PUBLIC AFFAIRS -It's the economy, not agriculture ...

Claude Clarke, Contributor

Last Sunday, this newspaper committed its front page, its editorial column and fully five other pages of its publication to a project it called a 'state of emergency for agriculture'. While I found most of the contributions very interesting and constructive, I nonetheless find the basic idea extremely strange.

The entire Jamaican economy is in crisis. In the last 35 years, the average income of our people has fallen 17 per cent in real terms, while incomes in much of the world have multiplied several-fold. We are now in our third year of economic decline - a recession so long some economists would consider it a full-blown depression.

For decades, our imports have dwarfed our exports, more than tripling them last year. For most of the last 10 years, government's revenue has not been enough to meet its debt-servicing cost and has fallen short by as much as 23 per cent in some years. We are forced to increase our debt in order to service it; and then we must borrow every penny that we need to provide basic government services.

The situation was so bad that it required the International Monetary Fund (IMF) and other multilateral institutions to provide us with the biggest balance of payments and budget-support package they have given to any country on a per capita basis in recent times. It is difficult to conceive of any greater national emergency than this.

Serious crisis

Naturally, the agricultural sector, like the entire productive sector of our country, has been seriously hurt by this crisis and is as much in need of emergency treatment as is the rest of the economy. But it would be a tragic mistake to believe that this small organ in the national economic body is the only thing that is sick, that it can be cured on its own, or that its revival is what is needed to bring the entire economy back to health.

Of the three main economic sectors - agriculture, industry and services - agriculture represents the least value and tends to yield the lowest return to labour and capital. This is true in every country in the world. For this reason, and because of its central importance to man's survival as a source of food, clothing and shelter, it is subsidised by those countries that can afford it, in order to compensate for its relatively low economic value. Agriculture represents only four per cent of the world economy and five and a half per cent of Jamaica's. In economically successful countries, including the United States, its share of economic output tends to be close to zero per cent, while in the most economically backward countries, it could be as high as 50 per cent.

Jamaica needs sustained economic growth of more than six per cent to approach anything like an economic recovery and to provide sufficient economic opportunity for our people. A 'state of emergency' for agriculture, if successful, and if it manages to achieve an extraordinary average growth of 20 per cent per annum, would be adding little more than one per cent to overall economic growth.

The real opportunity for our economy is to achieve broad-based growth covering not only agriculture, but all the value-creating sectors of the economy. To achieve this, our primary focus cannot be on agriculture. It must be on an economic framework that generates broad productive vibrancy and sparks entrepreneurship among small and medium-size enterprises across all sectors; a policy framework that encourages large businesses to expand and employ increasing numbers of our people.

We need policies that address the fundamental problem of the competitiveness of domestic inputs into the production of goods and services so that competitive pricing of Jamaican production can be achieved. We need trade and fiscal policies that will direct both domestic and foreign demand to the output of our factories and farms.

Modest decline

Compared to manufacturing, which has a far greater capacity to generate the kind of economic growth the country needs, agriculture's decline over the years has been modest. While as a proportion of gross domestic product agriculture fell from seven per cent at the beginning of the 1970s to 5.5 per cent in 2009 - a decline of 21 per cent - manufacturing collapsed from 18 per cent to eight per cent - a decline of more than 56 per cent. There is also clear evidence that the decline of manufacturing has had a far greater impact on the performance of the overall economy than that of any other sector. This is because of the pervasive multiplier effect of the sector through its extensive backward, forward and lateral linkages and the very high additional value it creates.

As I have pointed out before, labour engaged in manufacturing is almost four times more productive than labour employed in agriculture and is 50 per cent more productive than labour used in services.

None of this should be interpreted as a suggestion that agriculture should be neglected. Its value to rural life and to converting our rich natural gifts to economic value cannot be overstated. In the absence of rural industrial activity it provides a brake on the urban drift. But what we must understand is that its success is integrally connected to the success of other sectors of the economy.

The mistake is often made in believing that agro-industry is primarily agriculture. It is not. Agro-industry is essentially an industrial activity from which agriculture benefits. The final value of a bar of chocolate is more than 10 times greater than its total agricultural content. More than 90 per cent represents industry and some services.

Industry is the driving force behind agro-industrial production. It uses services like finance and transportation but most important, it allows agriculture the opportunity to supply its raw-material needs. However, governments over the years have neglected manufacturing to the detriment of the overall economy and most particularly, to the detriment of agriculture.

While it cannot be denied that agriculture is today in the emergency room and needs urgent attention, manufacturing has been in intensive care and on life support for a very long time, and its death would render agriculture's emergency-room treatment ineffective.

Our government and opinion leaders, who too often lead government into destructive policy decisions, must understand that an approach to economic policy that picks winners, singling out particular sectors for special treatment, is usually wasteful of capital. Decisions on which sectors to support are most likely to select those with special access to government, those with the highest public profile, and those with the greatest political value. It is for these reasons that it is not surprising that agriculture and tourism have consistently attracted the attention of the media and government.

Added to this, unlike agriculture and tourism, manufacturing has for decades suffered from extraordinarily ineffective leadership both from government and from the private sector. I am sure the special attention now being given to agriculture and tourism partially reflects the impressive public advocacy of the holders of those ministerial portfolios.

The leaders of manufacturing in Jamaica need to wake up and lead the effort to rescue our economy. In doing this, they must not allow themselves to adopt the myopic approach of seeking assistance for their sector ahead of others. They must recognise that the success of their sector rests on the restructuring of our entire economic policy framework, with the objective of driving down input costs within the economy.

They must work to ensure that we have fiscal and monetary policies that will lead to a competitive currency and allow Jamaican dollar-based input costs not to become uncompetitive when they are converted to foreign currency. They must see to the development and implementation of an aggressive and creative approach to bringing the costs of energy and government bureaucracy to internationally competitive levels. And a full commitment must be made to renegotiate or set aside trade policies, treaties and agreements that disadvantage Jamaican production at home and abroad.

Jamaica does not need a state of emergency for any sector or for the economy as a whole, as trendy and magical as the term might now be. What we need is for government to create an environment that engenders discipline, trust and productivity among our people.

Dynamism

Government and its advisers have to recognise that our goal must be to lift the overall economy, stimulate it and give it dynamism. For the economy to succeed, Jamaica needs all its sectors to do well. We must seek to liberate the economic potential in our economy wherever it might be, and employ our resources where they will bring us the greatest returns in economic value. The human, material, financial and political resources available to us are limited and we cannot waste them.

I believe the process of economic transformation would be best approached by the prime minister constituting an economic council of the Cabinet, with a clear mandate to achieve economic recovery and development for Jamaica in the shortest possible time. This council must be chaired by the prime minister to guarantee the adherence of all affected portfolios. It would consist of the ministers responsible for the economic portfolios of finance, trade, industry, agriculture, tourism, public utilities, communications, energy and infrastructure. It would meet at least monthly, with a set development agenda. It would have its own secretariat and interface with the Cabinet office to ensure that its activities are complementary to and not in conflict with the existing systems of government.

Governments are elected to lead. This Government now seems to be on a campaign to convince us that with the imposition of a state of emergency it has now begun to lead on crime. It will not need a state of emergency to discharge its larger responsibility to lead the development of the Jamaican economy.

Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to columns@gleanerjm.com.