Taino Heritage

I've always wondered about the proliferation of imported fruits and vegetables whenever I go to Jamaica. Maybe it's just me, but walking through Linstead Market and seeing bright red strawberries sometimes throws me off. Its not that I really have a problem with it, its just kinda weird sometimes. Although it really isn't any weirder than in West-Central Illinois I picked up some bananas and oranges at the supermarket yesterday.

I don't have a problem with people being able to eat whatever they want nor am I an opponent of free trade in principle. Hey, the likkle man can eat a kiwi fruit too! But when I think about the pressure the Jamaican Dollar is under, and the strain this puts on the entire economy, I'm thinking a Red Delicious is a luxury we can ill afford. Now the reality is Jamaica is heavily dependent on imports, much of what little producing there is left in Jamaica, is highly dependent on imported content. This bothers me though, could it be that this infusion was in some way being incentivised by the Jamaican tax payer?

"Everybody want waivers, waivers for vegetables, waivers for peppers to put in the processing, waiver for every conceivable thing, waiver for meats of all kinds. I am sick and tired of signing waivers for imported goods that we together as a people can produce right here in Jamaica. Mark my word, I'm going to do something about it," the finance minister said.

Well its about time! I'm glad to hear the minister make a statement like this. But how did we get here? Well over the last twenty years or so, our domestic production has been in decline and granting waivers for imported food provides affordable food for the population. I believe that this is an unsustainable option for feeding ourselves. As the article referenced above points out, it even makes our tourism product more expensive and it makes our economy and indeed our nutrition that much more vulnerable.

We need to produce more, in order to earn more foreign exchange and quite frankly produce more food! This is why its so important that the minister is held accountable for following through on statements like these:

Hinting at possible tax breaks for persons wishing to go into production, Minister Shaw said "when we talk about tax reforms, it cannot be that we are just talking about how much more we are trying to extract out of your pocket. Tax reform also has to mean, how can we create more incentives for production."

Let them eat grapes if that's what they want, but let it not come at the expense of the guniep man.

R. Anne Shirley references a recent Working Paper from the Brookings Institution which compares the development path of Jamaica and Barbados. I will have some further comments after I've had a chance to read it myself. In the meantime, you can find it here to read it for yourself.

OK, so I might have tipped my hand. It has been in the undertone of many of my posts so far, and you've probably picked it up. I am not a fan of the government owning/running productive enterprises.

I think governments should focus on things like ensuring access education, providing quality health care, protecting its citizenry, delivering fair and equitable justice for all, regulating industries, managing the macroeconomic environment and fostering good relationships with our neighbors (this of course is not an exhaustive list). I'm not a fan of the government doing stuff like running all inclusive hotels, digging up bauxite, cutting sugarcane and flying planes.

Here's are a few reasons why I hold this view:

1. When governments run enterprises, what is best for the enterprise from a business stand point, does not always coincide with government priorities. Priorities which are usually driven by political considerations mind you. So for example, it was clear that the sugar industry should have been rationalized and retooled years ago. This very likely would have meant laying off workers. The government's priority was to keep as many people as possible employed and receiving reasonable wages, a noble goal for sure. However this was not in the long term interest of the industry. This conflict of interests played a role in the demise of the first attempt to privatize sugar in 1993.
   
2. I don't think tax payers resources should be committed to speculative ventures. Business' come and go all the time. Every investment has risks, that is just the nature of the beast. But when people pay taxes, they should receive services in return, not an investment portfolio. My main problem with this is, there does not appear to be a clear protocol for repatriating profits to government coffers if the enterprise is successful or orderly winding it down if its not. Sandals Whitehouse should serve as a warning to us, a dire one at that. The Jamaican tax payer has already lost millions in this investment. Now I think the government can and ought to help fund research, as they are doing now in a public-private partnership to develop an indigenous rice industry. This experiment might not yield much or it might really hit the jackpot. The government has supported the pilot project and that's great. But let private money be put on the line to see this venture through.
   
3. Whenever they do put tax payer money at risk, governments invariably feel compelled to rescue, prop up, put these entities on life support and see it through to the bitter end. Again, political considerations winning out over good economic sense. Lets use Sandals Whitehouse again for an illustration. If it is profitable, Gorstew Ltd. (the private partner) gets its share of the profits and does with it whatever it sees fit. What does the UDC and NIBJ do with their share? I don't know. If it is not profitable (which it hasn't been so far) the government will likely absorb the losses and guarantee debt in an effort to ensure the hotel remains open so that people who work there are able to keep their jobs. Yep I get it, a noble goal. However management and franchise fees would still have to paid to Sandals to keep the thing going and the hundred or so jobs at the hotel could end up costing everyone else several millions dollars to maintain. Heads they win and tails taxpayers lose. Privatised gains and socialised loses.
   
4. The government tend to privatise when they are in a fiscal tight bind. They hardly ever sell from a position of strength, and almost never sell when the asset is at its most valuable. I mean really, could conditions be any worse for attempting to find a buyer for Air Jamaica and the Sugar Company than they are now? But the government needs to get them off their hands in the worse way! How is this likely to play out? Government offloads Air J at a fire sale price while still holding Air J's debt (Heathrow slots anyone?). Just dandy.
   

I've been following this sugar story pretty closely mainly because I wrote my grad school capstone paper on it back in the fall of '06. At that time the government had delayed and delayed; and set back the deadline for divestment about three times. Back then things were pretty bad for the industry as the final nail in the coffin of preferences were being hammered in, as the EU and its ACP partners had exhausted their appeals to the World Trade Organization. Quite frankly though, we weren't really taking full advantage of those preferences. Many of the recipients of these preferences ran terribly inefficient outfits, St. Kitts quickly put it's industry on ice when it became clear that the rug was being pulled from under it.

With all that it makes reading stories like this one that much more painful. It really didn't have to come to this. It didn't have to be this sudden, this disorganized, this messy and froth with this much uncertainty. It's particularly frustrating because it was clear what the result of inaction would have been. I could not have imagined that the story would have unfolded this badly.

The sugar industry can't be saved, or at least not it won't look like it did before, sure won't hire as many people. The King has died after a long chronic illness. Long live the King. In the meantime, I have no idea how we are going to deal with the consequences of this loss on the most vulnerable in sugar estate communities.

We can rescue this from the ashes. We need to unleash our creativity and entrepreneurship in order to put the broken pieces of sugar back together again. We can recreate it into something sustainable and prosperous. I would caution against trying to build an ethanol industry based on being able to export ethanol into the U.S. on, you guessed it, a preferential basis. The world political landscape is not working in our favor and we can't build sustained preferences into our assumptions anymore.

There are way too many valuable resources, declining value mind you, but having some value non the less. Sugar estates occupy some of the most arable lands on the island and the long held institutional knowledge of its workers can be harnessed. Worthy Park is going into rum after a 50 year hiatus, Barbados is moving in the direction of branding specialization and if we really want to get into ethanol production and cogeneration, Mauritius provides a great model for how a country our size can make it work.

The next domino to fall is Air Jamaica, there has been a deadline set to complete its divestment by the end of March. Clearly Air J too is on an unsustainable path, I pray we can get this done in an orderly fashion and not end up with another mess on our hands.

In his latest column in Sunday Gleaner's 'In Focus' section (2/15), former Commerce Minister Claude Clarke states the following position:

The thrust of my article, titled 'A Lost Birthright', published on February 1, was that government should avoid owning and operating commercial businesses unless such ownership is strategically necessary and that it should divest assets which are not a strategic necessity in order to free up capital for investment in infrastructure to promote economic expansion and development. (Emphasis added)

Clarke's statement here I think raises a few important questions for us to consider. What is the proper role and function of government in today's world? How does a small island developing country like Jamaica manage its resources in an increasingly volatile global economy?

This is especially poignant for Jamaica today as there are a number of lingering concerns about what to do with entities such as Air Jamaica, the Airport Authority, the Sugar Company of Jamaica and the various bauxite mines around the country. It's also relevant when one considers how the Sandals Whitehouse deal went down and what will become of the gigantic Harmony Cove project in Trelawny.

Now that we are in the ravages of a global economic downturn, the government is constrained in its options. The government is in desperate need for increased revenue and so feels compelled to offload these burdensome entities. The unfortunate reality is that selling any asset right now is a challenge, as those with the capital to invest are fleeing to safety and credit markets worldwide has ground to a screeching halt. I believe these foundational questions about government's role need to be tackled and reconciled regardless of the prevailing conditions and will ultimately help to pave the way forward.

In a future post, I will throw my two cents worth on the table and I encourage others to weigh in as well.

If these guys are willing, able and ready to go why wouldn't you sell it to them? Unfortunately we no longer have the luxury of another round of bidding that goes nowhere.

Chairman of the sugar cane industry enterprise team, which is leading the sugar sale talks, Aubyn Hill, refuses to divulge the identity of other interests keen to take the SCJ off the Government's hands.

However, already the Peter McConnell-led Worthy Park Estate and the Jamaica Sugar Cane Grower's Association, the umbrella group for small cane farmers, have indicated that they are waiting to be called back to the table to discuss their proposals to acquire all or part of the Government's loss-making sugar operations.

A decision is yet to be made by the Lascelles deMercado group on whether to make another try through subsidiary J. Wray and Nephew Limited at the SCJ assets or sugar lands. Group General Manager William 'Billy' McConnell said yesterday a decision would likely be made after the board meets in 10 days, or possibly even after the company holds its annual general meeting.

The Jamaican government's dithering over the divestment of the sugar industry has been distressing to see unfold. After several years of having the government sugar estates on the market, we are now in an unsettling state of limbo with no end in sight. Why did it take so long to resolve, only for the divestment to be abandoned anyway and the government still left holding the bottomless bag. Now we are being told that the government will no longer spend anymore to prop up the ailing industry. It didn't have to come to this and it has been a failure of our government, that the industry should come to such an ignoble end.

This saga really has been ongoing since 1993 when the Sugar Company of Jamaica (SCJ) was formed as the vehicle for the first failed attempt at divestment in 1993. At this time as well, there were indications that the preferrential access to the European market which we had enjoyed, would not last forever. The status quo could not last forever and the sands in the hour glass had begun to pour out.

The reality is that the productivity of our sugar industry has been declining steadily since it's peak in the 1960's, and the preferences were used as a prop to hold up the industry. For close to twenty years the sugar industry seemed to be in existence solely to fulfill its quota to the European Union, and even that had been an ellusive target in some years.

The silver lining in this sad story has been the performance of the privately owned estates Worthy Park and Appleton. They have consistently outperformed their government owned counterparts and appear to have been positioning themselves to survive in a world without preferences for the small. The government should do all they can to support the continued success of these estates as they also seek to deal with the fallout from the years of neglect and lack of vision.

May I commend you to this article written by Kevin O'Brian Chang in the Sunday Gleaner (2/8). In it he discusses Jamaica's notable record of sustained political stability. This is impressive mainly because there are precious few countries are able to make such a boast. Peaceful political transitions are more rare than one would hope in our world.

Since it's independence Jamaica has not had a coup, civil war, assassination of a major political figure nor do we have a significant resistance to our overall political system. Amazingly this political stability exists in the midst of a chronic onset with violent crime, pervasive corruption in government and a sharply divided two party political system buttressed by Garrison constituencies.

Chang argues that:

"Almost half a century of unbroken democracy does not come about by accident. Naturally, many factors are involved. Perhaps the most important and, paradoxically, maybe the most unrecognized, is our common sense of purpose. Our almost unlimited freedom of speech, which we often use to cuss each other blue, sometimes blinds us to the fact. But every Jamaican has in common a passionate love of country that stands out wherever we go, and makes this little island loom larger than life around the globe."

Further:

Our intense self-criticism - evidenced in the daily torrent of talk show callers who run down anything and everyone - is again one of those overlooked invisible strengths. Whatever our societal faults, all voices are heard here. And Jamaicans certainly don't lack outlets to vent their frustrations at the government or business sector or churches, or whoever they see as the root of their problems.

O'Brian Chang He contrasts our political stability with our inability to overcome exigent socio-economic problems.

Sometimes I think maybe we need to shake things up every now and then. That maybe it's time for significant social and political upheaval, time for a revolutionary paradigm in order to really tackle our problems head on. However revolutions are messy. It's apparent to me and as O'Brian Chang suggests, there simply isn't an appetite for this amongst Jamaicans, and this is OK. Authentic revolutions cannot be introduced extraneously. This would not only be undesirable, it could also be dangerous. The outcome of such movements are unpredictable and sometimes the end result leaves one worst off.

With all the difficulties Jamaican's face each day, knowing that some things remain and are enduring is invaluable. This is an asset we should preserve and allow to grow and flourish. I hope that Jamaica will be able to continue on a politically stable path and may our people truly embrace our democracy and interact with it in meaningful ways. It's not that Jamaica needs a revolution or major social unrest, I think we need a more engaged polity, one that demands more, expect more and do more.