RABKIN
David Rabkin, Contributor
DRIVING HOME from the airport last night, I saw a row of signs urging 'Buy Jamaican Build Jamaica'. A strong and patriotic message, complete with the national flag. What could be wrong with that?
Jamaica certainly does have a trade imbalance. Clearly, local people buy stuff. Why not boost local firms at the expense of imports and fix some of those pesky statistics? It will feel good to support the home team and, hey, our products are just as good as the imports anyway, right?
Wrong.
I tried to take a mental inventory of the many countries that had seen their fortunes rise with 'buy local' campaigns. Unfortunately, I could not think of any. I did think of Korea, Ireland, Singapore, and China, all of which succeeded through export promotion.
Then I thought of Brazil and India, and their long histories with import substitution (for those who have any doubt, that's what 'Buy Jamaican' is, by the way). I even thought of Cuba and their remarkable drive for self-sufficiency. Do I even have to say it? Every one of those efforts was a disaster.
Even the famous 'Made in America' campaigns of the '70s and '80s gave way to NAFTA and the outsourcing revolutions of the '90s and whatever the current decade is called.
Yet buying our own goods seems so logical. How can it be just another empty promise?
SMALL MARKETS,
BIG INEFFICIENCIES
To begin with, let's examine the products that are meant to benefit from a 'buy local' campaign.
They are not the complex world-class goods being exported around the globe (like jerk sauce or music) or the top-tier tourism experiences, which are exports that are consumed locally. Those products do not need our sympathy, because they are already desired by foreigners and locals alike.
The 'Buy Jamaican' products are the basic ones local meat and vegetables, furniture and uniforms. These are products where competition is on one dimension price and in which global competition is fierce. These are the industries in which we compete on low labour costs and add little value to the basic materials that comprise the final product. This is sugar, this is banana, this is basic assembly.
In these industries, global companies compete through economies of scale to offer the lowest possible costs. Jamaica, for better or worse, is a small market on a small island. Our telecommunications and electricity costs are exorbitant, our labour productivity is low, and we have limited access to capital. The scale with which we can produce goods is therefore tiny. Forget about security costs or tax regimes, small islands cannot produce products in huge quantities.
Part of the inherent limitation is the fact that Jamaica's local market alone will not provide enough customers to allow us to compete on scale. Take food products. In the United States, less than two per cent of the population is involved in farming and fishing, and the U.S. is a net exporter of food. These people feed hundreds of millions at home and abroad. They can do this because they farm in tracts of land that are often bigger than any that exist in Jamaica. They use billions of dollars worth of machinery, and have first dibs on the 293 million American consumers to whom they can sell without import taxes, overseas shipping, or non-tariff barriers. Their costs end up rock bottom and their quality sky high .
IF YOU BUILD IT...
Yet we can grow a potato, so why not do whatever we can to sell it locally? The question is not whether we can grow a potato we can build an automobile if we want to the question is whether we can grow one at a cost low enough to yield a profit. The real question is whether we can get value in return for that potato that will let us buy something else equally worth our effort.
The U.S. potato farmer is producing his potato for a fraction of what it costs us to produce ours. Even with shipping costs and import duties, his potato often ends up cheaper on our shelves (if it did not, at least some of the time, we wouldn't be having a 'Buy Jamaican' campaign). So, wouldn't it make more sense to leave the potato growing to him, and spend our time producing something we can get fair value for?
This is the basic equation that makes foreign trade desirable.
Instead of potatoes, why not look at Scotch Bonnet peppers, which are the key ingredient in Jamaica's highly differentiated and highly profitable jerk sauce industry. Instead of uniforms, let's grow Sea Island cotton, which only we and a tiny group of our neighbours can grow, and turn it into US$400 shirts. Even if we just export the peppers and cotton, we're still competing in profitable niche markets, where prices are driven by uniqueness, not by low cost alone.
But what if we all pull together?
There is a notion that the combined weight of our actions, if applied in a common direction, can reverse the laws of supply and demand. Indeed, it was possible for India to largely feed itself for quite a long time without relying on imports or suffering a famine. During the same period, however, India stagnated economically, growing almost not at all, while China, pursuing an export orientation, recorded astonishing annual gains.
India offers a good cautionary tale for Jamaica. First, despite having the second largest consumer market in the world, even India could not thrive in economic isolation. This is because, even though most goods in big countries are produced in big countries, the top competition occurs in the international market. Once you close yourself off to international standards, whether through legislation or a patriotic campaign, you give local firms an artificial advantage. This removes the pressure to compete at the highest level. Over time, local firms become worse and worse relative to their international counterparts. This is exactly what happened in India, where local firms have often been devastated, when foreign competition did finally enter, and it can be argued that their efforts set the economy back a decade or more.
Second, India pursued import substitution through strong
Government policies, not public campaigns. In fact, I can think of no case where a 'buy local' campaign has resulted in a long-term distortion in local purchasing habits. Essentially, you are asking local consumers to buy a more expensive or inferior product for the good of the nation. You are asking a private citizen to voluntarily pay for a public good. This is akin to asking people to voluntarily pay more taxes. It's a lovely idea, but human beings just don't behave that way. It may be possible through great effort to make a short-term difference, but there is no evidence to suggest this can be a long-term solution, and plenty of evidence to suggest that short-term help will actually hurt local businesses when that help inevitably goes away.
SELL JAMAICAN
Instead of a 'Buy Jamaican' campaign, we need a 'Sell Jamaican' campaign. Let's put the same effort into an export promotion campaign as we do on import substitution. We've got lots of great products to offer overseas, and we've even got more Jamaican consumers living overseas than living at home. Let's ask them to buy Jamaican, not because they feel sorry for us, but because our goods are authentic, distinctive, and of the highest quality. The Jamaica Exporters Association and JAMPRO are both working on Brand Jamaica campaigns. Now that's an idea that has legs.
If you want to have a campaign here at home, why not focus on customs reform. That's a hidden tax on all exporters. Better yet, let's put energy into broadening the tax net, or reforming the duty system. All of these offer real opportunities to make us more globally competitive. Buy Jamaican only
distracts us from our real goals, and makes us less competitive if we succeed.
The worst part of all of this is that most of you know it already. My arguments are time-tested and well understood. Import substitution has long been banished to the trash heap of development economics. I could speculate as to why we persist in spite of this, but I'll leave that to others. As a foreign friend who loves Jamaica, let me conclude by saying only this about 'Buy Jamaican': the emperor has no clothes.
David Rabkin is the project director of the Jamaica Cluster Competitiveness Project,
sponsored by the Jamaica Exporters Association. He
is a vice-president in the Boston-based advisory firm OTF Group. Email: drabkin@onthefrontier.com.
