Densil Williams | Unravelling growth: The efficiency agenda

Prime Minister Holness is on to something with his thesis of Efficiency as a Resource. Jamaica’s low and anaemic economic growth for the better part of 64 years since independence left us searching for the right mix of policies to improve economic growth performance.  

High and sustained levels of economic growth have eluded us despite strong performance in macro-economic stability over the last 15 years. It is clear, there has to be a stronger focus on the economic ecosystem beyond fiscal and monetary issues. PM Holness argues that efficiency as a resource has to be brought into the equation. Inefficiency robs the country of valuable time that could be used to increase value added output which eventually, leads to higher economic growth. The efficiency discourse is worthy of thought among the economic players and actors. 

WHY EFFICIENCY MATTERS 

Economic efficiency in its simplest form speaks to how to allocate resources so that waste is minimized and the benefits from using those resources are maximized. Simply put, it is about the productive use of resources. Nations that have higher productivity generally produce higher levels of economic growth. 

The Global Competitiveness Report noted that; “Productivity gains are the most important determinant of long-term economic growth.” Unfortunately, Jamaica’s record in this area is not stellar. The Gleaner editorial of June 21, provided data which shows that a Jamaican worker contributes US$8.81 per hour to GDP while the average across the Caribbean is US$20.50 per hour to GDP. In essence, the average Caribbean worker is 2.5 times more productive than the average Jamaican worker. 

With those numbers, it is clear why the average Jamaican is poorer than the average Caribbean citizen. The average citizen in the small states of the Caribbean are almost 2.5 times wealthier than those in Jamaica. World Bank data shows that, Jamaica’s per capital income is roughly US$7700 while the average per capita income across the Caribbean small states is US$19900.  The fundamental question therefore is; how do you improve the efficiency levels of the Jamaican worker? The answer is complex but not complicated. 

FOCUS ON TOTAL FACTOR PRODUCTIVITY 

A closer understanding of Economic Competitiveness and, Total Factor productivity (TFP) provides insights into how best to improve efficiency.  Competitiveness as the World Economic Forum defines it, refers to; “the attributes and qualities of an economy that allow for a more efficient use of factors of production.”  

 Competitiveness improvements will also increase TFP, which; measures factors that cannot be explained by the traditional factors of production of labour, capital or other inputs.  Following these observations, two pillars for improved Competitiveness and by extension, Total Factor Productivity need urgent reforms.  These are; education/technology balance and, quality of institutions.  A focus on these variables will be key to the improved efficiency. 

HUMAN CAPITAL AND TECHNOLOGY BALANCE 

Strategies for Global Competitiveness have moved beyond a focus on the traditional factors of production and now include efficiency measures in the mix of policy prescriptions. These efficiency enhancements factors include; quality of institutions, ICT adoption, innovation capability, health and wellness and skills levels among others. 

In today’s dynamic world, efficiency improvements will require a stronger focus on how countries infuse technology and upgrading of its human capital stock (skills levels) in order to drive innovation and value-added activities. Today, countries and firms are pushing for the inclusion of technology into the labour market as an enabler of innovation and value creation. However, technology by itself will not drive innovation and growth. Technology has to be placed in the hands of the people with the right skill-set to be able to navigate it and deliver value.  

Economies have to strike the right balance between investments in technology and investments in the right human capital stock to drive efficiency enhancements and bring value added solutions to the growth process.

With Jamaica’s low educational outcomes, it is unsurprising that total factor productivity has been weak for over seven decades.  The Gleaner editorial of June 21 highlighted that, since 1972, the TFP index has not seen any major uptick, with 2026 index roughly one-third below the 1972 level. Indeed, TFP has been declining for the better part of 50 years. Educational outcomes will be key to reversing this trend and to deliver the efficiency revolution.  

EDUCATION AND THE EFFICIENCY AGENDA

It is no secret that too few Jamaicans matriculate into post-secondary education. Currently, merely 20 per cent of students who leave the secondary system matriculate into post-secondary education. This number is not sufficient to drive the efficiency agenda. The skills and capabilities needed to exploit the technological revolution and deliver value added innovation in the Jamaican economy will not be gained from a largely primary and secondary educated population.  What is needed is a mass movement of people into post-secondary education where, the skills and capabilities for value added innovation will be harnessed.  

To achieve the mass movement into post-secondary education, a rethink of the current education governance architecture is urgently needed.   

Jamaica needs a dedicated Ministry of Higher Education and Skills development. The current arrangement where one ministry focuses on the entire education sector does not provide the bandwidth for the dedicated focus on the development of skills and capabilities to drive the efficiency agenda. 

The tertiary sector cannot compete with the over 1000 primary and secondary schools for ministerial time for policy advocacy. The tertiary sector needs dedicated attention for policy advocacy to guide curriculum development and educational outcomes that are aligned with driving greater efficiency and competitiveness.  The need for a new governance architecture should not be taken lightly as the country shifts focus to greater efficiency and improved total factor productivity.  

INSTITUTIONS AND THE EFFICIENCY AGENDA

 Similar to the centrality of education in the efficiency discourse, high quality institutions matter. Institutions are needed to co-ordinate the various elements that drives higher levels of efficiency within the economic ecosystem. High quality institutions will provide governance over the allocation of resources to ensure the most optimal use and prevent wastage.  

Similarly, institutions will require agility to execute their mission. NaRRA is a good example of the institutional agility that will be needed for greater efficiency. FAST which is the guiding framework that is focused on moving strategic investments, is the kind of governance innovation that will be needed to drive the efficiency agenda. 

NaRRA/FAST will provide the institutional and governance agility that will drive efficiency. While the governance questions around NaRRA are important and must be addressed, we must ensure those institutional innovations become the direction for greater levels of efficiency.  

As Jamaica pivots beyond economic stability to high and sustained levels of economic growth, efficiency must become a greater part of the policy mix. We must rethink governance arrangements around education/technology mix and, the establishment of high quality institutions. Radical thinking is needed in both areas.   

Densil A. Williams is professor of International Business at the UWI Mona. Send feedback to densilw@yahoo.com and columns@gleanerjm.com