Jamaica's competitiveness dilemma
Dr Densil A. Williams, Contributor
Jamaica's consistently low levels of economic growth over the last three decades have baffled even the brightest minds in economics. For a country so blessed with natural resources, good geographical proximity to the largest economy (as measured by GDP) in the world - the USA, a fairly high level of human capital, the economy has not lived up to its potential. Why has the Jamaican economy performed so poorly over the last 30 years?
This question generally elicits a great number of emotive responses. However, if we buy into the thesis that, 'It's competitiveness, stupid!!!!' we can gain some objective insights into this puzzle from the recently published
Global Competitiveness Report
. This is the most authoritative and comprehensive report on the issues surrounding a nation's ability to compete and grow its economy to provide a high standard of living for its citizenry.
Jamaica's competitiveness position
Out of a total of 134 countries studied in the
Global Competitiveness Report
, which surveys the competitiveness of nations, Jamaica's competitiveness position is ranked at 86 for 2008-2009. This reflects a slippage from 78 in 2007-2008, and 67 in 2006-2007. Clearly, Jamaica's competitiveness over the last three years has deteriorated significantly. This is troubling because it has serious implications for the growth and improved well-being of the citizens of the country. In a nutshell, competitiveness measures the improvement in the level of productivity of a nation. When a country's productivity is deteriorating, it means that the country is getting poorer and at some point it will not be able to sustain itself. This will lead to all sorts of social and economic ramifications. To prevent social malaise such as crime, illiteracy, poor health, etc, it is important that a country improve its level of productivity, in order to improve its competitiveness position.
Requirements for improved productivity
The issue of productivity is not merely an economic phenomenon. A plethora of factors shapes the level of productivity of a nation. The
Global Competitiveness Report
argues that for a country to improve its productivity, it must possess what it calls basic requirements, which includes institutions, infrastructure, macroeconomic stability, etc, efficiency enhancers, such as education and training, efficiency in the goods, labour and financial markets; and, innovation and sophistication factors, such as sophistication of business operation and innovation. These, according to the report, are the basic pillars of productivity.
A deeper analysis of these various pillars of competitiveness reveals an inconvenient truth about Jamaica. The report revealed that macroeconomic stability in Jamaica, one of the most salient variables in the basic requirements pillar, is ranked 130 out of a maximum of 134. A scan of the report shows that of the 12 variables that comprise the basic requirements, macroeconomic stability performs the worst. This does provide some insights into our inability to be competitive, and also who should be blamed for the country's competitiveness slippage over the last three years.
Clearly, the most objective interpretation is that the managers of the macroeconomy over the last three decades did not do a good job and we are now paying the consequences of low or negative productivity as is manifested in the deterioration in the country's competitiveness.
Macroeconomic stability in a globalised world
There is no doubt that a significant portion of the blame for macroeconomic instability in Jamaica over the last 30 years lies at the feet of poor and inept economic management of the country's affairs. The last decade in Jamaica's history saw massive depreciation of the country's exchange rate, high interest rates, a high inflation rate, an unstable external balance, and a debt-to-GDP ratio of over 130 per cent. These conditions create an environment that is inimical to business operation and increased productivity. The end result is an economy that cannot compete in the global economic system.
However, one cannot be too parochial in the analysis of the Jamaican situation. Jamaica's heavy integration into the global economy makes some of the challenges to economic stability unavoidable. However, the big question is, were these challenges managed properly? As a small, open, import-dependent economy, the challenges of attaining macroeconomic stability in a global marketplace is not an effortless task. The economic manager of the day will have to possess a sophisticated understanding of the complex workings of the multiplicity of economic and financial interactions, cross-border production systems, flow of technology and, the flow of information and communication which bring economies together in a process we now call globalisation.
Investor confidence and economic growth
Financial globalisation in very subtle ways undermines the power of the modern state in having full control over the management of its economic affairs. Given the borderless nature of world markets today, foreign investments and capital do not always adhere to national rules and regulation. They tend to find places that conform to their quest for profit. Indeed, capital and investments can move quickly from one economy to another because of a mere volatility in the currency. This footloose movement of capital and investment constrains the nation state to practise good macroeconomic management and fiscal and monetary discipline.
To retain the confidence of investors and capital, the State generally practises macroeconomic policies based on low inflation at the expense of growth and employment. This is exactly the path the Jamaican authorities took over the period of the 1990s, and it appears that the current economic managers have not changed course. Indeed, the results of this policy choice are manifested in the slippage in Jamaica's level of competitiveness. This policy does not lead to productivity.
In fact, targeting inflation eventually leads to high interest rates. Nobody produces under a high interest-rate regime. People sell their businesses and invest their money in financial instruments that give attractive returns. You cannot blame the investors; you have to blame the policymakers for this mistake. Rational investors will put their investments where the returns are highest. In small, open economies like Jamaica, there is clearly a premium on maintaining the confidence of investors and capital. However, using the wrong policy to attain this confidence will eventually lead to economic uncompetitiveness. To improve the country's competitiveness, economic policymakers have to find the inclination to focus on Keynesian growth policies and reaffirm the role of the State.
Bringing back the state
It is orthodox for neo-liberal thinkers to see the role of the State as a mere facilitator of development and growth. The role of the State according to the dogma of the Washington consensus is limited to regulation and taxation. However, the success stories of most emerging market economies (a term used to describe fast-growing and successful developing countries) such as China, India and Brazil, reveal that the State's role is more than a mere facilitator. In these economies, the State acts as an investor in sectors that have welfare gains. These include investments in education and training, the adoption of labour standards, tackling rising national inequality, and provision of social protection for the most vulnerable.
In this increasingly globalised world, the challenge that faces policymakers in reversing the slippage in Jamaica's competitiveness position is to find the right mix of policies that can improve productivity while maintaining the confidence of investors and capital in order to prevent capital flight. It does not have to be a zero-sum game in choosing between market-based policies as dictated by the guardians of the international financial architecture and statist policies as espoused by the anti-globalisation movements, particularly the left. The emerging markets have shown that a configuration of elements of both sets of policies is good for growth and competitiveness. The new policy mix must ensure that the private sector and markets enjoy a central role in economic growth while sound public policies and institutions are put in place to provide the market with a strong enabling environment for production. Elements of the public-policy mix must include investments in education and training, reduction of government bureaucracy, investment in innovation centres and entrepreneurship, provision of a social safety net to reduce the incidence of crime and violence, among other things. If Jamaica is to reverse its competitiveness slippage, it has to focus on this policy mix and move away from the low inflation model as a macroeconomic strategy.
Densil A. Williams is a lecturer of International Business in the Department of Management Studies at UWI, Mona. He may be contacted at email@example.com