural environment. Politically, it also emerged from colonialism in the same period as the English speaking Caribbean, including Jamaica.

So, in many ways we are comparing like with like. However there remains one radical difference. Mauritius has grown at a rate of 5 percent per year, with an increase in its per capita income from US$700 in the 1970s to US$7,000 today with a diversified economy including very strong showings in finance and textiles.

Unemployment has dropped from 9% to 7.5% over the past 5 years, while in May of 2012 in Jamaica it spiked at 14.1%.

Admittedly, the last 3-4 years have been anything but normal – even for developed nations. The Great Global Recession has not spared the Caribbean countries. GDP growth of all the Caribbean countries fell from 6 percent per year in 2006-2008 to almost zero in 2009.

Let’s now look at four corrective measures to strengthen each of the suspect pillars of the Jamaican situation I mentioned earlier. These are clear opportunities for implementation.

(i) From accepting and adapting to decades of weak growth to embrace competitivess for growth and the necessary measures required to achieve and maintain it.

China seems to be the best example for describing a country that has embraced growth and is now present in most countries. But few knew much about China only a few decades ago.  China has developed a formula that makes its goods and services more desirable than its competitors with an industry that succeeds in the global marketplace. At the same time, Chinese people enjoy a high and rising standard of living. This is in a way what competitiveness is all about. Just to illustrate this --- today Jamaica has Chinese companies in direct competition with you. In the past they were largely immigrants, integrated in the society running small shops in retail and eventually growing into large enterprises over maybe a generation. On the flip side - how many Jamaican companies are competing in China?

Fiscal policy shapes the competitiveness of the nation and of their companies. This is particularly severe if a government takes in less money than it spends and if it is highly inefficient in delivering its services.

Revenues are required to fund public goods but taxes need to be well aligned to a clearly articulated competitiveness agenda or they can distort the allocation and use of human and physical capital.

Most importantly, with a government running a deficit private sector and public goods investing become of secondary importance and this has an impact on growth as the government borrows to consume and not to invest in competitiveness of the economy.

Raising productivity is the key here in Jamaica. It is a critical area for government intervention on the policy side. The thing though is that low productivity plagues not just the public sector but also in the private sector. To address this, and to create a competitiveness agenda, there is a need to improve the human capital, to increase the physical capital (ports, hospitals, ICT, energy, for example), and to use resources more efficiently. The government has a huge role in this.

The Republic of Korea invested about 0.5% of GDP in R&D in the mid-1960s with the government responsible for 80%. By 1995, gross R&D expenditures were 2.3% of GDP with the private sector responsible for 80%! In 2006, R&D represented 3.2%, significantly higher than the US and OECD economies. This also promoted stronger university-industry linkages through fiscal incentives and government procurement of advanced technologies. The Government of Korea is not just digitalized, it is fully integrated with the society and industry. The miracle of e-Government in Korea, but also in Estonia and other countries, is that it was supported by the private sector with the government providing the necessary policies for technological innovation in governance that also stimulated private sector innovation.

Developing countries – many of which were colonies during the last century – are now driving the engine of the global economy. Over the past five years, they have accounted for around two thirds of global growth. But competitiveness of an economy must become part of this engine. To better illustrate this, consider that for the decade before the financial crisis, economies in Sub-Saharan Africa were growing at about 5% a year. Today, most African countries have already recovered and returned to that rate.

Today, many developing countries are looking to one another for ideas. It is not just Jamaica. A modern government would be able to focus on policy development for competitiveness while it invests in public goods—primarily infrastructure, health and education—that are fundamental for competitiveness. A modern government, but also a modern private sector, would also require the workforce of the future with people skilled in ICT and new processes.

(ii) Global is the new local today that requires moving from focusing on the local market to competing in the global markets. In this new GLOCAL—Glo(bal) (Lo)cal—there are multiple growth poles and multiple markets that require constant shifts from economies and the private sector in adjusting to the quickness of changing global demands.

While it seems a daunting task, many countries have successfully gone ‘GLO-cal’.

The Czech Republic today has one of the strongest economies in Europe. This was spawned by embracing a creative transformation process for their society, political environment, and economy.  Yes, they sustained severe pains in this transformative process as they integrated into the global economy. However they remained focused and undeterred in their aim of going global. Despite all its complexities, the transition has opened the way to more sustainable prosperity and a more inclusive society.

(iii) Lacking an innovation system is an opportunity to leapfrog Jamaica to the levels of societies that took decades to implement one.  

Innovation is a critical element of economic growth for all economies. On average, worldwide, about half of a country’s long-term growth is due to innovation and technological enhancements. An interesting fact is that to increase productivity, an economy has only to make better use of the resources it invests in economic activities. By using resources more efficiently, innovation becomes a catalyst for economic growth. The same can be said for a private company. Apple Inc’s Steve Jobs continually innovated by focusing on fewer products while providing more services. I have one iPad and hundreds of applications. Apple’s main competitors have multiple products and fewer apps. The Jamaican private sector needs to decide which approach it would like adopt: Apple’s? or that of its competitors?

Some countries which have also invested heavily in innovation have done so even without a clear and complete understanding what the innovation might yield, or even the true nature of said innovation. The Republic of South Korea closed the income gap with OECD countries in about three decades. They moved from physical infrastructure development in the 60s and 70s, at a time when the country was one of the poorest in Asia, to virtual infrastructure in the 80s and 90s, creating a technological revolution and a surfeit of successful globally competitive companies.

During the same period, Finland decided to change its economic model from one based on natural resources to one driven by intellectual capital. It took decades but they succeeded. At the time, they did not even know how, so they created a Parliamentary ‘Committee of the Future’ to discuss just that: what could the future look like and how shall we drive it?

Israel is another success story. They relied on active engagement with their Diaspora. In fact, Israel developed the first Diaspora bond in the 50s and still issues such instruments not for the monetary need but to stay connected with Israelis abroad. The Diaspora is, of course, very pleased to see that their investments have created a vibrant and globally competitive economy also based on technology. 

To truly innovate, Jamaica would need to adopt policies that encourage innovation, entrepreneurship and social cohesion. Governance should not only strengthen the institutions but also adopt a citizen and business-centric governance approach that could unleash the innovation potential innovation of the Jamaican citizenry. Government should support and encourage innovation for its transformative effect on low value industries and its potential to produce new high value sectors.

Knowing Jamaica and the creativity of Jamaicans I am not suggesting adopting one model as “one size fits all” approach to innovation or establish a new Silicon Valley. But I am sure that an innovation model that is uniquely Jamaican could very well emerge.

(iv)      Mismatching of skills with the local private sector and the global economy needs.                      While Jamaica probes the possibilities of nuclear energy and computer chip manufacturing, has there been the introspection to ask ‘where are the requisite skills? It takes time

Back now to Finland - they committed considerable resources to invest in human capital via their National Technology Agency in the 1980s. This body was responsible for targeting R&D investment for commercial applications. Finland accounts for the highest percentage of investment in R&D over GDP in all of Europe, and it has created a highly integrated and dynamic innovation ecosystem.

The Republic of Korea, not satisfied with the building of a knowledge society is now working towards building the ubiquitous society in which all parts of society and the economy are interconnected.  The same is true for Finland where advanced job-skills training and innovation-focused R&D have facilitated the climb from post-war poverty to wealthy-country status.

While having the same focus of Finland and South Korea, Ireland is moving a step further and has launched an initiative to crowdsource the six million-strong Irish Diaspora to explore economic opportunities for investment and employment in the homeland. Ireland and the Irish are not longer an island but connected and working together anywhere and at anytime. 

Even as the World Bank thinks to have “smart employees”, we have also embraced crowdsourcing to reach the very best all over the word for specific tasks. More than 600 structural engineers in 21 countries ‘virtually’ analyze data collected by the Bank including high resolution aerial photos depicting the extent of the damage wrought by Haiti’s 2010 earthquake. A team based in Washington – software developers, designers and other experts – connected with volunteers in 28 different sites around the globe – from Berlin to Bangalore, Hyderabad to Kigali, Santo Domingo to Prague and beyond - to come up with creative solutions to problems in extractive industries, water and sanitation and finance.

And now, back to Jamaica.

This weekend the Ministry of Youth and Culture backed by the World Bank, USAID, Flow, LIME and other private sector partners will swing open a smorgasbord of opportunities in the virtual economy for Jamaican youth as one part of a coordinated national response to crippling youth unemployment.

Digital Jam 2.0 is a prime example of the kind of low cost, well-considered multipartite project that can advance several agendas simultaneously. While this is by no means a ‘silver bullet’ it addresses a number of critical actions all at once and opens doors for other related actions spinning off in several directions:

-          Digitalization

-          E-commerce and M-commerce

-          Youth engagement and employment

-          National branding though enhancements to the cultural/ creative industries

There are no limits to the imagination of the youth, and Digital Jam 2.0 is expected to support the local economy in many ways:

·         Creating a place for national and international companies to establish partnerships.

·         Leveraging resources and partnerships to establish a set of pilot projects that can employ at least 1,000 to 2,000 youth using robust web-based platforms.

·         Developing and improving world class ICT quality of skills for unemployed/underemployed youth.

·         Linking the youth employment via innovative ICT solutions to broader initiatives, such as the Caribbean Growth Forum and the IDB’s Compete Caribbean adding a regional dimension.

As you might expect they overlap with the aims and objectives of Digital Jam 2.0 because it is about creating a cohesive comprehensive new platform on which to build a more functional and productive economy.

This will of course inevitably translate to a better quality of life for the citizens and residents of Jamaica.  Such a platform would be a lasting legacy of Jamaica 50, and ensure that the nation will not have to wait another half-a-century to ‘turn the corner’ and hit the home straight as one of the global winners in economic terms.

Moving back to implementation, I would like to suggest a focus on the following points that could stimulate the necessary changes here in Jamaica:

Focus on great outcomes: knowledge society and globally competitive economy. Identify the key policies and examples from the experiences of other countries in targeting these outcomes. Education is cnon-negotiable.

Push for private sector excellence and partner for knowledge and technology transfer. Policies that would open the ICT, Energy, Logistics, Tourism, and other sectors would be needed to allow competition to enter Jamaica and for Jamaican companies to partner for knowledge and technology transfer opportunities.

Transform the government by proposing PPPs. A paperless government will also support a paperless private sector. This will bring more efficiency in both systems and more productive use of resources. The private sector can be driving the modernization of the government for one that is citizen and business centric. This will also open opportunities for creating new productive sectors.

Diversify the economy. The ICT sector is an enabler also for logistics and ports. Tourism must incorporate an additional S for sports and a capital H for health in a global environment which treasures wellness and increased longevity. Most importantly, adopt a model for a cashless society as the disruptive model for changing the status quo. A diversified and flexible Jamaican economy could focus on few high growth sectors. The island is blessed with a unique geographical position in the Caribbean. An important development to factor into considerations is the opening up the post-Panamax within a year. Singapore established itself as one of the leaders in logistics over the past few decades. Logistics, and economic zones around the ports, could be the disruptive sector for Jamaica as it was for Singapore.

Enable the youth to drive Jamaica’s innovation system to forge a new society. The private sector could benefit from the new ideas of the youth to address the competitiveness factors and to increase the use of ICT for improving productivity. Digital Jam 2.0 may very well be the turning point in the transformation Jamaica and we will be looking for all of you on Friday and Saturday at the Jamaica Conference Center.

Finally, on the matter of what is needed to move towards a society that implements… Jamaica has learned lessons many times from many countries. Learning is not the issue. A social contract is what is needed for the government, the citizens and the private sector to agree on the outcomes for a modern and competitive Jamaica. But… it will take time and willingness to endure measures that may not be popular today but are most likely to yield a desirable new economy for Jamaica.

Thank you

 

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