Following the flying dragon

Claude Clarke, Contributor

The statement by Professor Winston Davidson, chairman of the Technical Review Team of the People's National Party's Policy Commission, in last week's Sunday Gleaner, that there are "no prescriptive measures which can pull us out of the deep economic hole that we are now in", perhaps explains why the People's National Party's Progressive Agenda lacks strategic direction and fails to point the country towards economic progress.

It also suggests that the document's preparation did not benefit from a diagnosis of how we came to fall into that "deep economic hole" during the party's recent terms in office.

The public must now await the party's promised consultations with the people to know whether a new People's National Party (PNP) administration will offer a different economic policy framework than the one that led the country into that deep abyss. In the meantime, we anxiously await a new economic direction from either of our political parties to shake us out of our long economic nightmare.

Our political leaders need to wake up to the urgency of the country's economic challenges. They seem incapable of conceiving the types of strategic changes needed to move the country towards development. Some seem to have lost faith (if they ever had it) in our ability to be a competitive economy engaged in industrial production. Instead, they promote any number of ad hoc ideas in the unrealistic expectation that they can succeed in our dysfunctional and uncompetitive macroeconomic environment. They are prepared to leave high-value industrial production to other countries like China and India, against which they believe we have no hope of ever competing.

The Jamaica that was

We seem to have forgotten, though, that while India, one of the vaunted newly industrialised countries, now struggles to efficiently stage this year's Commonwealth Games, almost four decades ago, a newly independent Jamaica successfully hosted those games. We appear to be unaware that at the time of our Independence, Jamaica was almost seven times richer than China on a per capita basis. And, despite our patchy economic performance, as recently as 1990, Jamaica's per capita gross domestic product was still six times greater than China's.

Then something happened. The hitherto agrarian-minded Chinese dragon woke up to the realisation that moving its economy towards industrialisation was the best route to prosperity. In the meantime, Jamaica, which had already started on the road to industrialisation, fell into a deep trance in which it turned its back on industrialisation and confused investments in government debt with economic progress.

For almost two decades, while China worked to shape an economy that could be competitive in the production of goods, Jamaica made the mushrooming of largely domestically focused financial services the route to entrepreneurial success. China's economy took wings and grew sevenfold by 2009. Jamaica's stagnated, crawling along by an average of less than one per cent per year during the same period.

Instead of trying to understand what was really responsible for China's success and learning from it, our decision makers gazed at the Chinese in starry-eyed amazement and surrendered our development prospects to the self-demeaning belief that there is no hope for Jamaica to achieve industrial success in a world in which China exists.

To this day, they have failed to understand the simple logic of China's development strategy, and have blinded themselves to the fact that it is nothing more than enlightened, committed, and bold leadership from men like Deng Xiaoping that created the macroeconomic conditions within which competitive industrial production could take place.

Although many aspects of China's society and its governance, not all of which are desirable, contributed to its burst of industrial expansion, the leadership realised that if its economy was not capable of competitive production, development could not occur.

But Jamaican leaders failed to recognise that the world in which uncompetitive production, carried out behind protective trade barriers, could sustain an economy, came to an end in the 1980s, and that economic survival based on Cold War clientelism collapsed with the Berlin Wall. Since then, economic competitiveness has become the cornerstone of prosperity and social stability. It is the failure of our leaders to understand and respond to these realities that led to the collapse of Jamaica's economy after the 1980s. China, on the other hand, was alert to the threats and opportunities that emerged after the Cold War and adopted the economic strategies necessary to become competitive.

Competitiveness is a multi-factorial condition; but one of China's first steps was to ensure the competitiveness of its currency. It controlled inflation to secure the currency's strength, but was never afraid to make the necessary adjustments to its price whenever it appeared that its competitiveness was threatened. And it was able to do this without sacrificing the economic well-being of its people. The result is that Chinese productivity has skyrocketed, growing at a pace almost five times faster than the United States (US). And it is this competitiveness, gained substantially through the judicious management of the yuan, which has been the decisive factor in China's economic success. The determined efforts by the US and the European Union to force the revaluation of the yuan in order to put a brake on China's growing competitiveness is ample testimony to the success of China's currency strategy.

Missed opportunities

Jamaica was not without its opportunities to be competitive. But, while China was managing its economy for the competitiveness of Chinese production, Jamaica was busy constructing a macroeconomic environment to benefit imported foreign production and undermine the competitiveness of Jamaican production. The productive efforts of our businesses, our workers, and our farmers were squandered as a result.

Notwithstanding this, we have persisted with these policies. And while they began with the former administration in 1992, they have been slavishly followed by the present Government, as if by fatal attraction.

For 17 years after 1991, taking our galloping inflation into account, we consistently revalued our currency and used soaring interest rates to support it. Remarkably, this was met with hardly a murmur from our experts, many of whom are now breathing fire in condemnation of this year's revaluation. Where were their voices when the country really needed to hear them?

The present Government now has the benefit of their late warning: our over-valued currency overprices Jamaican production in both the domestic and export market and subsidises imports, which pressures local businesses into failure. It now has the opportunity to put in place the institutional arrangements and production-oriented monetary, fiscal, and trade policies that will keep our people from sinking even deeper into the economic hole - and our country from falling further behind in the global economic race.

In spite of the populist fix it provides and the political rewards it brings, the persistent overvaluation of our currency has made us poorer by handicapping our ability to produce competitively. And the evidence is clear for all to see: a galloping trade deficit with imports almost four times the value of our exports in 2009; a crippling debt burden sucking up all of Government's revenue; a ramshackle social environment and a rampant crime problem, causing many to live like refugees in our own country.

No decisive action

Yet, our political leaders and policymakers seem unwilling to take the decisive actions necessary to bring about the change we need. Instead, they confine their thoughts to the easy and transient solutions of giving someone, some company, some sector, or some special interest with special benefits.

They are not prepared, like the Chinese, to put our country on an economic policy framework that will contract overall internal costs so that the foreign currency cost of our production can be more competitive and our people's standard of living be lifted.

Such an economic model has been practised not only by China and by Singapore, a country with a population approximating Jamaica's, but also by countries in our own hemisphere like Chile, Brazil, and Trinidad. But our recent leaders have never been attracted to it because the risk of initial negative public reaction is too great for their greedy natures to handle.

Making the hard choices to achieve competitiveness is the seminal leadership challenge of our times. Half-baked, directionless ideas and dreary, platitudinous statements of intent parading as policy cannot substitute.

Our people must make it known that this is not acceptable and demand of our leaders a clear implementation-ready economic development agenda that charts a defined pathway to a future of progress and prosperity.

As the Chinese leadership has done, they must make an unmistakable commitment to creating a competitive environment as this is the only basis on which economic development is possible in the 21st century.

These are certainly circumstances in which following a flying dragon would be wise.

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