Thumbs up SRC, DBJ

THERE ARE two recently announced, and related, policy actions with transformative potential for Jamaica’s industrial development, which aren’t receiving the attention they deserve.

Their value is not so much in the resources they now have on the table. Rather, together they may well offer a model for driving innovation and providing a stealth approach to reviving a concept that is still largely abhorrent to current economic orthodoxy: industrial policy.

Last week, the Scientific Research Council (SRC) – the government body charged with promoting science and technology in the island, but is better known for helping entrepreneurs fine-tune their food and chemical formulations – announced that it will open its technological innovation sub-office to all entrepreneurs to help them bring products to market.

Originally, the idea of this office was to help universities to commercialise research.

But as the SRC’s executive director, Charah Watson, told the Jamaica Information Service: “Innovation is happening not just in our universities, but in the wider society. The establishment of this sub-office is one critical step to help our innovators get their products on the market.

“About two years ago, Jamaica moved up in the innovation index, but if you read the report, you would see that there are still gaps. So, we are now moving in a collective way to close that gap.”

INITIAL IDEA

Just as important as this move by the SRC is the fact that the initial idea came from the Government’s Development Bank of Jamaica (DBJ), which, separately, has been putting money, though on a relatively small scale, into innovation and in helping small businesses to bring their products to market.

In January, the DBJ launched the fourth iteration of its Boosting Innovation, Growth and Entrepreneurship Ecosystems (BIGEE) initiative, through which it offered up to J$20 million in grant funding to medium-sized firms “with new and innovative products and services to access”, to help in their commercialisation.

The wider BIGEE programme has been in place since 2020, and was initially funded with US$25 million from the Inter-American Development Bank. The European Union subsequently put US$8 million into the project. But since its launch, and prior to the January call for applications, the innovation financing scheme had only allocated J$190 million to 12 companies.

That is an average of J$16 million per company, based on the allowable size of the grants, which, on its face, is a small amount. However, people with innovative ideas and products but shallow pockets often have difficulty finding capital with which to commercialise them, in an economy that is estimated to spend less than half of one per cent of its gross domestic product (GDP) on research and development.

Banks usually demand significant collateral to cover loans, venture capital money is in short supply, and only a handful of angel investors exist in the island.

There is good reason for a focus on entrepreneurial innovation and for the State play a role in this. Over the past dozen years, Jamaica has taken tough and fiscally responsible actions to achieve macroeconomic stability. It has lowered its debt for nearly 150 per cent of GDP, to just over 72 per cent, and plans to bring it to 60 per cent of GDP by 2027-28.

SLUGGISH GROWTH

But while unemployment has officially fallen to a historically low 4.2 per cent, growth has remained sluggish. The economy remains trapped in a lowwage, low-technology and low-value added mode. And, as Richard Byles, the central bank governor, recently observed, the fact of nearly full employment masks, or perhaps in the context of sluggish growth, underlines declining labour productivity.

Indeed, government data showed that between 2018 and 2022, Jamaica’s labour productivity (the value of output against the number of workers) declined at an annual average rate of 0.8 per cent. Total factor productivity – the total inputs into the economy to achieve the output – declined over the same period by an annual average 0.3 per cent.

These declines, however, are not new – as this newspaper has previously pointed out. In the 48 years between 1970 and 2018, the island’s labour productivity slumped a cumulative 12.6 per cent – a time when, with technological advance and modernisation, it would have been expected to have significantly improved. Similarly, total factor productivity declined.

There are several things required to lift Jamaica’s labour productivity, including a massive effort to improve education and training: nearly 70 per cent of the island’s workforce have no training or certification for the jobs they do; a third of the students end primary school illiterate; seven in 10 students complete high school without certification; and fewer than three in 10 of the cohort go on to tertiary education and training.

But there is also a role for the State in supporting likely economic winners in the global marketplace. Which does not mean the State assuming the commanding heights of the economy or dismantling competition.

In other words, there is a place for an industrial policy of a kind, even if called by another name – as the United States, the supposed bastion of the free market, has shown. The Biden administration’s Infrastructure Act, for instance, contains support for investment in green technology, including solar panels, while the CHIPS Act does the same for the manufacturers of semiconductors, even as it blocks the export of some technologies to America’s major economic and geopolitical competitor, China.