Gleaner 180 - Making up our minds
- Making up our minds
Published: SEPTEMBER 11, 1978
Carl Stone, Contributor
As the impending hurdle of yet another IMF test approaches, it is perhaps appropriate to raise a number of issues regarding the direction in which we seem to be heading under IMF pressure.
Big companies like Guinness and Desnoes and Geddes will be shortly laying off a considerable portion of their labour force. The health of these two companies, which are producing for the local mass market, is a very good indicator of the recession that is taking hold of our economy.
These companies are not engaging in capitalist sabotage as some of the misleading propaganda from some of the usual sources will suggest. They are feeling the pressure from the decline in consumer demand that has been a predictable and inevitable consequence of the massive devaluation we have had to live with.
The IMF prescription, it would seem, demands that we drastically cut the level of imports (and, by that process, the standard of living of the entire population) and that we move our economic efforts into production for exports, which (in theory, at least) is supposed to benefit from the reduced value of our dollar.
For sure, the very poor, the working class, and even the middle class, have been taking an economic beating, the likes of which they have not experienced on this side of World War II.
Indeed, at present prices and wages, the majority of the working class had more purchasing power over many important consumer goods in the mid-50s and early '60s than they now have in 1978. The pain of this pressure has, to date, not been compensated by any spectacular growth of exports.
Those of our manufacturers, who are anxious and ready to step up export production, are hamstrung by the vicious circle of foreign-exchange shortage. Adequate foreign exchange to fuel production expansion has not come with the IMF arrangements, and we are saddled with a huge commercial debt which, to date, has not been refinanced to free up enough of current foreign-exchange earnings for other purposes.
Even if these prerequisites were in place, export expansion, from existing lines of production in the Jamaican economy, is most unlikely to give the necessary boost for regenerating growth. The Caricom market is limited. Third World markets are both limited and unpredictable. The wealthy consumer markets such as North America and Western Europe require quality, volume and consistency of production that are outside of the reach of most of our manufacturers. Most of our manufacturers are geared to service the local market and are unlikely to be able to do much else.
The big problem is that because they use up so much foreign exchange, and earn so little of it, they cannot survive unless someone else earns it.
The fact is that expansion in production or exports will only come on a big enough scale to boost the economy if there is a large injection of foreign capital. We have a lot of idle labour that can and should be put to work. Our infrastructure is well developed. But the political direction from the governing PNP seems bent on pushing us on the periphery of the world market economies in a sort of 'no man's land' that is outside of the socialist bloc. Small open Third World economies cannot, in my humble view, survive there for very long. We are going to have to make a choice as to which system we are in.
Labour, land and infrastructure, by themselves, cannot regenerate production in a capital-starved economy such as exists here at the moment. Neither capitalism nor socialism can be built without capital accumulation. Its absence will mean certain and increased improvement over and above existing poverty levels. Capital accumulation is only going to be restored if and when a dose of foreign money comes into the economic system. It is unlikely to come from the socialist bloc, and some of us with the best of intentions are determined to make sure that it does not come from the rich market economies. This may seem, to some, to be an endorsement of neocolonialism. But, in the meantime, the suffering of the people increases and we cannot fill their bellies with the wind of political rhetoric.
If this country does not quickly make up its mind in which direction it is heading, the slide back into the 1930s will continue on an even more accelerated pace.
- Response: Can we stay the course?
Published: SEPTEMBER 13, 2014
Peter-John Gordon, Guest Columnist
Carl Stone, in an article headlined, 'Making up our minds,' published in The Gleaner of September 11, 1978, called for Jamaica to choose integration, either within the market economies of the West or the socialist economies of the East.
The world has dramatically changed since 1978. The socialist bloc has disappeared. Stone was right in saying small economies could not survive outside of an expansive economic system. The insight that the Jamaican economy was too small for self-reliance is still valid.
The sentiment for self-reliance remains today, cloaked in seductive phrases such as 'eat what you grow and grow what you eat', 'buy Jamaica' and 'food security'. Pushed to its limit, self-reliance would lead to what economists refer to as autarky i.e., a closed economy. Economists disagree on many things, but the one thing which they all agree on is that autarky leads to lower standards of living.
Stone lamented that IMF-imposed policies in the 1970s "would shortly cause large companies... to be laying off a not inconsiderable portion of their labour force."
Production then was geared towards a closed economy while the IMF polices were aimed at opening the economy. An overvalued exchange rate makes exporting difficult and importing cheap. High levels of imports and low levels of exports result in the demand for foreign exchange outstripping supply.
Market forces would dictate that the exchange rate adjusts to equate demand and supply. Resistance to adjusting the exchange rate meant that other methods were required to stem the flood of imports. These included exchange controls, high tariffs and quantitative restrictions (quotas).
These polices provided a protected market for domestic producers. Protected markets lead to higher prices. The government's response to the distortion which its policies introduced was more distortions, e.g. politically determined prices (price controls). The net result was that relative prices were all wrong, which caused a decline in production, employment, capital flight and a lowering of the standard of living.
What is required is deeper integration of the Jamaican economy into the global economy. Domestic-relative prices should reflect international-relative prices so areas which are domestically profitable will also be internationally profitable. Jamaican consumers would also benefit from world prices and international standards. Industrial policy and subsidies can distort the price signals, causing resources to move into the areas with limited ability for increasing the wealth of the Jamaican people.
Stone had declared "even if these prerequisites were in place exports expansion from existing lines of production in the Jamaican economy is most unlikely to give the necessary boost for regenerating growth ... . The wealthy consumer markets such as North American and Western Europe require quality, volume and consistency of production that are outside of the reach of most of our manufacturers."
Growth does not have to come from "the existing lines of production". What is unprofitable at one set of relative prices becomes profitable at another. Aligning our economy with the international economy means there will be a shift in what is produced, with decline taking place in areas with limited growth prospects, and expansion in areas with greater opportunities.
I do not agree with Stone that Jamaican producers are incapable of meeting world standards. Our athletes have shown us that once the standards are known, and we have an enabling environment, the Jamaican people are as capable as anyone else. There will be a transition period, with imports falling before exports rise and layoffs taking place before employment expansion.
Much has changed since 1978. We have abandoned exchange controls, trade licencing and price controls (for the most part) and we are more aware of the need for macroeconomic stability, fiscal restraints etc. However, there still remains a mistrust of markets, suspicion of the global trading and financial system, which is manifested in calls for special consideration, picking winners, subsidies etc.
We need to embrace the reform policies as our own, rather than seeing them as an imposition to be cast off at the earliest opportunity. In the past we had not mustered the political will to stay the course, can we do so now?