I have been reading an article submitted by Dr. Andre Haughton in the Gleaner on September 17, 2014, and I am considering whether the topic has encompassed all sufficient information. Now I ask to be tolerated should my interpretation be different, but I feel this Jamaican Economy is more abnormal than we think.
Dr. Haughton claims that there are three markets for the inputs of production, labour and capital, the market for goods and services, and a financial market. I perceive the market for labour is considerably different from capital, although in many situations labour and capital are interchangeable. You buy a faster machine, and it produces more goods with less labour; in the same space, and with slightly more energy consumption. I believe markets for capital goods which depreciate in 5-10 years, should be treated differently as labour inputs may be changed from maximum to minimum in a very short time period.
Then a ‘’good’’ may be quite different than a service. Technology in the service market is now reaching for the moon, but certain goods are unique in their use and consumption. There are imports at high costs, and low costs, locally produced and demanded, and many consumables which can only be exported depending on imported costs of raw material.
In other words, defining just three markets in this time and place is not feasible: What about a significant black or underground market? Where does this fit in to the mix? Such a fusion exists in many countries of the world, developed and developing, sometimes quite large i.e. Nigeria and India, among others.
The amount of goods and services produced in any given time frame is a function of many inputs. Clearly, labour and capital are two; the ability of the managers and executives to devise ways and means to come up with a final product reflects their level of innovative thinking. The design of an item may be a requirement by the customer to access his market, or a demand from his market for whatever it requires in terms of the products’ function; or none of these; but a standard which is acceptable to the trade, that may be sold by the manufacturer himself.
Now the example being given of a bakery increasing its costs by hiring extra bakers would not proportionally increase its product output resulting in an increase of unit cost. But why would a manager proceed with the law of diminishing returns? Then the argument of capital returns, meaning more capital is now being employed to service the same level of production is somewhat presumptive. If we increase our capital to produce more bread, buying larger ovens, faster conveyors and packaging machines, and extra space, that capital would be more suitably employed producing more goods with the same labour, or with less labour. This will reduce the unit cost; in fact this is the objective of most expansions.
Computers do more work than people, so we get faster computer systems for each work station, so that the output of work increases, and the costs per unit decrease. One would not expand, if costs are going to increase, perhaps only for exceptional needs. We expand so we can become cheaper: That is the name of the game, or the strategy to adapt.
Financial markets in Jamaica are not conducive to production. Presently, We borrow at 16-20%, leaving almost all resources in collateral and the banks gives us 3-4% for an investment, so their spread is 12-14%. That is the profit the banks make on our investments; (often more than the producer nets) and that is the reason why producers are encouraged to use their own money, access family participation, and issue shares as collateral for investors.
These borrowing costs are not comparative to overseas producers, whose cost of borrowed money is less. Their energy costs are less as well, hence we are not always competitive in an export market; we have to use specific products whose energy, borrowing, and capital costs result in a viable product and price point.