Business

What is the role of the private sector in ensuring economic growth?

BY GARY PEART

Sunday, December 05, 2010    

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WHEN most people say or think that there is a need to grow the economy, their first thought is that government will fix it. For sure, governments should create and encourage the creation of the environment that will ensure prosperity and sustainable economic growth. They do this, among other things, by establishing and protecting private property rights; ensuring national defense; fighting crime; providing a sound educational system; maintaining a public health system; ensuring a sound monetary system; collecting the necessary revenues; paying the public debts; and sourcing funds, when necessary, to pay debts and to finance development. In addition, government is a major employer as well as a major purchaser of goods and services. Taken all together, these contribute to growing the economy. But, it is not the full story.

Economic growth is the rate of change in real GDP between one period and an earlier comparable period. This change could either be positive or negative. When the change is negative, one can also say that the economy is shrinking or contracting.

The table following shows that in 2009, real GDP for the Jamaican economy contracted by 2.8 per cent, following a contraction of 1.0 per cent in 2008. In the three years before that, 2004 - 2007, the economy grew an average of about 1.4 per cent, meanwhile agriculture, forestry and fishing; electricity and water supply; finance and insurance services; and hotels and restaurants combined to contribute about 1.0 per cent to growth. This was overtaken by contractions in the rest of the goods producing industry in the services industry.

Overall, the goods producing industry contributed about 20 per cent to GDP in 2009, while the service industry accounted for 80 per cent. There is no government/private sector breakdown in the composition of the GDP available. However, government employees, at about 120,000 comprise about 10 per cent of the total workforce of about 1.2 million.

Government entities include the Parliament, Cabinet, ministries and executive and non-executive agencies. The private sector takes in the vast informal, commercial sector, small and medium economic enterprises, private companies, public companies, not-for- profit companies, partnerships and sole traders.

Government spending contributed about 30 per cent to GDP in 2009 and the remaining 70 per cent could be attributed to the private sector, if we assume that everything that is not government falls within the private sector.

Government and the private sector

A basic difference between the government and the private sector is the profitability motive. Whether it's hiring people, establishing branches or spending money generally, the bottom-line justification in the private sector is increased profitability. With government, the bottom-line consideration is whether increased spending will bring about increased or better services for the population and for the defence of the country. The private sector strives to do more with less while the government often seeks to do more with more.

Doing more with less is at the heart of an entrepreneurial spirit. When people apply for employment at our company, we are very keen to identify and to understand their attitude towards entrepreneurship. If they have a proper entrepreneurial disposition and we succeed in strengthening it through their- on-the-job experiences with us, we believe we will have multiplied that individual's ability to contribute to growing the economy, whether that individual remains with our company or not.

Job creation is one of the key drivers of economic growth as is private consumption. They go hand-in-hand. Consumer spending accounts for more than two-thirds of our economic activity and the private sector develops and nurtures the majority of a country's consumers through job creation and entrepreneurship.

Yet, perception is greater than reality. Two years ago a public opinion survey was conducted in 22 Latin American and Caribbean countries, including Jamaica. The survey asked one question: "Government, more than the private sector, should be primarily responsible for creating jobs. To what extent do you agree or disagree with this statement?"

Almost seventy-eight percent (77.5) of Jamaicans agreed with the statement. Agreement ranged from 58.3 per cent in Haiti up to 90.4 per cent in Paraguay, with countries such as Mexico, Chile and the Dominican Republic at 78.0 per cent, 80.0 per cent and 87.7 per cent, respectively.

Those sub-groups that showed strong support for the government as the primary source of job creation included: younger people within the 18 - 24 age group; persons living in poor households; and those seeing the economy as doing poorly. On the other hand, individuals in wealthier households significantly oppose a primary role for government in job creation.

During a recession, it is quite likely that the government will outpace the private setor in job creation at particular times in particular countries. However, when one looks at China with a GDP growth rate of nine per cent in 2009, India with a 6.2 per cent growth rate and Brazil at 5.2 per cent, one finds that all have vibrant private sectors. China, with a labour force of 812.7 million, has undergone a steady transformation from a centrally planned economy to a private sector led one over the past 30 years. India has become a world technology centre, driven by a private sector of more than 200 million persons and entities. And through its private sector, Brazil has built one of the world's largest retail markets, dominated by huge supermarket chains.

While many have known for some time that the private sector is a necessary ingredient to economic growth in Jamaica, I was pleased to hear PIOJ Director General, Dr Gladstone Hutchinson, say recently that the Jamaican economy must be transformed into a private sector-led one, if the government's Vision 2030 plan is to succeed.

The PIOJ has developed the road map with private sector inputs. Continued government-private sector collaboration should get us closer to the targets.

Gary Peart is the chief executive officer of Mayberry Investments Limited. You can email him at gary.peart@mayberryinv.com

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