Educating Dr Phillips
Karl Johnson, Contributor
An article titled 'Dr Phillips outlines the way ahead for the Jamaican economy', published Friday, January 20, 2012, in the Jamaica Observer, reported on Peter Phillips' address to a Mayberry Investments audience. While I never heard the direct address he gave, I seek to contextualise some issues as per the article cited.
First, Dr Phillips identified and admitted to this fact: "There is one aspect of the nation-building project that has not been successfully realised. That is the ability to provide sustained economic growth to deliver on the expectations of the Jamaican people for meaningful jobs and a good quality of life." How does Peter reconcile those facts with this 'fact' torn of my own musings: "The PNP is the only party to have not put Jamaica on a path of sustainable growth since independence: JLP [1962-1972: avg growth >8%; 1980-1989: avg growth >2%]; PNP [1972-1980: avg growth <0%; 1989-2007: avg growth <0.83%]"?
It must be said also that another fact is in this disaggregation: 1986-1989; average growth was 4.8%, which is a downward revision because of Hurricane Gilbert in 1988. This was positive economic momentum for any new government to 'run wid it' in 1989 and reap positive rewards.
So how does Dr Phillips justify the PNP's performance with the economy thereafter, given those facts aforementioned? Should a party in government for 18 1/2 years unbroken not capitalise on world growth trends if its raison d'etre was ensuring sustainable growth and development?
Since 1962, the slowest world growth rates were recorded between 1980 and 1985. Is it coincidental that in 1962-1972, 1980-1989 and 2007-2011, Jamaica's growth rate was closely aligned to world trends? What explains the divergence from this alignment between 1972-1980 and 1990- 2007?
Second, he then drew on some debt stats to indicate gains made by the PNP to reduce debt and grow GDP, only to see said gains lost as at 2011: "To compensate for the weak growth performance, there has been a build-up of an unsustainable public-debt stock. This debt has now become a drag on our ability to grow faster. The debt-to-GDP ratio of more than 212 per cent in 1984 was reduced to about 111 per cent in 2007. The ratio climbed to about 131 per cent of GDP by the end of March 2011. The stranglehold of the national debt is impeding the provision of funding for vital social services and necessary capital investments to support growth."
What he failed to point out is that because of a world economic boom, Jamaica received record levels of foreign direct investment (FDI) never before seen in our history, mostly in tourism, telecoms and remittances between 1995 and 2005. Therefore, GDP expanded almost exponentially, yet there was a near equal rise in public debt! Why? A reduction of our debt to GDP down to 111% in '07 was paltry given the massive FDI inflows!
More spectacularly, crime underwent an explosion which generated new players in the economy: Security companies mushroomed almost out of thin air and funeral parlours 'rose from the dead'. Extortion monies and proceeds from more heinous crimes fuelled inner-city spending on the new street dance, motor vehicle, and fashion craze; in essence there was a booming underworld/underground economy.
Paradoxically, and more important while GDP expanded, the tax-revenue side shrank year-on-year, with more persons evading the tax net, thus continuously widening the budget deficit to be filled by what? - debt! So while Peter rightly points to 111% debt to GDP in 2007, our public debt grew to $967b!
The Way Forward
Dr Phillips' solutions aren't really solutions but statements about the nature of the issues and how the JLP had exacerbated them. Dr Phillips seemed to miss completely the effects of a global crisis and an economy left by the said PNP in 2007 suffering from attention deficit hangover (ADH).
The real solutions mean implementing austerity measures which may cost them the next election - something they can ill afford. JEEP is already a non-starter and they are scrambling like eggs to find another JEEP. So now they have begged the private sector to employ 40,000 people as an obvious extension of the JEEP policy.
Fiscal prudence is the way forward while creating a business-friendly environment to encourage investments, not beg for them. I'm sure the IMF is waiting with open arms to dole out cash since increasing the size of Government and maintaining public-sector wages at 11% of GDP is not seen as an affront to sound economic management.