BOJ Urges Sharper Focus on Productivity

KINGSTON — Governor of the Bank of Jamaica, Brian Wynter, is urging the productive sector to sharpen its focus on productivity, in support of the national effort to grow the economy now that economic stability has been achieved.

Addressing the Jamaica Chamber of Commerce Luncheon Forum, at the Knutsford Court Hotel in New Kingston on Tuesday September 13, Mr. Wynter attributed Jamaica's weak economic growth over the last decade primarily to "generally low productivity levels" in the economy.

"Total factor productivity, which captures the overall efficiency of production, has declined at an average rate of 2.1 per cent every year over the period 1990 to 2010.  Similarly, labour productivity, which measures output per worker, contracted at an average rate of 0.5 per cent per year over the same period," he noted.

He also observed that Jamaica’s labour productivity has lagged behind its major trading partners, as well as a number of emerging market economies.

"Against this background, Jamaica’s annual economic growth over the past decade has averaged 0.8 per cent. This is in contrast to average economic growth of 2.6 per cent per year for our Caribbean neighbours," Mr. Wynter pointed out.

The Central Bank Governor identified a number of factors which have contributed to Jamaica’s low productivity over the years. These include: deficiencies in human capital; high levels of crime; fiscal distortions; and a poor work ethic.

Topping the list was the poor quality of the labour force. He explained that information on literacy and training clearly points to human resource under-development. 

“The latest available data from the United Nations Development Programme Human Development Index 2010 show that only 86 per cent of the Jamaican labour force is literate. This is in comparison to 95 per cent and 97 per cent for other Caribbean and high-growth economies, respectively,” Mr. Wynter said.

The Central Bank Governor noted that, in addition, the 2010 report on Jamaica’s labour force showed that 72 per cent of the labour force came to the job with no formal training, and that there was a similar deficiency regarding on-the-job training.

"Further, the labour market data showed that 64 per cent of new job seekers did not have any form of certification," he stated. 

With respect to Jamaica’s high levels of crime, the BOJ Governor opined that there was a negativecorrelation between the crime rate and productivity.

"A recent study undertaken by the World Bank showed that annual expenditure on crime control in Jamaica represented approximately 5.0 per cent of GDP.  Of that amount, Government spending on security accounted for 3.1 percentage points, private spending on security accounted for 1.3 percentage points and public health expenditure as a result of crime accounted for 0.3 percentage points," he observed. 

Mr. Wynter said that crime has diverted valuable resources from productivity-enhancing investment, and “affects productivity” by reducing the number of productive work hours. 

With respect to fiscal distortions, Mr. Wynter stated that various studies, such as the World Bank’s, have shown that tax revenues have been reduced by an estimated 20 per cent, due to an inconsistent and complex tax code, which includes “numerous exemptions and special privileges."

He observed that this, along with a high debt-servicing cost and a large wage bill, have reduced the “fiscal space available for productivity-enhancing public spending”, including public investment that is complimentary to private investment.

 The Central Bank Governor explained that expenditure on critical areas, such as health and education, has also been constrained because of those factors.

Turning to the relatively poor work ethic, Mr Wynter stated that this was compounded by “dissatisfaction with the widening gap between managers and workers” in the workplace. 

Pointing the way forward, he said that the link between the development of human capital, crime and productivity “underscores the imperative for strategies to enhance educational outcomes and restore a sense of law and order in the Jamaican economy”.

In this regard, he said that the efforts being made by the Ministry of Education to improve literacy levels in primary and secondary schools are welcome steps towards enhancing the quality of human capital.

He said that, in addition, students leaving school should be encouraged to go on to either skills training or tertiary institutions, to deepen the pool of available qualified personnel.

The Central Bank Governor said that recent statistics showing a significant reduction in the level of violent crime are also encouraging, and emphasised that a sustained reduction in the incidence of violent crime over the medium-term will be a powerful factor in improving economic productivity.

With respect to fiscal distortions, Mr Wynter said that reducing them is one of the commitments in the Government’s medium-term economic programme.

"The Green Paper on Tax Reform is already within the public’s purview, and includes proposals to deal with tax incentives and exemptions. In addition, the economic programme, which seeks to address fiscal consolidation and debt sustainability, includes reforms to improve the preparation, implementation and reporting of budgets, continuing divestment of public bodies and reforms to improve the provision of public services,” he noted. 

The Central Bank Governor is of the view that improvements in the general attitude to work will also contribute to increasing productivity.

He said that instilling these attitudes in homes and schools and "reinforcing them at the work place", is a task for social, labour and employment policies where success can be looked for mainly in the long-term. 

He also stated that industries may find that more immediate returns can be obtained through the implementation of productivity incentive schemes, which link wage increases to productivity, and human resource management initiatives aimed at improving worker participation and enhancing job-related skills.

Mr. Wynter said that the impediments to increased productivity were not insurmountable, but they require strong institutional foundations including: monetary arrangements that anchor inflation expectations; educational institutions that prepare each succeeding generation with the knowledge and attitudes that they need in order to earn satisfactory incomes; and institutions that provide the social services that help to define a civilized modern society". 

The BOJ Governor called for “more emphasis on nurturing and mentoring those for whom we are responsible”, and less about setting the exchange rate to maintain competitiveness. 

He also emphasized that the solution to some of these is increased cooperation between Government, private sector and workers, to ensure the most effective and efficient use of resources to achieve the desired results.

By Allan Brooks, JIS Senior Reporter