Has everyone turned off the lights on growth?

Published: Sunday | November 25, 2012 Comments 0
Dr Gladstone Hutchinson (right), director general of the Planning Institute of Jamaica. - File
Dr Gladstone Hutchinson (right), director general of the Planning Institute of Jamaica. - File

Martin Henry, Contributor

Dr Gladstone Hutchinson, director general of the Planning Institute of Jamaica (PIOJ), will be heading back to the United States within a couple of months of delivering his last no-growth quarterly report and releasing in print A Growth-Inducement Strategy for Jamaica in the Short and Medium Term.

The Strategy has been sitting on the PIOJ website for a while. Dr Hutchinson joins the 80 per cent or so of tertiary graduates who seek greener pastures overseas. I have on my own hands a recent graduate in ICT who is unable to find a job joining the 12.8 per cent of the labour force (PIOJ labour market data) who can't find a job, the same sort of unemployment figure which existed at Independence 50 years ago.

And we mustn't forget that what the unemployment number is measuring is people who have been actively seeking a job over the last year and not finding one. It doesn't touch the mass of permanent dropouts from the labour market nor the mass of the underemployed and marginal hustlers in the informal economy. More broadly, I can't help wondering, as a non-economist, but a keen observer of the national scene, about the degree of alignment to reality of what our measurers and counters are measuring and counting.

Anyone who has lived for 50 or more years would have seen a substantial positive transformation of the Jamaican economy and both a reduction of, and redefinition of, poverty. The October 2012 edition of Imprimis, a monthly paper now in its 40th year with 2.6 million readers put out by Hillsdale College in the US, recounts a telling story by a Soviet dissident. The Soviet authorities were doing repeated showings of the American movie The Grapes of Wrath from John Steinbeck's novel about the migration of impoverished farmers from the Dust Bowl of the Midwest to California during the Great Depression in their beat-up pickup trucks.

The intended propaganda message was poverty in America. But contrary to expectation, Soviet audiences left the movie marvelling that in America, "even the peasants own trucks"! Poverty has shrunk and has been redefined in Jamaica.

Similarly, anyone who wanders around the country looking at life cannot miss the evidences of a bustling 'prosperity', perhaps most evident in the dramatic growth of some towns as commercial centres and the upgrade of housing stock.

RECESSIONARY JAMAICA

At the media briefing for the second quarter and forecasting for third quarter held on August 21, Hutchinson cited challenges in accounting for the economic dynamism and modernisation the country was showing. Something is happening in the economy, and the PIOJ wants to better capture it, he told journalists. "There is a kind of economic dynamism and modernisation taking place where we are still looking at the structure of the economy that when we modernise, it may not be fully captured," he said.

Any mismatch of data on paper or in computer files and reality on the ground notwithstanding, the director general was unveiling the print version of the Growth-Inducement Strategy against the announcement of a 0.6 per cent contraction of the Jamaican economy during the third quarter.

I have a problem with these microscopic, sub-one contraction and growth figures. As The Gleaner famously reported last Wednesday from the PIOJ media briefing the day before, "For the nine-month period ending September 2012, real GDP is estimated to have declined by 0.3 per cent, which technically puts Jamaica in a recession. During that period, the goods-producing industry declined by 0.9 per cent and the services industry by 0.2 per cent." Someone has an excellent microscope!

At the very time when the PIOJ was touting a growth strategy, Finance Minister Dr Peter Phillips, under whose portfolio the PIOJ falls, and Opposition Spokesman on Finance Audley Shaw were quibbling and trading barbs about how soon an IMF agreement would be signed and how much it would provide. An IMF standby agreement, the country must understand, is a balance-of-payment mechanism, i.e., a debt-management tool, not a growth-inducement strategy, as such. The Government can get money from the Fund at the lowest interest rate to pay down on its debt and get a seal of approval from the IMF which is a green light to others to lend.

The Government of Jamaica has long been at the stage where it is financially unable to conduct the ordinary and routine functions of government, not extraordinary growth and development actions without loan support. What really matters are the reforms which can stimulate growth, the only real escape route from the debt trap. The IMF 'conditionalities' are pretty much exactly what the Government would have had to do on its own to restructure for growth, but which it cannot do on its own because of the absence of fiscal autonomy.

GOING FOR GROWTH

The Growth-Inducement Strategy identifies critical constrainers to growth: the chronic state of fiscal imbalance, underutilisation of productive capacity, economic waste of capital, concentration of capital in highly capital-intensive sectors and economic enclaves. And then the really important ones ("at the top of this list, as determined by our assessment based on worldwide surveys done by international agencies"): crime and violence, corruption, taxation, supply of electricity finance, macroeconomic instability, bureaucracy and regulation, quality of labour force, quality of infrastructure, the foreign trade regime". Factors related to the internal operations of firms and industries were also identified.

Public policy is the greatest driver of where money will go in an economy. The long-delayed White Paper on Tax Reform for parliamentary debate was only tabled last week. And for years, Government used high-interest rate investment instruments to 'mop up liquidity'. The Jamaica Debt Exchange drove down interest rates on public domestic debt, making investments in government paper no longer attractive and a better alternative to productive investments in a hostile and dangerous environment.

That unused money is lurking around in banks to make mischief. It can be used 'profitably' to buy US dollars at a lower exchange rate and sell them back at a higher exchange rate, the rate change virtually guaranteed by rising demand from the buying up outstripping supply. The Bank of Jamaica (BOJ) has been draining the net international reserves to align supply to demand, whether real or speculative. The opposition spokesman on finance says he has detected speculation. We don't see any sign of this, say Financial Secretary Dr Wesley Hughes and BOJ Governor Brian Wynter. This does not necessarily mean that no speculation against foreign hard currencies actually exists when the environment is so attractive for it, but may be a reflection of visual impairment. What is clearly visible is the decline of value of the J$ against these currencies.

"At its core, the Strategy recognises a basic fact, i.e., that there exists a sizeable pool of latently available and productive assets - financial assets, physical capital, buildings, labour and land - that currently lie fallow, dormant and/or underutilised and/or wasted."

Take land. I am aware of a little project financed by a little grant by an overseas agency to produce titles for all of 20 inner-city lots. There are hundreds of thousands of dead-capital untitled parcels of land across Jamaica. The Government could earn money from the affordable fees of a titling revolution which would pay for the exercise with profit, and subsequently from property taxes. "Of the more than 800,000 parcels of land in Jamaica, approximately 47.0 per cent are unregistered. They represent 'idle assets'," the Strategy notes.

Aligned to, and extracted by and large from, Vision 2030, the Growth-Inducement Strategy acknowledges that "because of limited resources, everything cannot be done at once. Therefore, the Strategy [the PIOJ having consulted with a wide range of state and private-sector groups] seeks to focus resources and action at those points which are identified as critical to releasing binding constraints and capable of yielding demonstrable and significant results in a short and medium-term context."

Addressing perhaps the most critical weakness in strategy becoming action, the document says, "It also calls for forceful leadership and exercise of political will."

APPOINT MINISTERIAL DRIVER

Dr Phillips has as much admitted that the core business of Government is first, second, third - and even fourth - debt management. But debt management will not automatically translate into growth.

When I asked him directly at a Gleaner Editors' Forum whether there was dedicated leadership for Vision 2030 within the Government, his financial secretary answered that there was a secretariat at the PIOJ for Vision 2030. If that secretariat is producing results, it should get out its trumpet and let the whole world know. There should be a minister of state for planning to politically drive the National Development Plan to satisfy that call for "forceful leadership and exercise of political will".

What is the Growth-Inducement Strategy proposing?

Asset mobilisation, including tax reform and land titling, competitiveness, lowering the costs of production, and improving productivity, including activating the National Energy Policy Action Plan and reducing the cost of energy. Building business networks to achieve synergies. Taking care of the natural and built environment, including a community-renewal programme. Public-sector transformation and social inclusion.

Some very specific projects and activities have been identified, several of them public works-type projects which have long been used by governments both for development of infrastructure and for economic stimulus.

If this widely consultative Growth-Inducement Strategy is not the thing for Government to lead forcefully and for the country to rally around vigorously, what is?

Martin Henry is a communication specialist. Email feedback to columns@gleanerjm.com and medhen@gmail.com.

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