A GROWTH-INDUCEMENT STRATEGY FOR JAMAICA IN THE SHORT AND MEDIUM TERM

The fact of the matter is that the biggest incentive for growth, and one that has no sunset
provision, is for Government to commission itself to the efficient production of its core
functions. This best minimizes the transactions cost of private-sector business activities
and is growth inducing.
As Professor Donald Harris has elegantly showed in a recent study on the Jamaican
economy, fiscal consolidation aimed at dealing with the prevailing chronic state of fiscal
imbalance is probably the most important of early steps in this important process.
Having declared this, I would be foolish to ignore the large body of international
evidence that, and I quote from a May of this year study by the World Bank,
“shows that while activist government economic policies in
developing countries have historically failed to achieve their stated
objectives, in all successful economies the state has always played
an important role in facilitating structural change and helping the
private sector sustain it across time.”
So the issue is as much about the quality of government participation in the economy as it
is about its size.
Therefore, once the “public good” of government efficiently producing its core functions
and having budgetary practices that assure the public of transparency guarantee is
adequately addressed, the issue then becomes: how government can rationalize its
selective support for modern economic growth and development. The general view,
based on continuously updated empirical international evidence, is that growth-friendly
government policies beyond core activities is focused on addressing market imperfections
that arise because of the collective consumption and productive nature of activities that
are often essential to industry modernization and dynamic competitiveness.
Translating, successful government interventions under globalization and rapid
technological change occur in situations where the policies are aimed at facilitating
private agents in industrial upgrading and diversification of industry, and in exploiting
market opportunities. They are aimed at assisting industries overcome information and
coordination problems, including better matching risk-bearing capacity to access to
financing and coordinating access to new markets, addressing externality/spillover
effects, and improving industry soft and hard infrastructure, including modernizing
property.
Note, they don’t take equity share in firms or industry, nor engage in risk diversification,
grant credit or return on investment (ROI) guarantees, offer pricing subsidies through
tariff or non-tariff barriers, etc. Instead, their focus is on increasing the technical
efficiency and competitiveness of firms and industries.
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