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Despite disparities in society, when the Government has to increase taxes, it hits Norbrook as well as Hughenden and inner-city communities. Don Robotham, Contributor
THE RECENT Budget Debate presented a classic picture of Jamaican fractiousness.
Every single social group weighed in with the same cry somebody should sacrifice for Jamaica but not me! We need to stop this game and get back to basics.
First, there was the army of 71,700 central Government employees who had to fend off calls for salary and job cuts.
As the Prime Minister delicately put it, to cut this group would be "to increase the social deficit." Put in plain English what this means is this: "Do you think I would be crazy enough to cut the standard of living of the black middle class which historically and to the present day is the cornerstone of the People's National Party? (PNP)"
Consider this an across-the-board cut of about $63,000 (about US$1,100) in the annual wages of each central Government employee would have allowed the budget deficit to be reduced to about 4.6 per cent in this financial year.
From 12 per cent of GDP, the central Government (not the entire public sector) wage bill would have fallen to 11 per cent. Along with the cess and other taxes, this would have had the effect of reducing our interest rates. It would have had a dramatic impact on our international credit rating.
SOCIAL DEFICIT
Only a hypocrite would deny that such a cut would mean a real increase in hardship for the groups affected. Yes, it would have increased the social deficit and worse for these and other groups.
But the potential real economic benefits would have been enormous in the long run. Was it doable politically or socially? Yes, with leadership by example it was and is doable.
However, the PNP's umbilical cord is tied to the black middle class. This is where their navel string is buried. The Prime Minister was adamant: No cuts for Hope Pastures, Hughenden or Harbour View. Cynics will say, even for parts of Jack's Hill!
Enter the merchants. Here fire and brimstone was the order of the day. Inflammatory statements about refusing to pay the notorious cess were hurled back and forth.
Some even outdid themselves by wondering in print about "who did this Government represent," conveniently forgetting, like it or not, that the present Government actually won a democratic election and they lost.
Put in plain English what this group was saying is this: "We will not allow the standard of living of Cherry Gardens and Norbrook to be cut. No social deficit!"
Of course, all groups claim to be acting on behalf of 'the poor black masses' and 'for Jamaica.' Yeah. Right. You could call this the Two Jamaicas syndrome.
Well, I have news for the black middle-class, the light-skinned merchants and the poor black masses. Something has to give. In the present situation in Jamaica, either we hang together or we hang
separately.
UNCOMPETITIVE ECONOMY
The root problem, as should now be clear, is the uncompetitiveness of the real economy where goods and services are produced. The black middle class controls the PNP and comprises the vast majority of central Government employees as well as independent professionals.
This is a group relatively isolated from the real economy. Their parents were at the core of the rural small farming economy but they are not. Their entire existence is premised on a portion of the wealth which others produce being re-distributed to them. This they achieve by controlling the state (not just 'the Government') and using taxation to finance substantial real improvements in their standard of living. That they provide services in return I do not dispute for one moment.
The merchants are an equally sorry lot. They, too, provide services of a sort. Unlike the civil servants, they are directly a part of the economy. But in the distribution rather than in the production sector. They are very good at importing. As for exporting alas, not so hot.
Their main purpose in life is also re-distribution of income from the directly productive groups to themselves. This they achieve by the wonderful mark-up system and by various monopolistic practices.
One should not, of course, omit our well-suited and irrepressible financial sector. They too provide services. They are children of Government paper who live off the national debt. This is the basis of their extravagant lifestyle. All these groups know in their heart that the game of struggling for the re-distribution of the existing national income either by taxes, prices or interest rates is a dead-end.
All groups really know that cutting the budget deficit is not an end in itself, but a means to an end. The end is the rehabilitation of the real economy so that our standard of living can be placed on the only secure footing possible in the modern world.
To put it simply, we will need to spend less both in terms of public as well as private expenditure and save and invest more, especially for export. This means three things: more taxes, more cuts in expenditure leading to a reduction in the budget deficit.
So we can divert resources to growth which cannot happen if interest rates are high. None of this is rocket science. The way forward for our economy is quite straightforward in principle.
But only in principle. In practice, what it means is that all the leading social groups have to be willing to make sacrifices. And this is where the not-me game begins. You cannot reduce the budget deficit by tax alone. You have to cut expenditure. But you also have to increase taxes. You have to hit Norbrook. You also have to hit Hughenden. The social deficit has to be increased in the short run. No question about it. But whose social deficit? The answer: Everybody's!
MISH-MASH
The point of increasing 'the social deficit' now is neither out of social callousness nor social envy. The aim is to ensure that the standard of living of the black middle class, the merchants, the bankers, the workers, the farmers, the unemployed the entire society in the future is placed on a secure and sustainable foundation in a cruelly competitive world. No jam today but jam tomorrow.
The notion that one can maintain the social position of any group by passing on economic deficits to someone else is deeply mistaken. This applies even more forcefully for working class people, the unemployed and farmers. Right now, all social groups in Jamaican are standing on economic sand because of our low productivity and uncompetitiveness.
A different approach is urgently needed. All groups must realise that we have reached the limits of this re-distribution game. The name of the game now must be production, productivity and competitiveness. In this regard we obviously need urgent reform of our entire educational and especially training system. This, at present, is a mish-mash of English and American practices, with a dash of the German apprenticeship system thrown in to increase the confusion. This is not only a matter of quality but of the content (or lack thereof) of the education and training of the labour force, especially the employed part.
This new approach requires leadership in economic affairs. The Prime Minister's announcement of improved housing for the poor is welcomed but, at its core, reveals a distributionist mentality. Mr. Seaga's venture into the field of legal reform turned out to be just that an adventure.
It revealed the same tired dirigiste thinking characteristic of his entire career. His message as usual: look to the state (this time our overburdened judiciary) to punish failures in economic policy. One thing this truly crazy idea could be relied on to achieve: the politicisation of the judge-selection process. Thanks, but no thanks!
ONLY ROUND ONE
Yet all is not lost. In fact, the process of structural adjustment of the Jamaican economy is only just beginning. This is only round one. At least two more rounds are to come, and probably many more. Those who imagine that re-orienting the Jamaican economy is a three or even five-year process do not understand what they are dealing with. We have to gear up from now to ensure a better outcome for those further rounds. But we must learn the lessons of this round.
The chief lesson of the first round has been the following: fractiousness and jockeying to pass the adjustment burdens from one social group to the other has been the order of the day. Focusing on sharing in the burden of rehabilitating the real economy has been non-existent. One reason for this failure which we can correct now has been insufficient focus on the weakness of the real economy and the real education system. By conducting the discussion purely in terms of fiscal imbalances we have lost sight of the vital fact that these imbalances are expressions of weakness at the real level. This has led to short-term thinking and superficial blame games which evade the real challenges which we face.
We have to wheel and come again. We need to get back to the basics. We have to recast our entire public discussion of our economic challenges in terms of the needs of the real economy. When we do this we will better understand why sacrifices by all social groups taxes and cuts in the wage bill will be essential. Not as ends in themselves or to please our creditors.
But for the sake of our children and children's children.
Don Robotham is an anthropologist who specialises in development issues in the Caribbean and West Africa.
