Densil A. Williams | Unravelling growth: Competition is not the problem

Dr Christopher Burgess, an outstanding engineer by training, wrote about economic matters. In his article in The Gleaner of July 14, titled “Jamaica’s no-competition, no-growth economy”, he rests his thesis on the premise that Jamaica’s stagnant economic growth is a function of low levels of competition within industry sectors.  
This position is not only wrong, it is dangerous. The thesis, if followed blindly, can mislead public-policy discourse. Burgess’ celebration of competition as the driver of productivity and economic growth misses the nuanced understanding of the complexity of the growth process. 
Public-policy discourse requires more than free thinking. It requires deep scholarship and studied positions that are rigorously peer-reviewed, tested, tried, and proven scientific methodologies to derive conclusions. If public-policy discourse should take a free-will, nonchalant approach to resolving complex issues, then invariably, the wrong solution will be designed, and the outcome will eventually be worse than the initial problem. The need for deep thinking and studied positions on critical public-policy issues applies to economics as it does to engineering, medicine, law, entrepreneurship, or any discipline for that matter.  So while Dr Burgess’ competition thesis has merit in the sense that competition is good for driving economic activities and innovation, his application to the Jamaica context is misplaced.
JAMAICA’S INDUSTRY STRUCTURE 
The Jamaican economy is one of the most liberalised economic systems anywhere in this part of the hemisphere. A landmark policy paper in 1991, Ministry Paper 34, provided the framework for the privatisation of state-owned assets in Jamaica. Liberalisation changed the structure of industry sectors and reduced barriers to entry, which forced competition among firms. Almost every single sector in the Jamaican economy is now open to competition. Rules of entry for industries are quite liberal, thanks to Jamaica’s enthusiastic embrace of the WTO and the Washington consensus model for economic management since the 1990s. The rapid liberalisation of the Jamaican economy in the 1990s-2000s, even without the requisite institutional governance architecture to ensure orderly market transactions, made Jamaican industries some of the most open to competition in the world. From banking, telecommunications, education, to agriculture, no sector was spared the force of the neo-liberal agenda for openness and unfettered competition. This period started the move towards increased competition in major industry sectors in the Jamaican economy. New entrants entered our industry sectors, competed vigorously, but market forces determined who remained and who faltered. That is the free market for you. 
With liberalisation, which changed industry structure and rules of engagement within the Jamaican economy, any investor, once they have a solid business case, spots an opportunity to make money, and passes the regulatory and fiduciary requirements of the industry sector, can start a business in Jamaica and compete with anyone within the industry sector of choice. Since the 1990s, Jamaica has broken down the monopoly structures within the local economy and has embraced competitive market dynamics as the way to build strong and profitable industry sectors and firms. So lack of competition in our industry sector is not our Achilles heel in the growth agenda.  
COMPETITION IS NOT THE PROBLEM 
A close reading of the structure of our industry sectors will show that lack of competition is not the problem.  Having a few firms in an industry does not mean lack of competition. Competition is alive and well in most of the industry sectors in Jamaica. Telecommunications, banking, power production, education, healthcare, agricultural commodities, etc, all show strong levels of competition. Market forces will determine the number of firms that will eventually survive within an industry sector, not the government. Governments set the regulatory framework and provide the necessary governance institutional architecture to ensure that markets operate freely. It is for the industry players to design strategies and policies to win market share for business survival. Those firms that are not able to compete will fall off, and those that can win market share and prosper, will survive. It is not for the Government to say how many firms are needed in an industry. Market forces dictate that.   
The bigger issue for Jamaican firms is market size. Given the smallness of the Jamaican internal market, industry sectors can take on so many players and no more. It will be bad public policy for the Government to force firms into operating in an industry when the market forces are dictating otherwise.  Using government policy to force uncompetitive firms to remain in an industry just to increase the number of players is the old view of industrial policy. Dr Burgess seems to be advocating for this. 
EXPORT MARKET IS THE ANSWER 
Given the small size of the Jamaican economy, most industry sectors can accommodate only a small number of firms if these firms will be profitable. Firms have to be able to earn respectable levels of return on investments for them to be engaged in research and development to drive the kind of innovation needed to generate economies of scale in production and distribution and, eventually, lead to lower prices for consumers.  Jamaica’s small market size does not provide the precondition for this. Therefore, Jamaican companies will have to look beyond Jamaica if they want to expand and increase returns on investment and make substantial contributions to economic growth. The export market provides that space for vigorous competition, innovation, and growth.  The advocacy, therefore, for stronger and more sustained growth should not be about increasing competition in the local economy. It should be about setting the conditions for export-led growth. Simply put, we need more Jamaican firms to be joining the line for the export trade. Focusing on the internal domestic market will not yield the strong results needed to drive growth.  No amount of competition in a small market like Jamaica will lead to high and sustained economic growth.  
One of the strongest preconditions for export-led growth is increased value-added production at the local level. For in the case of Jamaica and other similar countries, it is high-value outputs that will deliver strong results for firms.  The policy advocacy, therefore, should focus on how to improve the stock of high-quality human capital in the country and leverage that human capital to determine which node in the global value chain we as a country must play.  Then, when we enter the value chain, we exploit the advantages through export-led growth. This is the pathway to robust growth not taking the old view of industrial policy where the government forces competition by increasing the number of industry players when market dynamics dictate otherwise.  

Densil A. Williams is professor of international business at the UWI, Mona. Send feedback to densilw@yahoo.com.