Columns

Why the IMF must insist on reforms

BY ELIOT PENN

Sunday, December 02, 2012    

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The power elite in any country include the dominant leaders of the private sector and the dominant leaders of Government. In the American society this also includes the military. Here in Jamaica, the military does not play any significant role as a feeder into the power elite.

In the American society, those who occupy the most senior military and the Government positions can move effortlessly into the private sector, hence they create a tier of the society that sets them apart from the population, a power class so to speak, and some theorise that these people are more loyal to this power class than to the respective groups from which they emerged.

Here in Jamaica, we have similar divisions between corporate interests and Government, but the dominant players don't move between institutions. Rarely do persons in senior corporate institutions move to take up senior public sector positions or political positions and it is even rarer to see those who occupy dominant positions in the political directorate or the public sector move to the private sector, except through retirement. Of course, there are a few distinct and notable exceptions.

What appears to be our experience is a digging in of heels and people pulling in different directions, while paying lip service to working together to solve seemingly intractable problems.

Globalisation

Communication and technology have reduced the barrier that national borders and distance once created, not just physically but in thought and culture. As e-commerce platforms become more accessible to underdeveloped and developing countries, taxes from trade between countries will become more of a memory. Imagine Customs trying to collect duty on an e-book I purchased online on my Kindle last night. These developments are not mindful of the wishes of public servants or tax collectors.

Efficiencies in commerce and trade reduce the power of the bureaucrats who are the dominant leaders of the public sector. If duties are low and port clearance efficient, then businesses can operate without taking much notice of policy changes. Red tape is a facilitator for corruption and one of the most significant barriers to growth, but it is also the main source of power for the dominant leaders in the public sector and the political directorate.

When private sector interests ask for lower taxes and reformed systems it is so that they can compete with those who don't pay any, either within their own country or external to their country. This tends to be seen as just a request to have more profit at the expense of the competing power elite — the Government.

If you reform the tax system, making it so simple even the numerically challenged could complete the returns, and if you made trade across borders simple and tax-efficient, then you would have marginalised the political leadership of the country to such an extent that they may not get invited to even cocktail parties.

So don't expect any reform anytime soon, and any reforms that take place will be peripheral at best. They will resist these changes on the altar of protecting the people's revenue, even when all indicators are that those changes will grow revenue.

Bureaucracy and the control of it create relevance for the public sector, as a power base. Private and corporate sector interests and power are kept in check by fear of the use of bureaucracy to cripple their interests or to reward their competitors until they are driven from the marketplace.

In such an environment, growth will not emanate from the private sector as both power groups mistrust each other and investment decisions are withheld until assurances are given through legislation and waivers that my corporate interests will be protected. (The more level the playing field the more players you will have). This is the certainty that corporate interests must have prior to investments, local or foreign.

If the IMF were to give Jamaica a stamp of approval before she sets herself on an irrevocable path of tax (domestic and international) and public sector reform, then the IMF would have done a favour to the Government but a disservice to the people of Jamaica — a disservice because only economic growth led by the private sector can cause the people of Jamaica to achieve their Vision 2030.

An IMF agreement without the reforms will qualify us only to receive more loans and sink further into debt with less ability (growth) to repay it. The IMF must make it clear that only action, not a bag of mouth is what will be accepted.

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