Achieving Economic Growth, The Role of Government

Former US president Ronald Reagan once said “government’s first duty is to protect the people, not run their lives”.

The phrase ‘grow the economy’ has been bantered about for many years with many believing it’s the solution to Jamaica’s socio economic problems. There are many who target the government and hold them responsible for the lack of real growth in the Jamaican economy. The social problems that are attached to a struggling economy are also blamed on government. But there is one thing to note; it is not the responsibility of government to grow the economy.

The government’s role is to provide the environment that is conducive to economic growth. That environment includes, but is not limited to: proper roads and infrastructure; an efficient healthcare system; adequate security; a reliable and efficient public service; justice for all, and proper governance.

Image Source: jamaicaobserver.com
Image Source: jamaicaobserver.com

To create this environment, it is imperative that government has money to finance and sustain it. Financing is obtained mainly through tax revenues. Taxes are derived mainly from employers and employees. Employers pay company taxes from revenues, and employees pay income taxes and GCT from wages and salaries at source and through goods and services.  The more employers and employees there are, the more taxes government generates.

  

Of course, government earns revenues through other sources but I will focus now on taxes. To run an efficient public service, it requires labour and that labour comes from employees. Those employees have to be paid so government has to pay them, again from taxes.
We can now conclude that for government to operate efficiently and effectively it needs employers and employees. But for employers to survive, they need employees. If there is no employer there are no employees. Now it gets very simple, get as many employers as possible.

 The question is, how can government assist in the creation of more employers and sustain them? Let us look for example at a person purchasing a car and a person trying to become an employer. Which do you think is easier in Jamaica? A person purchasing a car gets his funding whether through savings or loans, purchases the car, goes to the insurance company and insures the car, goes to the tax office and has it licensed and ensures that the fitness date is valid. One day, done.

What happens when that same person wants to become an employer? Firstly, if he doesn’t have the cash up front to start the business he confronts the first hurdle because attempting to get a business loan for a startup is almost impossible. But let’s say this man was fortunate enough to access or otherwise come up with the capital necessary to start a business. He starts to rejoice thinking that his lifetime dream of being his own boss is about to come through when boom!, he gets trapped in the PROCESS of starting a business. The man who wanted to purchase a car, the very day he puts all the funding together, is the very day his dream of owning a car comes through.

It is full time that government, through the public service, make the PROCESS of starting a business simpler, too many red tapes, too long of a waiting time. In North America, a person can register a business, make it compliant and even access a business account at the bank, all from the comfort of his/her bedroom. It appears that one has to go through China in order to do business in Jamaica.

If we are serious about creating more employers, we have to remove those unnecessary red tapes from the process. The more employers there are, the more employees there will be and the problem of unemployment will be reduced. The social problems that are borne from the lack of employment will be reduced and the standard of living increased. I wonder if the government has knowledge of the number of new businesses started in the country within a specific time period and analyzes it to see how well we are doing. If not, that would be a great start.

There has been some progress made over the years and according to the World Bank’s Ease of Doing Business report for 2015, Jamaica is ranked 58th from 189 countries. This represents an improvement of 36 places from our 94th placing in 2014 and was achieved mainly by the government implementing three reforms.

Government now has another role to play and that is to ensure that income generated from employers and employees and those that are self employed, are collected and accounted for.  It is full time we get proper and sensible tax reforms. We need to ensure that tax collection is equitable and everyone pays their due.

  

The banks have a role to play in terms of promoting businesses. I was taught in school that commercial banks are the belly of the economy, remove the belly and there is no life, remove the banks and there will be no economy. It is very easy to walk into a commercial bank and get a loan to purchase a vehicle but very difficult to get one to start a business. Proof of employment, proof of salary, vehicle valuation, meet the debt servicing ratio standard, ID, TRN and vehicle invoice and within hours you have an approved loan.

Try having all those and apply for a business loan. It would be interesting to get the statistics from these banks regarding the ratio of their clients with car loans as opposed to business startup loans. We all know that banks are in the business of making profits for their shareholders and quite rightly so, but there have to be other ways of assisting customers to create wealth whilst achieving profits. Banks make most of their profits through interest and fees. Most of their interest is earned from consumer loans. You won’t assist greatly in nation building by selling consumer loans and charging horrendous banking fees. It is time for the banks to invest in their customers in a more meaningful way.

Whilst government is struggling to efficiently and effectively carry out its functions, the two critical moves that are needed are making the process of starting a business easier through documentation and institute proficient tax reforms through legislation. Government must also try where possible to identify areas of collaboration with banks or regulate if necessary, to ensure that they become more business friendly.

So, in as much, as it is not the government’s duty to grow the economy, the government is a critical partner in the growth process. The government has the power to regulate and construct a business friendly environment to win the confidence of investors. The government can provide tax incentives, grants and loans for businesses especially small businesses to assist with their viability. I have every confidence that if these issues are addressed, Jamaica can be that place to live, work, raise families and do business.

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Elisabeth Levy
6 years ago

This is so depressing. FYI It’s the govt’s job to create the framework eg. Tax policy, legislative framework, environmental laws etc.. The govt also has a duty to remove obstacles to economic growth eg. drastically reduce the bureaucratic environment that investors now face. It’s so discouraging seeing someone express an opinion like this. Small wonder! No wonder most would jump at the opportunity to migrate.