Gov’t must let the ‘invisible hand’ work
Dear Editor,
Although some believe that the State can drive economic growth, lawmakers can only create an environment that facilitates entrepreneurship.
For example this Administration recently passed the Security Interest in Personal Property (SIPP) Act. The effect of the SIPP Act is that it will improve access to credit for businesses by broadening the base of assets that can be used for collateral.
However, political administrations across party lines have continued to support a statist approach to development through their endorsement of the Development Bank of Jamaica (DBJ) lending policies.
The DBJ, established in 2000, was given the mandate to foster economic growth and generate employment in strategic sectors of the economy. In order to achieve its objective, the agency’s funds are channelled through microfinance institutions that lend directly to small businesses. However, a recent report of the Auditor General’s Department showed that the DBJ’s track record in generating jobs is rather murky.
According to the report, during 2009-2015, the DBJ issued about $18 billion in loans for employment creation and projected 20,134 jobs. Based on the findings of the report, the DBJ does not have data to indicate the number of jobs created for any sector other than ICT. It must be noted that the ICT sector realised only 19 per cent of projected jobs. These results seem startling, but they are not surprising. Policymakers do not possess special knowledge that enables them to allocate resources more efficiently than the free market. In a market economy investments are determined based on the forces of demand and supply. However, when agencies like the DBJ select ‘winners’, resources are diverted away from businesses preferred by the market to those supported by government technocrats. This can only result in losses for the economy, since entrepreneurs are being encouraged to invest in industries that are not supported by market signals.
For example, notwithstanding the popularity of subsidies for the clean coal industry in America, research has shown that it has not achieved much commercially.
The best way to create jobs is for the Government to implement pro-market policies such as lower taxes and removing regulatory burdens. Agencies like the DBJ only distort the economy when they attempt to generate growth.
Lipton Matthews
lo_matthews@yahoo.com
