Growth Vs Productivity

The problems in Europe continue to make the headlines and I expect will do so for some time. I have often put forward that Jamaica needs economic growth but someone observing the crisis in Europe may question that objective. For many years Europe has seen significant growth in its Gross Domestic Product so how come they are having so many problems now. The answer to that question lies in two main factors which Jamaica would do well to consider.

The first factor surrounds the structure of the economy as it relates to the budget. Many of the European countries have the same problem that they created in the developing countries. The size of the government is too large and is very inefficient. This staff is heavily organized by the trade unions and carries sufficient weight to influence the policies of government. Due to the large size of the public sector any attempt to contract it could result in elected officials committing political suicide. We see the same consequences here; the public sector has become so powerful that they possess the ability to lock down the country and to swing the voting pattern of the country. This results in unwillingness on the part of the trade Unions to make any concessions. Consequently large sums of money are allocated in the budget for these services and often result in large deficits which are not addressed for fear of reprisals. In addition Government gives the major concessions to the wealthiest in society which result in the rich getting richer while the poor get poorer. This leads the Trade Unions to fight harder to get what they see as a fair deal for their members.

The second issue is the source of the growth of the economy. Much of the growth has come from the provision of financial services or the growth in value of equities. This serves to increase the wealth of many persons but has no productive output. When there is no growth in stock prices then there is no increase in economic growth. All productive jobs were outsourced to other countries that are now seeing the growth that is eluding Europe. This is evidenced by the fact that more than one third of unemployed youths are found in Europe. Job creation was not a priority growth was based on increasing wealth. In recent years this wealth came from rising house prices which although aiding construction does not result in long term job prospects.

We see the same problems in Jamaica, a large inefficient public sectordraining the budget and a society that sought to bring about growth through financial services. Accordingly we have the same problems, large scale unemployment and the majority of wealth residing in the hands of a chosen few. If we want to solve our problems it is not enough to have growth alone but this growth must also have a productive base.

Tags: economy