Wanted: A road map to economic growth
Mary, Mary, quite contrary, how does your garden grow?
Economic growth refers to an economy increasing its production of goods and services over time. It is desirable as the material basis of making citizens better off. Economic growth may,
however, benefit a minority rather than the majority of the population.
Economic growth depends on increasing a country's productive capacity and its effective utilisation. Productive capacity is defined by the stock and quality of human and physical capital, technological innovation and adaptation, implementation capacity and a supportive institutional framework.
Economic growth in Jamaica has averaged about one per cent per year over the last 40 years. Fostering much stronger economic growth is broadly accepted as a national priority. The end of Jamaica's last period of sustained economic growth is (from the late 1950s to 1973) after a period of continued foreign investment in bauxite/alumina. Subsequent weak growth was accompanied by loss of preferential external market access and domestic market protection, fiscal deficits, financial crisis and public debt accumulation, inefficient public institutions, declining productivity, crime, social deprivation and dislocation, and progressive environmental degradation.
Possible reasons for stymied growth
Jamaica has enjoyed strong investment in infrastructure and hotels in the new millennium. That this has not stimulated stronger economic growth has elicited efforts to explain Jamaica's 'high investment/low growth puzzle'. Among the explanations offered have been low domestic value added with weak linkages to agriculture and manufacturing, inefficient public-sector investment, uneven access to credit and technical support, uncompetitive electricity costs and social dislocation.
In fostering stronger economic growth, what do we find instructive from our present and past? The following are worthy of consideration:
a) Economic growth in Jamaica has historically been driven by foreign investment. While this may be unavoidable for a small economy in a globalised world, there is potential for increasing sustainability if domestic capital plays an increasingly dynamic role.
b) Jamaica needs to accelerate the reversal of social neglect in educational opportunities, access to quality health care, living conditions and financial inclusion. This will build productivity and internal dynamism as well as increase attractiveness to both domestic and foreign investment.
c) Jamaica needs to facilitate industries with higher local value added, non-traditional producers with export potential, and to build deeper linkages with highly capitalised export-oriented industries.
d) Jamaica must maintain its pursuit of fiscal consolidation and public-sector efficiency and institutional reform.
e) Financial regulation is challenged to balance the maintenance of financial soundness with the quality of intermediation in support of economic growth. Within a financial structure that is dominated by a few large players, competition policy may not be effective, but dialogue on persistence of large differences between deposit and lending rates and on banking research on lending to new sectors is indicated.
f) Coral reef destruction and beach erosion, solid waste disposal and flooding, soil
erosion and housing and industry encroaching on agricultural lands underline the imperative for environmental sustainability for long-term development.
Tracking growth is supportive of transparency and, ultimately, helping policymakers to remain focused on meeting their objectives. This, however, raises the issue of what we track and what we seek answers for.
Identifying growth targets
There is an obvious need to identify Government's growth targets. 'Five in four' means that Jamaica is expected to achieve growth of five per cent by year four from where we are now in year one. The formal status of the target is unclear, but it is assumed to have governmental endorsement at the highest level.
A journey to a destination requires transportation and a road map (route and landmarks). Tracking growth needs a specification of at least annual growth targets towards the final objective. These interim targets then require a consistent articulation of expected investment, production and export, both in total and by industry i.e., where the growth is expected to come from.
Beyond this monitoring of economic variables against sequential targets at aggregate and industry levels, there is an imperative to understand and monitor against Government's objectives in economic, social and institutional policy and reform. There is documentation of diverse commitments in agreements with international lending and grant funding institutions. Tracking growth now demands a sharp and focused articulation of interim and enabling policies and targets towards 'five in four'.
Colin F. Bullock is an economist and former director general of the Planning Institute of Jamaica.