Mon | Apr 6, 2020

Is Jamaica poised for recovery?

Published:Sunday | April 3, 2011 | 12:00 AM

Ralph Thomas, Sunday Gleaner Columnist

The Jamaican economy remains on a negative trajectory following 14 quarters of recession. We ponder how the Jamaican economy can be positioned for strong economic growth following four decades of low or no growth under various administrations.

We wonder whether our ship of state is destined to remain becalmed in turbulent waters, with loose sails flapping aimlessly, awaiting a puff of wind from somewhere; even as the rest of the world economy recovers from recession. We must evaluate carefully whether the new economic recovery plan presented by the Planning Institute of Jamaica (PIOJ) will be the wind in our sails to move us on a positive developmental trajectory or just more hot air, destined to push the becalmed ship on to rocky shoals.

This plan was created by the PIOJ and the Government under the guidance of Professor Donald Harris of Stanford University and impressively labelled A Growth-Inducement Strategy for Jamaica in the Short and Medium Term.

It is instructive to note that wise captains have always used periods of general inactivity to tighten the ship, repair the sails and make preparations for a time when the weather improves and they can again embark on a great journey at full speed to create wealth and prosperity for those who sail on the ship. Failure to take advantage of such circumstances leaves the ship vulnerable to further damage from even friendly winds of opportunity that other more prepared vessels will take advantage of, leaving the ship even further behind.

The essential question bedevilling the plan is whether the Government can spend its way out of a recession by committing an additional $14.4 billion primarily on large road projects and, to a much lesser extent, on other sectors of the economy. There is ample historical precedent for such a strategy, ranging from Franklin D. Roosevelt's New Deal, Lyndon Johnson's Great Society, to Barack Obama's Build America Bonds. In recent times, it has been demonstrated that governments cannot spend their way to prosperity, especially if they are not blessed with large natural endowments to support such expenditures.

Jamaican businesses and households remain severely stressed as cash flows have dried up, while the tax burden has increased for all. The proposed expenditures must logically be financed by more taxation on an already burdened population; increased borrowing that raises the national debt; plucked from the sky by printing more money at the central bank and spiking an inflationary cycle; or by cutting critical programmes in health care, education and the social services safety net. These are all unacceptable choices. One can hardly argue that something ought not to be done, and the effort of the PIOJ in putting together in the plan a shopping list of worthwhile things that need to be done is to be commended; but it is not just a question of what should be done, but how it should be done and in what sequence. It must berecognised that government expenditure is a one-sided exchange, as jobs are lost when resources are taken from the rest of the economy, either directly through taxes now or higher taxes in the future. The failure of deficit spending to create jobs is well documented.

Addressing critical areas

Apart from the financing question, the plan should be refocused to address critical areas of national concern, such as swiftly reshaping the energy sector to reduce costs of production and the cost of living; retooling, refocusing and energising our productive capacity to rapidly expand export markets; broadening the micro, small and medium enterprise (MSME) sector, while providing dramatic initiatives to reduce youth unemployment and increase skill-building and rebuilding agricultural production and optimising land use. The partnership of the total business sector (formal and informal) in increasing production, keeping prices at lower levels and expanding jobs, must be incentivised as part of the strategy, and a key role established for the trade unions in maintaining wage stability and creating jobs.

Role of the State

Indeed, the role of the State in economic development must first be addressed philosophically as a backdrop to an economic plan and a determination made whether the principal engine of growth going forward will be the Government or the private sector, or whether a better balance can be achieved. An approach that favours inclusive growth of the private sector should see a higher proportion of planned expenditure routed to businesses in the form of tax abatement, government transfers and a establishment of a more accommodative and unrestrictive government bureaucracy with reduced regulatory burden. The PIOJ plan contains many good ideas, but in no well-sequenced order of priority, focus or identification of the implementation capacity and commitment necessary to make the ideas work.

In a study published in 2008 by Massachusetts' National Bureau of Economic Research, Peter Blair Henry, an eminent Jamaican and currently dean of New York University's Stern Business School, conducted a study that contrasted the role of institutions and the role of macroeconomic policy in shaping the completely different long-term developmental outcomes of Barbados and Jamaica over a 42-year period. Barbados' GDP per capita grew roughly three times as fast as Jamaica's. Barbados' per-capita income in 2002 stood at US$8,434, and that of Jamaica at $3,165, an income gap of $5,269.

In seeking explanations of the disparity of outcomes between both countries, Blair questioned the conventional wisdom that countries that shared similar systems of government and institutional characteristics that are critical to long-run prosperity, such as common-law systems and constitutional protection of property rights, demonstrated greater development, less corruption, smaller informal economies and lower unemployment. He sought alternative explanations that would account for the divergence in economic growth rates between the two island states, Jamaica and Barbados. Significantly, it was both the choice of macroeconomic policies and the consistency with which these policies were applied over a long-time horizon that stood out as the biggest cause of the differences. This is instructive to our consideration of the present economic policy choices.

I introduce this important study in the discussion as it illustrates the importance of a national commitment to a philosophical, if not ideological, approach to constructing plans for development. The Growth-Inducement Strategy for Jamaica in the Short and Medium Term appears to exist in a vacuum, a soulless technical compilation. It is not a strategy that lends itself to a high level of confidence that we can get all Jamaicans onboard and not only restart the economy, but create sustainable economic activity that is self-perpetuating; giving rise to future jobs, expansion of production, improvements in GDP and improvements in the lives of the people of Jamaica. It is not just the statistics that matter, but the enrichment of the quality of life and the economic empowerment of all Jamaicans.

The comparison of both countries, based upon the reported aggregate numbers contained in measurement of GDP, overlooks the significantly high proportion of the informal economy in Jamaica, estimated as high as 40 per cent. This activity is not part of the GDP calculations on which analyses are based. Comparisons of this nature, while valid, require adjustment for this factor and will then tell a completely different and more positive story of our past economic history and achievements. While it was argued that our low per-capita income places us at the bottom of the economic tables and represents little improvement over 1972, the statistics are disconnected from the evidence of a fairly high quality of life in most of Jamaica, with housing equal to anywhere else in the world, life expectancy rates of 73 years the envy of many developed countries, an obviously well-fed and sleek population and healthy athletic children and young persons and improved infrastructure.

Good trade-off

Investments in social programmes slowed GDP growth but were a trade-off well worth making, as Jamaica's poverty levels fell to a low of nine per cent in recent years. Per-capita income in Jamaica has risen since the time of the study to US$4,832 in 2009 and to US$7,350 in Barbados, a significant narrowing of the gap observed in 2002, from US$5,269 to US$2,518. This demonstrates that some progress had been made in the new millennium, resulting from more disciplined macroeconomic policies, but coming much later than those established by Barbados which, therefore, had a head-start. This gives us cause for optimism, if the country has strong and visionary economic leadership committed to a set of national ideals and goals that put the welfare of our people first and the role of the state in the correct perspective. The PIOJ should address the non-inclusion of the informal sector in the aggregate statistics and develop better econometric and other models to accurately include the output of this sector in the reported national aggregate GDP. Without including and planning for the activities of the informal sector, how can the country plan accurately for growth? Without a clearer vision of our destination, does the choice of strategy matter much? It is said that if we don't know where you wish to go, then any road will take us there.

Ralph S. Thomas is a senior teaching fellow and joint appointee of the Mona School of Business and the Department of Management Studies, UWI. He is a financial consultant and was a vice-president of the Bank of New York-Mellon. Email feedback to and