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Chronicles from a Caribbean Cubicle

6/14/2006

More Evidence of Friction Points

As luck would have it, there was an insightful article in todays Jamaica Business Observer about the cost that friction points are having on our economy here in Jamaica (and by extension, across the Caribbean).

In the article, the IMF has made the following observations about our economy:
  • it is probably 2.7% larger than we think, based on the growth in electricity consumption (this mirrors a similar assertion by the Minister of Finance)
  • this growth is unsustainable, as it is small, under-funded and under-organized
  • services are likely to be stretched, if the official figures are to be believed
  • financing and legal constraints are the two obstacles to starting formal businesses
  • employees hired by informal businesses are lower paid and receive fewer social services and training
Furthermore, a study of the IADB in 2002 showed that businesses in the informal sector are typically family-owned, small-scale operations, with labour-intensive production, low levels of productivity and a low capacity for capital accumulation

Basically, our system discourages the formation of companies, and there is only a disincentive to the small business-person to do things "the right and legal way".

Of course, an informal business pays no taxes, which effectively places a higher burden on the official businesses, which must carry the burden for both economies.

In short, everyone suffers in the long-term.

And to think that the primary obstacle (legal restrictions) is one that would cost almost nothing but our own will-power to remove.

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