Aubyn Hill
I GET many emails and other responses to these weekly articles. I must confess I am playing catch-up at the moment on my responses, but I hope to cover the backlog by early July. An email response to last week's article 'Housing - A Poverty Solution' forced me to think about how difficult many professionals find it to make ends meet.
A teaching professional wrote the following to me: "Hello Mr. Hill, how does a teacher earning J$46,000 per month create wealth when the rate of inflation is so high? My monthly budget is as follows:
Mortgage - $13,000; stud (student) loan - $7,000; fuel bill - $7,500 (the person has to travel a considerable distance to Kingston each day); utilities - $5,000; food - $5,000; credit card - $2,000; child's (children) - expenses - $3,000 and miscellaneous - $3,000.
Where does savings come in?"
MY SALARY DOES NOT CREATE SAVINGS OR WEALTH
If we take the numbers as accurate, they tell us a very sorry story. There would seem to be nothing too extravagant in the list of items and it is clear that the writer of that note, or whichever teacher is in the situation that the numbers in the note represent, is in a very difficult position every month. Instead of earning enough to save and build his or her wealth, every month he or she ends up with a deficit. No doubt, this monthly negative cash flow position causes a great deal of stress and makes the mind wander into avenues that are on the margin or negative side of the law. Rather than being wealth-creating, or even giving this teacher a chance to save, the salary leaves this professional in the unenviable condition of simply piling up debt after each month of hard work. This is a debt trap and a straight road to poverty.
THE UNDERGROUND ECONOMY
I am fully aware that data from one teacher is not sufficient information on which to extrapolate and make a case. This article is being written because I am very aware, based on conversations I have with professionals in the public and private sectors, that many are living at a subsistence level. When people cannot make ends meet from their formal salaries they look to informal means to find cash to live their lives. For instance, some months ago I wrote about the fact that many teachers do not teach well during the normal classroom hours but arrange for many extra lessons afterwards in order to get more money to meet their living requirements. That practice - the short-changing of children in the classroom but charging them for extra classes after normal class hours - is viewed by many as dishonest and even corrupt. But what are underpaid teachers supposed to do? Customs officers who take bribes are obviously breaking the law and should be punished for their wrongdoing; but maybe if their compensation was closer to market requirements for decent living conditions as customs officers they might not have attempted to take compensation outside the law.
Make no mistake here, I am in no way condoning the illegal, dishonest and corrupt practices of many who line their pockets by forcing their customers to pay additional sums for services that they are paid a monthly salary to perform. My point this week is to look at the other side and see how badly underpaid are our professionals. We ought to be aware of the kinds of behaviour we encourage when we pay people to do important work with salaries and benefits which do not allow their reasonable basic needs to be covered.
CUT STATE-OWNED ENTERPRISES
How much money do we waste on state-owned enterprises such as Air Jamaica (an entity that is certainly too expansive and expensive and one that should be drastically reduced and, probably, over time should be closed) that could otherwise be used to pay people to do work that is vital to our development (education) and the smooth running of our society (the police, customs and the collector of taxes, for example). There are other loss-making enterprises which the Government owns in which it has no business being involved. The decision to privatise the assets of the sugar industry is the right one - this industry is a perennial loss maker around the Government's neck and a drain on taxpayers.
There are certain public sector assets that are seen to be 'profitable' and, therefore, there is a school of thought that they should not be sold off by the Government. This argument completely disregards whether or not these state-owned businesses are efficient and whether the return of investment to the Government is optimal, or we should be satisfied with the simple fact that the particular enterprise is seen to be profitable.
When the issue of efficiency is raised, or it is pointed out that these 'profitable state-owned enterprises' produce unacceptable return on asset or on investment (ROA and ROI), one is quickly told that there are other benefits we get from these entities. The defenders often shy away from identifying and quantifying these other 'benefits'.
CUT GOVERNMENT PAYROLL
If the Government has endless resources like the oil and gas-rich states like Kuwait or Qatar and always had a budget surplus like these countries, then continuing to run these state-owned enterprises might make sense. But Sheikh Mohamed Rashid in Dubai runs a super efficient state machinery and takes regular steps to move his government out of the economy. However, given our huge deficit position and the fact that we are constantly exposed to external shocks, the Government should really concentrate on providing those services which it absolutely must - good police and security services, good classroom teaching for our younger children, a reduced engagement in the health services - but what it does it should do very well. It should also run an efficient and modern taxing and tax collection regime and make it a lot less discretionary.
We need to find ways to pay our public servants well so that they will avoid the ubiquitous temptation to be corrupt and if and when they practice corruption, or are dishonest, our policing system should be so sharp and devoid of corruption that they are brought to book immediately and the sanction is sufficiently severe and swift. If and when we begin to pay our public servants well (we hope a really reduced number), they will be able to afford more of the basic amenities of life, will be able to save, remain honest and avoid debt and poverty.
Aubyn Hill is the CEO of Corporate Strategies Ltd., a restructuring and financial advisory firm.
Respond to: writerhill@gmail.com.
