Jamaica continues to celebrate 50 years of Independence. We have achieved a lot. However, there is much work left to be done if we are to progress as a country. We must begin to tackle Jamaica's chronic problems in a targeted and sustained way to make this country a better place to live, work and grow families. The Next 50 Years, a special Gleaner series, will spotlight some of the challenges we must fix in the coming years. We want to hear from you. Email us at firstname.lastname@example.org and join the debate.
Colin Bullock, Gleaner Writer
Historically, Jamaica was dependent on labour-intensive export agriculture, making the economy prone to unemployment and rural poverty, especially when export demand declined. Growth in Jamaica has been weak, leading to questions about the effectiveness of vision, policy design, and implementation of policy to generate growth in our years of Independence.
Norman Manley, as premier (1955-1962), sought to drive economic growth through a national planning office which was the precursor to today's Planning Institute of Jamaica. National economic plans advanced over the next 40 years were generally not effective in attaining specified growth and employment objectives.
A 10-year development plan - 1957-1967 - addressed population growth and unemployment and diversification to bauxite mining manufacturing, and tourism, while still supporting agricultural recovery. It was supported by generous tax incentives, many of which have continued over 50 years. Incentives facilitated the manufacture of import substitutes behind protective barriers. As a result of high energy and security costs and declining productivity, manufacturing eventually proved to be uncompetitive when exposed to regional and international competition.
Fuelled by a bauxite-alumina investment boom, the economy grew strongly from the 1950s to the early 1970s. Comforted by this growth, the five-year Independence Plan (1963-68) focused on population growth, unemployment, rural-urban population drift, unplanned urbanisation, and poverty. Confronted with a choice between maximising jobs and enhancing competitiveness in sugar cane harvesting, manual reaping was chosen over mechanisation. The ambitious Public Sector Investment Programme (PSIP) increased the share of Government in domestic capital formation. The PSIP was dominated by "social upliftment" with major emphasis on land reform and titling, drainage, and irrigation. "Family Planning" was embraced as a major policy initiative.
Currency devaluation, realignment from sterling to the United States dollar, and decimalisation were undertaken in reaction to major international developments and the dominance of the United States as a trading partner. A policy of "Jamaicanisation" of the financial system, from the late 1960s, was expected to increase and widen national ownership and deepen financial investment and enterprise.
Economic growth and social policy failed to resolve growing dissatisfaction, culminating in regime change in 1972. Up to 1973, policies did not change significantly. In 1973-74, at the end of the bauxite-alumina investment boom, and coinciding with the first oil price shock, Government significantly increased revenue through the bauxite levy.
From 1974, with the formal adoption of democratic socialism, Government expanded spending on social programmes and increased public-sector emoluments and produced an impressive raft of social-reform legislation, including the Status of Children Act ("No bastard no deh again … everyone lawful"). The fundamental importance of this social reform has been conceded, even by the harshest critics of the then Government, but this reform was accompanied by significant fiscal and balance-of-payments deterioration. While the deterioration has been rationalised on the basis of external shocks - including oil price increases - Edward Seaga points out that the bauxite levy would have paid for most of this slippage. The unfavourable assessment of fiscal management in the mid-1970s is also supported by Professor Kari Levitt.
Having been re-elected in December 1976 on the basis of its impressive social-reform agenda, Government had to confront the disappearance of foreign-exchange reserves caused in part by fiscal deficits. Having encouraged the articulation of an "Alternative Path", Government, by April 1977, opted for a borrowing relationship with the IMF, which was to continue with brief interruptions for two decades.
commendation for epp
In 1977-78, Government tried to marry the austerity of an IMF programme with the social dynamism of the Emergency Production Plan (EPP), itself a child of the Alternative Path. Roderick Rainford commends the EPP for public participation, attention to detail, and its emphases on agriculture and rural development, small-scale industry, locally based manufacturing and crafts, and community enterprise organisation. However, with the IMF programme, the EPP was denied any strong budgetary support as had been evident in the 1957-67 and 1962-67 economic plans. IMF borrowing conditionalities were tightened in 1978, and Jamaica, up to 1980, was more engaged in a struggle for economic survival in a context of chronic foreign-exchange shortage than effective planning for economic growth.
From severe basic commodity shortages and highly polarised and violent political conflict, there was regime change in October 1980. From Seaga's recollection: Cold War geo-political conflict facilitated strong foreign-exchange inflows that relieved economic shortages and facilitated some economic recovery in the early 1980s. Market-oriented structural adjustment programmes from the Washington Consensus effectively replaced national economic planning in the 1980s. By 1983, with renewed oil price increases and depressed aluminium markets, there was significant fiscal deterioration, leading to requirements for sharper adjustment by the IMF, including downsizing the public sector and wage, but not price, restraint.
The sectoral strategy for economic growth in the 1980s centred on tourism recovery; garment manufacturing, on the basis of preferential access to North American markets; and export of winter vegetables. The first two were relatively successful although garment exports were eventually undermined by competition from Mexico and then Asia. The third failed after about three years due to transportation costs, adverse local weather affecting planting schedules, and external market conditions.
Programme discussions with the IMF broke down in late 1985 given the IMF's insistence that devaluation was necessary to enhance competitiveness and economic growth. By early 1987, Jamaica secured a new borrowing agreement without an upfront devaluation. The economy recovered in 1987 and 1988, albeit in an environment of softening oil prices and recovering bauxite-alumina prices.
Despite growth, the political fortunes of the governing party had not recovered from the sharp adjustment of 1984-85. A new Government in 1989 first contended with inflows for hurricane recovery. In 1990-91, there was strong money growth in a liberalised foreign-exchange market that facilitated record 12-month triple-digit inflation in April 1991. High inflation in a context of democratisation of financial-system ownership encouraged and masked imprudent financial risk management that was exposed when policy sought to reverse this inflation from 1993-94. Financial institution failures and efforts to protect depositors through FINSAC led to a sharp increase in public indebtedness from about 78 per cent of GDP in 1993-1994 to over 140 per cent in 2000-2001.
This sharp increase in public debt due to FINSAC has largely defined the resource constraint on the capacity of Government to enhance growth in the new millennium. This constraint was worsened by a sharp increase in external multilateral debt after another regime change in 2007.
Government in the new millennium was successful in attracting significant foreign inflows for tourism (Spanish hotel chains) and in large infrastructural projects (highway development). Many of these inflows have remained highly dependent on generous tax incentives, and the favoured sectors have not yet spread their dynamism through increasing purchases from other sectors, including agriculture.
Almost by tradition, the Government of 2007-2011 located external conditions as the cause of fiscal slippage and debt accumulation. The failure of the 2010 IMF programme now means that Jamaica's capacity to finance growth is again compromised by an imperative for sharp adjustment to gain an IMF seal of approval.
This brief review of government policy and the facilitation of economic growth in Jamaica since Independence suggests the following:
1. Formalised economic planning has been used in various forms over the past 55 years, but there is no indication that these plans have dominated the design or implementation of economic policy, or that they have generally been successful in attaining stated objectives.
2. External factors have been dominant in defining growth potential, and internal policy has not been flexible in the face of adverse external shocks.
3. In 1957, we lamented unemployment poverty, uneven income distribution; in 2012 the lament continues unchanged.
4. Policy has not always reflected an understanding of the interdependence between economic stability and growth, or paid sufficient respect to macroeconomic resource constraints.
5. Jamaica has not successfully operationalised an effective internal strategy for economic growth flowing from a perception of potential competitive advantage and supplemented by targeted interventions in training, education, and infrastructure, and building effective inter-sectoral linkages.
6. Jamaica has not been successful in improving fundamental contextual drivers of investment and competitiveness including security, education, and energy costs.
There is much to be done, and new approaches are required. Governments by now understand the importance of macroeconomic stability within which resources have to be prudently managed and expenditure prioritised in keeping with a vision of the sectoral possibilities for expansion. The burden of adjustment has to be shared as it is difficult for an economy dominated by impoverished, uneducated, and ailing workers to grow rapidly. Hurricanes and floods and droughts and commodity price shocks we may have with us always, so we have to plan for them and stop hiding behind them. And as governments seek to reduce international mendicancy and dependence, a reinvigorated private sector is challenged to realise private sector-led growth.
Colin Bullock is an economist and adviser to Finance Minister Peter Phillips. Email feedback to email@example.com and firstname.lastname@example.org.
Seven factors to facilitate growth in the next 50 years
1 Jamaica needs to facilitate greater socio-economic equality, not just of income, but also of educational access and economic opportunity. Relative to economies like Barbados, with which Jamaica is unfavourably compared, income distribution is highly uneven; there is a proportionately smaller middle-class; and our labour, a major economic resource, is severely undereducated.
2 Micro and small businesses need to be more meaningfully facilitated. Although these businesses are small, the development of a critical mass would not only "democratise" enterprise and economic activity, but would also facilitate engagement in legal economic activity and contribute to an expansion of economic activity.
3 Tax incentives need to be reduced in scope and targeted more productively. The massive loss of revenue without any effective accounting for impact needs to be replaced. Incentives need to be used to build productive linkages between mature beneficiaries of incentives like tourism and ailing, but socially significant, sectors like agriculture.
4 Enhancing the security of person and property as well as social stability would significantly reduce the costs of doing business in Jamaica. This and the point following are probably the most promising means of incentivising investment and economic activity in Jamaica.
5 For much of the past 50 years, we worried more about electricity-generating capacity than the cost of electricity generated. Rapid deployment of cheaper alternative energy sources and increased efficiency in generation and distribution are essential in enhancing the competitiveness of the economy.
6 In creating a more growth-friendly environment, private enterprise, whether indigenous or imported, is being encouraged to invest in Jamaica. This process is to be facilitated by productive dialogue, including both large and small entrepreneurs, and the labour movement.
7 Efficient design and delivery of public service are essential to Government's role as a catalyst of enhanced economic activity. It is, therefore, imperative to rebuild the morale and capacity of the public service, including training and exposure, and to establish clearer boundaries between political definition of policy and policy implementation.