Martin Henry: Why hasn’t the economy grown?
TWO MAJOR growth inducement activities have been staged in the last few days. Last Thursday evening, the Jamaica Manufacturers’ Association (JMA) opened up its biennial Exposition at the National Arena.
The Expo, now in its 43rd year, closes out tonight. Earlier in the day on Thursday, the new parliamentary year was opened with pomp and circumstance while masses of unemployed and poor party supporters who can imagine no significantly better life were kept at bay on Duke Street in new security arrangements. The governor general delivered a Partnership for Prosperity Throne Speech, or People’s Speech, with not a mention of the tax relief promised for PAYEs earning up to $1.5 million.
Later on, the minister of finance tabled a contracted Budget of $580 billion, down 28 per cent from last year’s. Just over 37 per cent of the Budget is committed to debt servicing. There is a 16.4 per cent gap between an optimistically projected tax revenue income of $485 billion and expenditure of $580 billion. This will have to be closed by new loans. Only a measly $43 billion, 7.4 per cent of the Budget, was left over for capital expenditure, which is where a Budget really drives growth.
Your building money versus your food money. Your business investment money versus your light bill money. Despite the political hoopla for growth and prosperity, this is not a growth environment nationally. And internationally, the IMF, on which we are depending for debt-management support and fiscal shepherding, has been sounding gloomy notes of caution about the global economy. The Fund is reporting that “in 2015, global economic activity remained subdued.
Growth in emerging market and developing economies – while still accounting for more than 70 per cent of global growth – declined for the fifth consecutive year.” Its most recent World Economic Outlook, April 2016, found that “global financial stability risks have risen since October 2015. The report finds that the outlook has deteriorated in advanced economies because of heightened uncertainty and setbacks to growth and confidence ... .” Our manufacturers want us to “buy Jamaican”, and their counterparts in agriculture want us to “eat what we (really they) grow”.
This only makes sense at the microeconomic level, the household level, if price plus quality gives a better deal than can be had from imports in a freetrade world. Patriotism is not convertible currency.
And with that tax break still pending, there is not much room for the working poor to play with disposable income that has shrinking purchasing power. JAMAICAN ECONOMY While the JMA has been exhibiting goods produced here over the last 43 years with little or no growth in the Jamaican economy, politically communist China with a market economy has been flooding the world with very affordable consumer goods, with GDP growth humming along at up to 9% per annum. The World Bank, in its March 30 overview of the Jamaican economy, noted that “for decades, Jamaica has struggled with low growth, high public debt and many external shocks that further weakened the economy. Over the last 30 years, real per-capita GDP increased at an average of just 1% per year, making Jamaica one of the slowest growing developing countries in the world.” Why? Here, via the CIAWorld Factbook, are the dismal annual GDP growth numbers since 1980:
YEAR - GDP GROWTH AT CONSTANT PRICES
Over the same period, most other countries, in every conceivable condition and under all kinds of government have shown more robust growth in their official GDP numbers than Jamaica has. That’s why the World Bank can describe us as “one of the slowest growing developing countries in the world”. War-torn countries have recovered and done better. Countries ravaged by natural disasters have bounced back and grown. Countries less endowed with natural resources than ourselves have figured out how to flourish. Countries under oppressive regimes have done comparatively better with their economies.
Highly indebted countries like ourselves have shown stronger growth. Beyond the econometrics of macroeconomics and the pontifications of politics, a country’s output of goods and services will naturally increase when ordinary people have the confidence that their investment of effort and resources will yield consistent results that will better their personal condition and which they and their posterity can enjoy in their own self-defined pursuit of happiness. This is the essential theme of Adam Smith’s old and famous ‘An Inquiry into the Causes of the Wealth of Nations’.
And small, positive shifts in the confidence factor, we know, lead to big changes in economic effort in a kind of multiplier effect. The finance minister and the Government, obviously, will have to wrestle with the macroeconomic numbers, but they will not succeed without addressing the soft factors of economic performance. Absolutely the biggest drag on the Jamaican economy has not been directly ‘economic’ at all but has been our political tribalism and the political tribal ‘war’ extending into endemic normalised violence at one of the highest levels in the world. In large but largely unquantified ways, this state of affairs has sapped confidence, weakened effort, pushed migration and withdrawal from engagement, generated dependency out of the fight for scarce resources, misallocated resources, and aggravated negative work and social attitudes which are destructive to economic growth.
The society – and not surprisingly its economy – is one of high levels of disorder and insecurity. There is a huge practical and psychological disjunction between effort and reward in this society with one of the highest income disparities in the world. And one of its greatest manifestations is the failure of massive state investments in education to pay off in increased economic performance. Governments have been banking heavily on foreign direct investments (FDIs) to drive the economy while Jamaican lands and manufacturing plants have been idled. The economic history of the last several decades should teach us that FDIs will never move the economy in sustained fashion without significant expansion in domestic investments. Confidence begets confidence.
Jamaica has one of the worst records of productivity increase in the world. And it’s not all technology, or the absence of it. Thirty-one years ago in 1985, Professor Carl Stone conducted a Worker Attitude Survey for the Seaga Government that identified a slew of negative worker attitudes and deeply entrenched hostilities between workers and management. Not much has changed. Tack on to poor work ethic and pervasive negative worker attitudes the heavy tax burden on captive PAYE taxpayers.
Which is why the promised tax relief up to $1.5 million of income is far more important than its cost to the Budget. It is a potent psychological stimulus for greater confidence and not just increased spending power, both of which are good for the economy. The Jamaican citizen, worker, taxpayer, and voter, by and large, has the economic and social attitude of tenant rather than owner – and with the same results. The solutions are evident in the diagnosis, but in a subsequent column we’ll write them down. The lack of economic growth is not just the economy, or even mainly the economy, stupid.