Competition, competition, and more competition!

Editorial

Competition, competition, and more competition!

Friday, February 21, 2020

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Jamaica's economy has at long last transitioned from obedience to the dictates of the colonial master to a focus on benefiting the Jamaican people, the challenge having been how to grow the pie while making sure everyone has a fair share of it.

Through socialist experimentation in the 1970s, an attempt was made to change how the country's resources were shared between population groups, but this policy actually accelerated inequality, as inflation ravaged low incomes and employment plummeted.

Even wealthy America should take note of how long it can take to recover from such 'experiments'. Jamaican incomes in 2020 are unchanged, in real terms, from those in the 1970s. A brave politician famously quipped that “it takes cash to care”. However, we have carefully missed every global growth spurt for over the past 50 years and it is clear that we will continue to suffer from worsening income distribution until we finally start to grow.

As a small, open economy we have to encourage competition heavily, which in turn leads to innovation. Jamaica requires an explosion of new business creation, including in industries that we have not yet thought of.

One unfortunate lesson learned from the entrenched business elite that flourished under colonialism was about the protection of economic power by getting laws and regulations passed that keep them in control of their sector.

This commercial model is prevalent in small towns and small economies around the world. It has a name: state and regulatory capture. The formula for success is to lock down an economic sector so your company has no effective competition. The country ends up paying more than it should for goods or services and there is no economic growth, but the owners of the monopolies or oligopolies get rich.

Luckily, there have been important exceptions to this sad story. There are examples of companies that managed to find a foothold through offering better products or new innovations and thereby transformed their industries while also surviving deeply destructive policies like those that decimated the private sector in the 1990s and led to the FINSAC debacle.

Even the banking sector is now undergoing a competitive revolution, which is expected to accelerate. Increasing competition in the financial sector since the granting of banking licences to JMMB and Jamaica National has already massively expanded Jamaican consumers' access to both mortgage and car loans and, we predict, will soon change the face of small business lending.

Wisely, instead of trying to control the commanding heights of the economy, the Government is encouraging private investors to step up through an aggressive divestment programme; for example, the airports, Wigton Wind Farm and now the highways.

The policy of debt reduction is effectively a process of handing back huge amounts of capital to private Jamaicans and, done right, should lead to a burst of innovation.

However, despite all the incredible victories we have won to stabilise the economy, all the investments in human capital will be sadly wasted if we don't encourage competition and thereby desperately needed innovation and productivity.

For our regulators and politicians, the watchword now must be competition and more competition.


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