AS any prime minister (past or present) will attest, managing a small resource-poor nation for sustainable growth, in the context of the global economy, is a thankless task. The economic landscape has changed since the Great Recession of 2008, and so has our own domestic economy with its increasing vulnerability to high levels of debt, structural inefficiencies and environmental shocks.
Granted, there is no magic prescription that works for every economy, as economics are more context-specific than we often seem to assume. However, when the unemployment rate hovers around 23% (with youth unemployment much higher at 45%); when the business environment is anaemic, the tax burden high and business red tape suffocating, then we know there is but one prescription: doing things differently by looking at old problems in new ways.
Although there is no simple way to create jobs in a given economy, a coherent strategy can be very helpful. This would entail a plan that matches the scale of the problem, combines extensive sector analysis and recognizes the private sector as the biggest driver of job creation. Furthermore, it must focus on empowering the communities experiencing the highest and most concentrated levels of unemployment and poverty, while offering ideas to steady the middle class.
Moreover for a job-creation plan to bear fruit, government policy would need to examine and focus on tax and employment-linked incentives, the regulatory climate (freeing up businesses to concentrate on expansion), the infrastructure that supports growth and the structural factors that impede employment, including the growing gaps in skill and education. With thousands of young people unemployed and job creation sluggish, this is not the time to be timid.
Hence, I’m heartened by the initiative of the new government to establish a “Jobs Creation” portfolio and to co-ordinate greater planning and organization in tourism, business development, investment and foreign policy by allowing these functions to operate under the purview of a more dynamic and task-oriented Office of the Prime Minister. In fact, successive governments in Singapore have followed a similar system of “co-ordinating ministers” with resounding success.
The proposal to split the island into five economic zones is a viable concept as “zoning out” can help boost competitiveness, promote value-added exports, present opportunities to enhance local infrastructure for that purpose and generate jobs in economically disadvantaged regions of the country. This approach has been taken by more than 135 countries that have developed over 3,000 zones – testimony to the fact that these commercial zones (mainly export-focused zones in low-end manufacturing) can increase a region’s prosperity. As the results in Asia have shown, special economic zones have generally been implemented to meet fiscal, social and infrastructure policy rationales, reviving struggling industries while generating crucial revenue and creating millions of jobs.
I have always felt that the private sector in Saint Lucia would be prepared to undertake greater levels of risk if policymakers demonstrated more confidence and boldness in tackling demand weaknesses in investment and consumption. Given the last few years of negligible growth, business owners can’t wait to pull themselves out of the economic rut. What’s missing is demand for the goods and services that these businesses provide. Surely, SMEs are not going to create a new supply of jobs and investment unless there’s demand for what they sell. And the consensus is growing that this is what government needs to do – create the catalyst that will spur demand so business will have the need and confidence to create jobs and invest.
When business tax structures are well-designed, government facilitates investment in the emerging firms that create jobs. In an economy where taxes are relatively high, a tax reduction can actually stimulate job creation. Crucially, I envisage greater investment in youth employment through mechanisms such as Employment Tax Incentives (which many EU countries have implemented) directed mainly at the youth.
When freed from regulations, people can create their own jobs, instead of waiting for someone else to give them one. For the SME sector, less regulation and lower taxation have proven to be essential to encourage hiring and expansion, to help SMEs unleash their true potential and to unclog economic bottlenecks.
Alas, there are things that we know will not help much. For instance, spending cuts in a weak economy run counter to everything we know about getting a country out of an economic hole toward a sound and sustained recovery.
Eighty per cent of businesses on the island are SMEs operating in areas such as construction, agriculture, transportation, manufacturing, hospitality and cosmetology. In order to strengthen and nurture that sector, policymakers’ attention will need to focus on supporting working capital, easing access to finance and implementing a better regulation agenda that addresses issues such as licensing, registration and taxation. For the growth of agribusiness, more resources will need to be invested on conditional grants in support of subsistence and commercial smallholder farmers, and to improve agricultural extension services. It’s quite instructive how governments around the world have responded to the challenges of SMEs by providing them with the tools and skills needed to become better suppliers and distributors.
The tourism industry, one of the wealth-producing sectors, must be viewed as both a source of income and a catalyst for greater inter-sectoral development. By now, one would have thought that the island’s main source of foreign exchange earnings would be effectively linked to other parts of the economy, having replaced the agricultural sector as the economic mainstay.
The growth of the tourism industry should have engendered more “linkages” instead of “leakages”, by facilitating growth in two untapped reservoirs of value namely, agribusiness and the creative arts sector. But unfortunately tourism is still a disjointed industry – and the nation’s economic structures are poorly designed to achieve the desired inter-sectoral synergies.
Going forward, a national jobs strategy should target those sub-sectors with the greatest job creation potential – notably agriculture, creative arts, manufacturing, retail and hospitality. Above all, moving toward economic prosperity requires investing in people, technology and organizational structures, and developing workforce skills to better match what employers are looking for.
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For comments, write to [email protected] – Clement Wulf-Soulage is a Management Economist, Published Author and Former University Lecturer.
Culture is not as portable as this article makes it out to be. One major and critical issue here in support of the Singapore Model absent is the human capital formation. It still leaves the policy bankrupt of a reservoir of people killing each other as in US experience with cRap musical entertainment industry. No great mention was made of the issue of sustainability.