Thu | Sep 20, 2018

Densil Williams | Economic growth amid deepening inequality

Published:Sunday | January 7, 2018 | 12:00 AM
Densil Williams
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Jamaica is now the darling of the International Monetary Fund (IMF). The November 2017 visit of Madame Lagarde, managing director of the fund, the second visit in two years, is a testament to the fund's close and friendly relationship with the country. There is absolutely no doubt that the maturity in the management of Jamaica's economic affairs is bearing dividends at the macro level.

With the change of government from the People's National Party (PNP) to the Jamaica Labour Party (JLP) in 2016, if one does not look closely, it could be difficult to tell that there was a change in minister of finance. Both Dr Phillips and Mr Shaw are following the same blue print, which the IMF laid out for the fiscal management of the economy. EPOC, one of the signature inventions of Dr Phillips, played a huge role in the generation of the stability Jamaica now enjoys in its macro-economy. Cleverly, Mr Shaw has adapted this invention, with strong success to date.

In this neoliberal globalised space, Jamaica is now one of the darlings of the international financial community. Using the jargon of financial experts, the market is bullish on Jamaica. There is no doubt that the IMF has played a significant part in driving this bullishness that the local economy enjoys. However, despite these gains at the macro level, the troubling question remains: Are the majority of Jamaicans enjoying a higher quality of life in-light of the significant gains in the macro-economy? The protagonists of the neo-liberal paradigm will quickly conclude that, there is no need to worry about quality of life issues for all, because, once the fundamentals are in place and the economy grows, the benefits will trickle down and everyone will be OK. Unfortunately, the empirical evidence does not lend strong support that position.

Inequality deepens amid stability

While progressive thinkers will accept that fiscal discipline is a necessary condition for driving economic growth, it is fair to say that the standard prescriptions from the neo-liberal institutions are far from sufficient to provide the type of economic growth that will make the life of persons better, in any significant way. This observation was captured well by Madame Lagarde, in her letter penned to The Gleaner on November 15, 2017. Among other things, she noted that:

"... Achieving macroeconomic stability is a critical foundation for sustained growth. In particular, fiscal consolidation to reduce the public debt burden has become a must for many countries in order to release resources for social and capital spending. Such spending will support long-term growth and reduce poverty ... .

Still, macroeconomic stability is a necessary, but not sufficient condition for sustained growth; it should be accompanied by ambitious structural reforms that address key bottlenecks to private investment such as reducing red tape and improving the business climate."

Indeed, it can be argued that the slavish adherence to the Washington consensus policies have actually caused more harm than good in most instances, in the developing world. Critically, those structural reforms are at the heart of some of the inequalities that we are now seeing in most developing countries that have followed the neo-liberal prescriptions for economic stability and growth. For example, the structural adjustment programme spear-headed by the neo-liberal institutions in the early 1980s, have left structural gaps in developing economies that now need to be fixed before growth can truly benefit the masses. Indeed, it is the World Bank in its 2008 Human Development Report, which concluded that the structural adjustment programme was a great mistake. This is what the bank noted in its report:

"Structural adjustment in the 1980s dismantled the elaborate system of public agencies that provided farmers with access to land, credit, insurance inputs and cooperative organisations. The expectations was that removing the state would free the market for private actors to take over these function ... . Too often, that did not happen ... . Incomplete markets and institutional gaps impose huge costs in foregone growth and welfare losses for smallholders, threatening their competitiveness and, in many cases, their survival."

This descriptor by the bank is evident in Jamaica. Indeed, while Jamaica is now seeing some level of stability in the macro-economy, the level of income inequality in Jamaica is actually deepening. The GINI co-efficient for Jamaica tells the story. The level of inequality is rising moving from below 0.4 in 2001 to over 0.5 in 2013, the latest data shows. The fact is, while we are seeing indications of growth and stability at the macro level, the benefits are not spreading far enough.

Need for stronger investment in human capital

With the plethora of structural reforms that will have to be done in order to bring the level of growth that Jamaica will need over the next decade, there is no guarantee that this will translate into greater levels of benefits for all Jamaicans if the human capital is not internationally competitive. Clearly, a small handful of persons will benefit from the economic transformation, but the majority will find it difficult to cope if something drastic is not done to build up the country's human capital to a level that it can compete effectively in the globalised world economy.

Beyond the usual IMF prescriptions for growth, Jamaica needs an access revolution to higher education. Too few persons are participating in the higher education sector in the country. The latest data suggest that participation rate is at 27 per cent. This is low compared to places like Singapore in the high 50s, the USA in the high 80s and even other Caribbean neighbours like St Kitts and the Dominican Republic in the high 40s. There is no doubt that greater access to higher education helps to build a stronger middle class that will in-turn, build a stronger economy. The rise of places like China, Singapore, Malaysia, is built on widening of their middle class.

Greater access to higher education will afford the skills (creative thinking, innovation, international awareness etc.) that are required to participate in the global economy. These will not come from the primary and secondary level of the education system. Those levels are critical for building numeracy and literacy and laying the foundation for future learning. More citizens must participate in higher education to further acquire the skills needed for participation in a new economy.

Fundamentally, a new model to fund tertiary education must be at the heart of the access revolution. The funding model will help to determine how many persons can access higher education in order to benefit from the tremendous value this will bring. The signal the new model sends will determine whether the majority of Jamaicans are going to benefit from the restructuring of the economy and will be able to lead a better life.

So, to be sure that more Jamaicans will benefit from a post-IMF era, there has to be an urgent attention paid to giving more persons access to higher education. The participation rate in Jamaica is too low. There has to be a concerted effort to build a stronger middle class using education as the vehicle if a post IMF Jamaica is to benefit most citizens.

- Densil A. Williams is professor of international business at the University of the West Indies. He may be contacted at denislw@yahoo.com.