Editorial | Productivity and FX nexus
There is an obvious nexus between the exchange rate stability issues that have been concentrating Richard Byles’ mind and the Douglas Orane’s reflections, in a post on this newspaper’s blog site, Viewpoints, as well as the In Focus section of today’s publication, about his optimism as a young man nearly half a century ago, and the vicissitudes of productivity in Jamaica.
Richard Byles is the governor of Jamaica’s central bank. Mr Orane is the retired chairman and chief executive officer of the food and financial services conglomerate, GraceKennedy Group. Last week, as the Jamaican dollar went through one of its not-infrequent spasms, Mr Byles used US$70 million from the Bank of Jamaica (BOJ) in a bid to calm the foreign exchange market. A few weeks previously, he had sold US$50 million into the market.
Mr Byles’ intervention appears to have worked. Until the next convulsion and new calls for an intervention.
The matter, however, points to a larger issue that should gain the attention of Prime Minister Andrew Holness, which he should place near the top of his priorities agenda. For, the foreign exchange shortages, and the period humps in the market that trigger these calls, are symptoms of Jamaica’s inability to earn enough foreign exchange to meet the economy’s demands, which says something about the failure of our individuals and firms to export more, to offset imports. And that says something about their competitiveness, which brings us back to Douglas Orane’s views and why Jamaica has failed to reach the economic potential he believed possible when he returned to Jamaica in 1970, age 22, as an industrial engineer. He hoped to see Jamaica transformed to a developed country in 20 years, by 1990.
What happened, instead, is that his ambition essentially stalled. In those two decades, the gross domestic product (GDP) per capita, the value of goods and services, divided by the number of people in the country, increased by a meagre 0.29 per cent a year. Reset for another 20 years, to 2010. In this period, things grew worse. Our per capita increased at an annual rate of 0.18 per cent.
So, Douglas Orane has now set his sights on 2030, the year Jamaica hopes, officially, to make the transformation to ‘developed country’ status when, if he is alive, Mr Orane will be 82. Jamaica has recently made gains in macroeconomic stability, but things still don’t look good on the productivity front. In the seven years to 2017, GDP per capita was actually minus 0.34 per cent annum.
“But worst of all,” Mr Orane writes: “average labour productivity per employed person has actually declined by a disturbing 12.6 per cent in the 48 years between 1970 and 2018…We have been in reverse gear.”
The fundamental point here is that for every unit or output an employed Jamaican worker produced in 1970, you would need, in 2018, that worker, plus nearly 13 per cent of another, to get the equivalent volume of output. But labour productivity, of itself, doesn’t paint the full picture.
COLLECTIVE FAILURE OF LEADERSHIP
There is the matter, too, of total factor productivity (TFP), or the weighted measure of the intensity with which the economy utilises technology, innovation, training, management skills, and so on. Typically, in developing countries, TFP contributes in the range of 40 per cent to GDP growth. In Jamaica, it is negative.
Despite individual examples of successes in Jamaica, these figures, Mr Orane contends, underline a collective failure of leadership – in politics, the public and private sectors, civic and professional institutions, etc. “We have failed to embed a culture of productivity, which would have led to a virtuous cycle of improving the well-being of our people.”
He’s perhaps right.
But, fundamentally, transformation has to be led by Government, which across administrations, over seven years, has made significant strides in placing the economy back on even keel. The debt-to-GDP ratio has been reduced by 50 percentage points, the Budget is balanced and debt-servicing costs have reduced. But we continue to find it difficult to get growth of two per cent, or more, which is understandable in the context of the productivity effect.
It is difficult, we expect, to lift total factor productivity in an environment, as is the case in Jamaica, where up to 80 per cent of tertiary level graduates emigrate; 70 per cent of the employed workforce has no specific training for the job it does; where less than a fifth of the 11th grade cohort leaves high schools with five CXC passes, including math and English, at a single sitting; and where investment by firms in research and development is minuscule.
This is unlikely to produce firms and a workforce that’s ready for a competitive global economy. This is a robust policy conversation that Prime Minister Holness must get going.