Dr. Wesley Hughes, Contributor

This is the second extract from a speech presented by Dr. Wesley Hughes, director general of the Planning Institute of Jamaica, to the Conference on Globalisation and the Problems of Development, convened by La Asociación Nacional de Economistas y Contadores (ANEC), in Havana, Cuba, February 6-10 last year.

The experience of development over the last 50 years suggests that there are two very broad approaches in the quest for development. These approaches revolve around the role of the state. The first approach outlines a very clear role for an activist state, as the 'Asian Tigers' demonstrated. The case of Singapore was typical of a central and dynamic role for the state working in concert with markets to achieve rapid growth. The example of the second approach is to be found in many Caribbean states where a more organic process evolved. Here the state played a less dynamic economic role, focusing on getting some of the developmental fundamentals in place, such as the necessary infrastructure, while leaving the private sector to carry out the non-infrastructural investment. Barbados is usually cited as the successful case of this organic approach.

The Jamaican case over the last 40 years is an interesting one. In a sense, the Jamaican development model combines elements of the two broad approaches without the success achieved by either Singapore or Barbados, despite starting off with more advantages and much earlier than either.

There was significant early progress in the case of Jamaica from the mid 1950s to the late 1960s. The explanations for Jamaica's inability to sustain the growth momentum are quite voluminous but not definitive.

Policy choices

The answer, discussed earlier, must lie partly in the policy choices, and their consequences, which took place in the post-independence period.

There was a major policy shift towards an activist state in the 1970s with an emphasis on social policy and issues of equity. The state was not seen as a driver of the investment process of the private sector. The economic role of the state was largely limited to owning the "commanding heights of the economy".

The private sector reacted very negatively to the approach. As a result, GDP growth and investment declined quite significantly during the period, and social conditions deteriorated.

In contrast, the experience of the successful activist states in South East Asia is that they all placed emphasis on the rapid expansion of investment and technological innovation, working in conjunction with the private sector and the market.

Broadly speaking, since the 1980s, the Jamaican state has returned to the more traditional role of facilitator in the development process. The emphasis has been on the private sector playing the lead role in the economy. Despite some interventions in the economy, the state has concentrated on (1) reforming the economy to allow for its integration into the world economy; and (2) creating the infrastructure and policy framework to stimulate private sector investment. Despite this shift, the GDP growth performance over the period has remained anaemic.

A major question that arises is whether or not the local private sector has the capacity and the innovative drive to quickly transform the economy. This question is usually answered from the neoliberal perspective by suggesting that what is needed is the removal of all impediments to markets working efficiently and then the private sector will grow the economy.

Globalisaton

This approach takes no account of the disproportionate impact of globalisation on the domestic economy and society. Globalisation affects not just the capacity of governments, but that of the domestic private sector as well.

The 'organic' bottom-up approach to development which relies on the private sector taking advantage of incentives is, by experience, very slow, but can be successful if there is a long-term national commitment to the model.

What typically happens is that while the policy reforms are under way and the state is putting in place the necessary building blocks, the private sector will be reluctant to take significant risks because of the high degree of uncertainty about the sustainability of policy. This is especially pronounced in cases where social capital (trust and confidence) is weak, and where there is no agreed national consensus on the long-term strategy.

This has been the experience of Jamaica. However, if the reforms remain in place long enough and the policy framework and incentive structures are adequate, then private sector investment (local and foreign) will eventually flow.

After a decade and a half of reforms, building a policy environment to integrate Jamaica into the new global economy, and putting in some of the needed infrastructure, we are beginning to see an increase in the flow of investment. Foreign direct investment into Jamaica over the last five years are at levels not seen since independence in 1962.

But, given the significant social deficit that has emerged over the years, as indicated by the levels of poverty and unemployment, there is clearly need for greater acceleration in growth and employment creation. The fundamental question that arises then is: Can the current approach to development deliver faster growth and employment creation?

Accelerating development

The present global environment has made the model of development, based on the activist state of the 1960s and '70s, less acceptable. In the context of the social deficits, the long-term 'organic' process of the state being the facilitator and leaving the investment drive solely to the private sector is a gamble.

This gamble is likely to be great in the context of a domestic private sector that is risk-averse and dominated by small family firms. Slow growth will not allow the economy and society to address the social deficits and could cause the society to implode.

Consequently, a third approach, aimed at accelerating growth and the development process in Jamaica, seems urgent.

Jamaica has undertaken much of the needed reforms to integrate into the world economy. It is improving the infrastructure base; the macro-economy is relatively stable (even while undergoing profound adjustments); and the range of incentives for investors is significant.

These conditions are beginning to lead to increased investment flows. But the process needs to be accelerated. Jamaica, at this stage, is positioned to integrate the two broad approaches: the top-down interventionist model with the bottom-up organic growth model.

Over the past 40 years, the country has built up a fair degree of valuable assets that support development, and this process is continuing. Jamaica has a vitally important asset: it is culturally vibrant and well known globally. It has a global image. What is needed is an energetic strategic thrust in a specific direction with a focused goal.

What should be that goal? The goal should be to transform Jamaica into the preferred location for citizens, tourists, skilled workers, investors and corporations from around the world, based on world-class facilities, infrastructure and way of life. The ideal way of life must be based on tolerance, order, security and social peace.

Dubai a lesson

The example of Dubai and their strategic trajectory model is a lesson for Jamaica in how to effect structural transformation. The starting point of the model of development is asset creation in which resources are made available, and assets, such as technology systems, intellectual property, and physical infrastructure, are created on an ongoing basis.

Of course, this process has been in place for a long time, but on its own it does not explain growth. It is only when one places this phase into the context of a development model that its strategic value emerges.

The value of an asset, once created, will either increase or fall, depending on its output and the complex of external factors. It is only through asset acceleration that we can fully realise greater value from outputs than would ordinarily be dictated by market forces.

The pent-up demand may be achieved by anything from infrastructural development to the accumulation of know-how or experience. These in turn will make further asset creation even easier. For example, if all the Jamaicans working on the Highway 2000 project were to develop their new expertise based on the knowledge and experience gained, they could go on to help transform the road-building process in the country and the region.

Jamaica could become a centre for highway building expertise in the Caribbean. A similar model exists in Cuba, which has created significant expertise in the medical field.

The state, through its support for science and technology, the education system, its own procurement processes along with its control of the policy for incentives, is, naturally, in a position to significantly influence the asset acceleration process.

Linked to asset acceleration is asset leverage, the next phase in the model. This is where the pent-up demand for, and the unreleased value of the asset is realised. Expertise and knowledge developed the first time round can be leveraged, and network economies begin to exhibit rapid value creation.

In many cases this stage is not reached, and any pent-up value is dissipated either because of management failure or because of market conditions. This underscores the need for excellent leadership and management.

In the final stage of the model, there are three possibilities for the assets: harvesting, reinvestment or reinvention. A mature asset can be redeployed or retired. Reinvestment is always needed for an asset that has a productive future. Reinvention is possible i or additional applications are discovered.

As each of the three strategic areas undergoes structural transformation, asset creation, acceleration, leverage and reinvention will be occurring simultaneously. As the strategic trajectory is realised at each level, the strategic vortex which facilitates sectoral dynamism, in terms of competition, collaboration and innovation, will be initiated.