Public Affairs - No false-starts allowed

Claude Clarke,  Guest Columnist

With what looks increasingly like a never-ending list of urgent top priorities, the new administration faces the same gargantuan task that has challenged every Jamaican government since the country's economy lost its bearings in the 1970s. But the challenge of putting the Jamaican economy on a sustainable path to prosperity has never been greater.

Despite the trumpeting of macroeconomic successes and grandiose plans to achieve prosperity by 2030, the recent People's National Party (PNP) and Jamaica Labour Party (JLP) governments have driven the island into an economic cul-de-sac. And judging by the first steps taken by the new PNP administration, it seems we haven't got a clue how to extricate ourselves.

The new prime minister has, admirably, recognised that one of the most urgent priorities is the creation of jobs, as was promised in her election campaign. But it is imperative that any jobs programme carried out by Government is rooted in the creation of incremental value. Notwithstanding the desirable objectives of the Jamaica Emergency Employment Programme (JEEP), the Government needs to be mindful of the fact that a real job is only created when labour produces economic value in exchange for monetary reward.

Productivity

In one of my earliest jobs as a young man, a Spanish cost and works accountant was brought to Jamaica to improve the productivity of the company I worked for. After spending some time observing the functions performed by two supervisors, he pronounced in heavily accented English that the factory cannot be productive because they need "a properly job to do". While I found his delivery funny, the lesson remained with me for life: workers who do not produce make unproductive companies. Merely employing persons who don't have a 'properly' job to do undermines a company's productivity. The same is true of countries.

Monetary reward without commensurate economic value is little more than charity. Those who support the Keynesian theory that increased aggregate demand coming from increased employment (however unproductive) will spur economic growth should recognise that the theory does not hold where increased consumer demand is directed principally towards imports, as is the case in Jamaica.

An employment programme that does not create incremental value will inflict unbearable costs on the country's producers, making them even less competitive. This is not sustainable and will eventually result in reduced employment.

Having said that, when a country is faced with an unemployment rate as high as Jamaica's, it must, if at all possible, convert capital-intensive projects to efficient labour-intensive operations. Though it now appears to have been no more than a clever acronym, if the JEEP can be a vehicle to execute such conversions, it could become a cost-effective way of boosting employment in the short term.

However, the Government cannot afford to ignore the need to contain the growth of costs within the economy. It has already started on the wrong foot by increasing the size of the Cabinet without demonstrating that the larger executive will deliver more value. It must not compound this error by inducing the private sector to drive up their costs with jobs that do not create additional marketable goods and services.

The PNP should by now have learnt from its well-intentioned Impact Programme in the 1970s, which created jobs that were not matched by production. This contributed to an unprecedented decline in economic output that hurt the poor so badly, they voted out the Government, led by arguably the most popular political leader of our time, by the second-widest margin in our history.

Increasing incomes without growing production leads to rising costs within an economy, making it uncompetitive. It is what has hobbled the Jamaican economy as it has crippled the crisis-ridden economies of the Eurozone. Portugal, Italy, Ireland, Greece and Spain (the PIIGS) allowed their domestic costs to grow faster than the economic powerhouses like Germany and France, making their output uncompetitive. Like Jamaica, they used debt to fill the gap between their declining production and their consumption demands and left themselves in an ocean of debt.

Competitive

The problems faced by the PIIGS are exacerbated by the fact that they are tied to the euro - a currency they do not control and, therefore, cannot use to address their uncompetitiveness. Jamaica is not so handicapped, unless we choose to cripple ourselves. By contrast, Poland, a European Union (EU) country not using the euro, was able to manage its rising costs by adjusting the value of its currency. It stayed competitive and has achieved the second-highest rate of growth among EU countries since the global economic crisis struck in 2008.

The crisis among the relatively highly developed PIIGS will be mild compared to what will happen to undeveloped and economically weak Jamaica if we continue to ignore the urgent need to manage the rising costs that have undermined production and employment.

The sustainable solution to unemployment is not to create unproductive jobs. It is increased production based on economic competitiveness. Instead of simply asking the private sector to hire new workers, the Government should be finding out what is needed for businesses to improve their competitiveness and increase demand for their output so that sustainable jobs can be created.

For many years, Jamaica's real economic output has been too small to support the incomes generated within the economy. This is what has created the persistent trend of declining domestic production and surging demand for imports: trends which in 2008 left us with a trade deficit equal to 41 per cent of our economic output.

And the problem of unsupportable incomes is not confined to the public-sector wages which have caught the attention of the International Monetary Fund (IMF). In fact, the case could be successfully made that the incomes of those employed in education and health are far more representative of value than the cost of the political government is.

It could also be argued that public-sector wages are far more reflective of value than the incomes earned at the upper end of management within the private sector. For many years, Jamaican top management salaries have been several times higher than their counterparts in Trinidad and Barbados. Yet our economic output has consistently lagged behind theirs. These countries sensibly dealt with this problem of the imbalance between incomes and output before they were able achieve their economic turnaround in the 1980s.

The question to be answered by the new Government is whether it will continue macroeconomic policies that perpetuate the intolerable and unsustainable situation in which locally generated costs, when measured in foreign currency, are so high our economic output cannot be competitive.

None of our governments since the 1980s has been prepared to take the action necessary to achieve a competitive economy. And despite how sanguine they have been about the quality of their macroeconomic stewardship, the judgement of the World Economic Forum at the end of their combined 23 years in office is that Jamaica ranks dead last in macroeconomic competitiveness among the 142 countries it surveyed.

Illusion of prosperity

If our aim, sincerely and realistically, is to make Jamaica the place of choice to live, work, raise families and do business by 2030, a mere 18 years from now, a period shorter than the PNP's last term in office, we must start by employing policies that permit our production to attract demand at home and abroad. Policies that simply create the illusion of prosperity by boosting the import-consumption capacity of incomes at the expense of productive competitiveness can only perpetuate and compound the poverty of our people.

The new Government is inundated with urgent top priorities. But if it is to make progress, it must order these priorities to promote economic expansion. In doing so, it will quickly recognise that there is one priority without which no other can be met: Jamaican production must be made competitive. Without it, the revenues needed to meet other priorities cannot be generated.

The now-suspended agreement with the IMF was not formulated around a strategy to increase productive output. Consequently, the performance targets became increasingly unattainable. The new Government will be sowing the seeds of its own failure if the agreement now being negotiated is not based on a foundation of economic competitiveness.

A government whose main asset is the trust of the ordinary people will be betraying that trust if it pretends that sustainable jobs can come from a hodgepodge of make-work activities. Trying to increase employment without reference to increasing production is asking the taxpayer and businesses to pay for workers who simply don't have a 'properly' job to do. The acceptance of this reality must begin now. We may not survive another false-start.

Claude Clarke is a businessman and former minister of trade. Email feedback to columns@gleanerjm.com.