Editorial | Physical goods still matter

There is now in place a fragile two-week ceasefire in the war involving the United States, Israel and Iran. While the world anxiously awaits the outcome of negotiations between the US and Iran, brokered by Pakistan, it is important that Jamaica takes stock of the lessons from the war.

Economics reminds us that when the system is hit, physical output matters first. In the opening salvoes, bombs and missiles struck oilfields, pipelines, gas plants, refineries, petrochemical facilities and aluminium smelters. The result was immediate: the IMF warned the conflict would mean slower global growth and higher inflation; and the World Food Programme said rising oil, gas and fertiliser prices were already worsening food insecurity.

Thus, the war quickly showed that physical output matters more than a well-constructed balance sheet. Finance remains important, of course, but as a claim on production, not a substitute for it. When physical goods stop moving, financial valuations become fragile.

Jamaica should read this lesson carefully, because for more than four decades it has lived through a structural shift away from the economy of “making and producing” toward an economy more heavily shaped by low value-added services, finance, debt operations, imports and asset intermediation. This was the combined result of globalisation, structural adjustment, trade liberalisation, domestic financial liberalisation and prolonged macroeconomic stress management.

HISTORICAL IRONY

The historical irony is that Jamaica once had a much more production-centred development narrative. From the late 1970s onward, repeated crises (starting with the 1973 Oil Shock) and adjustment programmes changed the trajectory of policy. The measures were meant to increase efficiency and growth. Instead, growth disappointed, vulnerability persisted, and the productive base weakened.

The evidence of de-industrialisation is not hard to find. The World Bank’s latest data put the island’s manufacturing value added at just 7.75 per cent of GDP in 2024. By contrast, the World Bank’s Jamaica Systematic Country Diagnostic says the service sector had risen to about 70 per cent of nominal GDP by 2019, roughly 10 percentage points more than in 1990.

While the unemployment rate has fallen over the last decade, the better-paying jobs in mining and manufacturing were increasingly replaced by lower-paying jobs in tourism and services. This is one of the structural explanations for the country’s negative total factor productivity growth rate over the last thirty years.

At the same time, finance expanded in both scale and social importance. Before the financial sector collapse of the late ’90s, the number of financial institutions rose from 67 in 1989 to 105 in 1995. Meanwhile the financial sector output reached 14.7 per cent of GDP in 1994. Jamaica became ‘overbanked’.

DEEPER PROBLEM

But the deeper problem was not simply the size of the financial services sector; it was its orientation. The legacy of that orientation is obvious today. World Bank data show domestic credit to the private sector at about 49.85 per cent of GDP in 2024, while the Bank of Jamaica’s 2024 Financial Stability Report says lending to construction, tourism and manufacturing contracted during the review year, suggesting lower capital investment and tighter corporate credit conditions.

Even after Jamaica’s impressive gains in fiscal consolidation and debt reduction, the system still appears better suited to circulation than transformation; to intermediation rather than industrial deepening.

This is where lessons from the war become especially relevant. The current conflict has not merely lifted prices; it has shown what the world depends on when stress arrives. Oil, LNG, refined fuels, fertilisers, petrochemicals and aluminium were all hit because they are part of the material spine of the world economy; Jamaica’s included. The policy conclusions are clear.

First, Jamaica needs to re-subordinate finance to production. The purpose of the financial system should be to support investment in tradables, energy, logistics, agro-processing, manufacturing and technology adoption, not merely to generate returns through passive intermediation and fees.

Second, Jamaica needs a modern industrial policy, not as nostalgia for smokestacks, but as a practical strategy for raising productivity, export complexity and local value added.

Third, the country must reduce the structural costs that suffocate production: expensive energy, slow logistics, weak innovation systems, difficult land processes and limited patient capital.

Fourth, macroeconomic stability must now be used as a platform for transformation, not treated as the destination.

A society cannot paper its way into prosperity. Financial assets can distribute claims, hedge risk and reward ownership. But they cannot refine alumina, process food, generate electricity, build export capacity or lift productivity on their own. In the end, economies live on throughput: energy, materials, infrastructure, skills, machines and organised production.

Jamaica’s reform era elevated finance and liberalisation, but neglected the deeper need for transformation. If the country wants faster growth, better jobs and genuine resilience, it must rebuild from the real side outwards.

Missiles and bombs in the Gulf have reminded the world of a hard truth: physical goods still matter.