Development strategy under fiscal constraints
By Wilberne Persaud, Financial Gleaner Columnist
It should be evident, even to the most committed advocate of free or 'perfect markets' that devaluation of the Jamaica dollar does not really deliver increased exports and decreased imports.
It did little over the years to correct incipient and chronic deficits in our balance of payments.
Many pointed out that our major exportables, including tourism, were priced in US dollars or other foreign currency often subject to negotiated arrangements and not free markets.
One clear benefit on all occasions of devaluation was, of course, operating cost reductions for say, companies extracting bauxite and reduced US dollar requirements in the tourism sector for all its domestic expenditure.
Like daylight saving time, devaluation, with a change in the value of one digit, affects everyone and everything. Yet oil, basic necessities such as rice, flour, sardines and cornmeal, as well as luxury imports continue on apace. Furthermore, the nature of our tourism product did not allow for truly significant increases in usage of domestic inputs - once construction activities cease.
The explanation for all this is simple: if the central assumptions of an economic model do not fit the facts, the model and the algorithms or recipes we may generate from it are just interesting conjectures we may contemplate at our leisure.
Consumption patterns typically depend on the distribution of income. In this regard, unlike as with Bolt and Bob Marley, Jamaica boasts no uniqueness.
It is, therefore, not unreasonable to suggest no one believes devaluation, retrenchment of civil servants, further cutbacks in education expenditure or any other such measures shall truly relieve the fiscal crisis or take Jamaica out of its (comparatively) high investment but low-level production and output trap.
Indeed, such policies are likely to make matters worse. But where do we turn? Commitments must be honoured and debts repaid. Absent loan repayment moratorium or debt forgiveness and/or significant infusion of foreign capital the beckoning horizon masses like storm clouds.
One cannot but reflect on history's cyclical nature. Students of Caribbean economy are often confused by the fact that St Lucia-born Nobel Laureate in economics, Arthur Lewis - an important part of whose work was introducing the discipline of economics and a Faculty of Social Sciences to the University of the West Indies - had two pieces of work published in a time frame that resemble cart before horse.
The work primarily responsible for the blueprint we chose in the period immediately prior to and after Independence in the push for industrialisation was titled 'The Industrialisation of the British West Indies' delivered as a consultant's output to the Anglo-American Caribbean Commission in 1949 but published in 1951.
His Nobel-recognised work, 'Economic Development with Unlimited Supplies of Labour', came out in the Manchester School, May 1954.
The ideas in the latter, inform the former hence the confusion. But the big thing here is something I've discussed in this column before (December 10, 2010), yet it is worth repeating.
The Anglo-American Caribbean Commission reflected the historical reality of European imperial presence in the region in completely different circumstances of a poorer Britain after the war. French, Dutch, British and Americans collaborated in this endeavour.
The United States had bases, the cold war was upon us, although not at its chilliest, and naturally, they wanted to monitor regional developments.
Set up ostensibly to advance development of Caribbean people, Eric Williams found while working there that the Commission exhibited a reality quite different.
Speaking of industrial development potential and efforts to promote it, he tells of a report of "a panel of experts, one appointed by each of the four governments, the four reports being collated by a fifth expert. One member of the panel was British, another Dutch, while the coordinator was French; they brought to bear on the question the traditional metropolitan hostility to colonial industrialisation".
Years after commencement, before it was finished Williams "succeeded in getting Arthur Lewis, the distinguished West Indian economist, appointed as a consultant to the secretariat to study industrial development in Puerto Rico and make recommendations for the British West Indies."
Lewis took three months at a cost of "little more than a single month's salary for the French coordinator".
Lewis' work published as The Industrialisation of the British West Indies was later pejoratively dubbed 'Industrialisation by Invitation'.
In it he argued for changed emphasis of economic endeavour towards industrial production specifically for export. Production facilities would follow "lucrative incentives for foreign investors to locate in the West Indies, produce at optimal efficiency levels for the export market and later on, Lewis argued, and I use his very words, local entrepreneurs would "learn the tricks of the trade". This didn't occur.
Lewis' prescriptions were implemented in their breach—as if the architects' plans and engineering drawings were abandoned precisely as builders feverishly created structures on a foundation of shifting sand.
Now make the leap. Can we compare an IMF team to that created by the Anglo-American created commission? And if we do, what do we find?
The IMF is a financier interested in making the books 'whole'. It is not in the business of social and economic development or nation building. If we want to truly solve this problem of ours we have to do a Lewis-type diagnostic and prescription, hoping we'll have a patient administration that can read and follow instructions properly.
Lewis diagnosed the problem as overpopulation and figured our continued specialisation in agricultural production of one plantation crop and small farming for the domestic market could not provide for a commonly acceptable standard of living.
We need now a vision of how our Government proposes to modernise Jamaica, to create the infrastructure that builds both economic and social capital.
With such a blueprint in hand, domestic investment and foreign investment — sure the Chinese are interested — shall surely flow.
Mind you, we don't need to sell them the complete port — potholes and all. We need a credible plan based on a long-term dream: a seat of government at Heroes Park with an imposing Parliament building amidst greenery; a rejuvenated downtown; and lots more.
This kind of vision can invoke buy-in. We would then ask the IMF and our creditors for a bit of breathing space.
Alas, one thing: corruption would have to cease.
Wilberne Persaud, an economist, currently works on technology change and capital solutions for Caribbean SMEs. Email:firstname.lastname@example.org