How do countries turn around?
NEW YORK University's Stern School of Business Dean Peter Blair Henry tells the story of Miss Mama, whom he knew as a boy spending time with grandma in Harbour View in the 1970s. Miss Mama used to come by to beg from his grandmother. "Grandma, Miss Mama has a big belly, so why is she always hungry?" the eight-year-old quizzed.
His grandmother replied that some people have a big belly not from eating too much, but because they never get enough to eat. "For me, economics is all about Miss Mama. I was drawn to the subject because I wanted to help people in developing countries, like my native Jamaica, help themselves. Providing the hungry with the means to feed themselves is an act of empowerment that confers dignity as well as nourishment. My grandmother was too old and lacked the technical training to give people like Miss Mama that kind of enabling assistance. I wrote this book because I have no such excuse".
This account is given in Henry's just-released book Turn-Around: Third World Lessons for First World Growth, already being hailed as a significant publication. Peter Blair Henry is a significant person. He served on President Obama's transition team in 2008 and is a member of the prestigious Council on Foreign Relations. He is the first black dean of New York University's Stern School of Business, one of the leading business schools in the United States.
Henry is regarded as a bright spark in the economics firmament. (I have had the privilege of interviewing him for Profile). Nobel Prize (Economics) Laureate Michael Spence hails Henry's Turn-Around as "a riveting tour of postwar world growth, replete with policy successes and devastating mistakes. Turn-Around is essential reading for anyone willing to be convinced that learning should be a two-way street between advanced and developing countries".
Another Nobel Prize laureate, Liberian President Ellen Johnson Sirleaf, hails Turn-Around for "exposing sobering realities of the world economy" and "tempering the dismal science with a healthy does of optimism". And one of the most distinguished former chief economists at the International Monetary Fund and now governor of the Bank of Israel, Stanley Fisher, recommends Turn-Around for specialists and policymakers, "who will inevitably have to deal with the issues that Henry so expertly analyses".
Jamaica was an excellent laboratory for Peter Blair Henry. In Turn-Around, he combines autobiography with economics to produce an interesting, challenging and fairly even-handed, if incomplete, work. Blair came from a middle-class home (Both parents are scientists with PhDs). His father supervised and formulated the manufacturing process for transforming cocoa beans into chocolate at Cadbury Foods, while his mom conducted research on cocoa and vegetable pathology at Orange River agricultural station. They lived in St Mary.
He quotes Michael Manley as saying, "Jamaica has no room for millionaires. For those who wanted to be millionaires, Manley suggested, 'We have five flights a day to Miami.' … The prime minister's anti-business stance produced unintended consequences that eventually forced them [his parents] to take Manley's advice and put our family on a one-way flight to the States". Jamaica's loss was the United States' significant gain. Henry won a Rhodes scholarship to Oxford, where he studied mathematics. He picked up highest honours for his master's at the prestigious University of North Carolina at Chapel Hill, and took the doctorate in economics from MIT, after which he became professor of economics at Stanford.
The sharpness of his mind is amply demonstrated in this book. Henry certainly demonstrates and puts beyond question any doubt that certain neo-liberal strategies are absolutely crucial to growth and that growth is indispensable to economic and social development.
You can't redistribute what you don't have and any policy based on equitably sharing up the cake rather than seeking to expand it is foolhardy. I have read the neo-liberals and know enough about real-world economic data to know that certain Washington Consensus policies are crucial. I don't engage in leftist fantasies and Utopian dreams. If you are still taken with what I call infantile socialism, Turn-Around is a good book to read. It solidly demonstrates again what is needed to turnaround an economy.
In fact, the book provides a stunning contrast between Barbados and Jamaica. In 1960, Barbados' GDP per capita was US$3,395 while Jamaica's was US$2,208. Both were classified as lower middle-income countries by the World Bank. Today, GDP per capita is US$14,998 in Barbados while in Jamaica it is US$5,275 - an income gap eight times larger than existed in 1960.
"The precipitous decline in Jamaica's standard of living that set in during the 1970s is particularly striking," Henry says. He continues: "The lion's share of the income gap between Barbados and Jamaica today stems not from destiny but from the choices their leaders made in the face of two such events - the oil price shock of 1973 in the case of Jamaica and the oil price shock of 1990 in the case of Barbados."
Henry charts Manley's socialist course beginning in 1974 with the People's National Party's (PNP's) Declaration of Principles, which stated that the goal of domestic policy was "ultimate control by and in the name of the people of the major means of production, distribution and exchange". Manley then began his policy of buying up assets and nationalising.
"Because the Government had no expertise in running the enterprises it bought, the process of nationalization simultaneously drained fiscal resources and undermined national productivity. In the name of self-reliance, the PNP erected import barriers, creating shortages of the goods that were needed for manufacturing, research and other activities central to a modern economy. When foreign exchange reserves grew scarce, the PNP imposed exchange controls but this only exacerbated the problem by promoting capital flight … ."
Henry says, "It was as if every time the economy sprung a leak, the PNP stuck its finger in the hole, only to find that by doing so it created two more leaks that were worse than the first."
Professor Henry goes on: "Reasonable people may disagree about the merits of Manley's attempts to help the poor, but one fact about his economic and social agenda is beyond dispute: It was costly."
Government spending leapt from 23 per cent of GDP to 45 per cent of GDP between 1972-1978. While Jamaica's average fiscal deficit was 2.3 per cent of GDP between 1962-1972 (when the Jamaica Labour Party was in power), between 1973 and 1980, under the PNP, the fiscal deficit averaged 15.5 per cent. Inflation moved from 4.4 per cent per year between 1962 and 1972 to 27 per cent in 1980.
Comments Henry: "Eight years of PNP policies destroyed almost 90 per cent of market value of Jamaica's publicly traded corporate sector. Ironically, the stock market, in some ways the ultimate symbol of wealth, had been signaling to Manley for eight years that his present policies would not only erode shareholder wealth but also steal the future hopes of the poor."
Turn-Around discusses Manley's leftist polices contrasting them with growth-inducing polices of other countries, including Caribbean neighbour Barbados. There is a very interesting look at South Korea, also a country dismissed by both the World Bank and the US as having no prospects for growth. It also contrasts Manley's major failures with Edward Seaga's economic reforms.
"The election of Seaga as prime minister marked a dramatic shift in Jamaica's economic policies. The JLP embraced a variety of economic reforms and moved quickly to end the tension that had escalated between Jamaica and the IMF during the 1970s … . Although Secretary (James) Baker had not yet made his famous speech and the term 'Washington Consensus' had not yet been coined, when Seaga became Prime Minister in 1980, Jamaica began charting a new course that moved the country from Manley's economic populism toward a set of policy reforms to restore growth".
It's interesting that Manley later recanted on his own socialist policies. Henry quotes excerpts of a Manley interview done in 1990 when he had his Damascus Road, born-again experience: "Experience showed us that the state is not necessarily a reliable intervener in production. You stretch your managerial capacity and create tensions with the private sector that can be counterproductive. So the great lesson we learned is not really to depend on the Government as a factor in production but rather use Government as an enabling factor for the private sector."
Only after Manley-produced bang-belly, Big Mama economy did he realise that! Henry tells the fascinating story of the Barbados social partnership which Sandiford fostered after Barbados faced its economic crisis. He forged consensus with the unions and private sector to hold wages, prices and inflation. After talking about a social partnership since the 1990s, Jamaica will only this week Wednesday be finally be signing one (and without the Opposition's involvement). Sandiford, though, lost the elections subsequently and his party was out of power for another 14 years. So far, our politicians have not shown any such proclivity for self-sacrifice.
Turn-Around is an interesting read. It's a pity, though, that Henry does not engage more fully the arguments of people like Joseph Stiglitiz, Dani Rodrik, Paul Krugman, Jeffrey Sachs and Nancy Birdsall. Interestingly, he shows that debt relief was important to the economic recovery of Latin American countries which participated in the Brady Plan. His is a highly reasoned, not a polemical treatise.
But he takes this potshot at liberal and left-wing critics, anticipating their response to his work: "Adopting policy reforms that improve the functioning of your economy does not make you a Washington 'sellout', any more than breathing makes you and Anglophile because oxygen was discovered by English clergyman Joseph Priestley. Sometimes the best policy choice is the one recommended to you."
Perhaps Peter Phillips can begin to use that last line, especially as we prepare for Independence celebrations!
Ian Boyne is a veteran journalist. Send comments to email@example.com