When will we learn?

In the mid-1990s, the leading producer and exporter of garments in Jamaica advised the Government that production costs in the country had risen to levels that made profitable production impossible and it would close its doors if these conditions did not change. There was no change and the company joined the exodus of garment manufacturers from Jamaica that ended with the virtual elimination of the Jamaican garment industry.

The company cited the uncompetitiveness brought about by the revaluation of the Jamaican currency and the falling productivity of Jamaican labour as its fundamental problems.

Uncompetitiveness was not confined to the garment sector, and it continues to be the principal reason the country's production of goods has continued its downward slide. In 2009, the production of goods represented only 27 per cent of GDP, falling from more than 40 per cent only 20 years before.

The demise of the once-thriving garment-export sector, and more recently the banana export industry, as well as the repeated warnings from some like me, should have alerted the Government to the reality of the country's deepening uncompetitiveness. Now, the reality has been officially and authoritatively confirmed.

The latest Global Competitiveness Report, published last week by the World Economic Forum, revealed the disastrous fall of Jamaica's competitiveness. We now rank last in macroeconomic competitiveness among 142 countries surveyed. Did it have to come to this? Why did the Government turn a blind eye to a problem it should have clearly seen and a deaf ear to the warnings it repeatedly received?

Uncompetitive environment

The highly intelligent and knowledgeable men and women who advise Government must have been aware of our uncompetitive circumstances. In several articles I have pointed out that unless the Government addresses the key elements of cost within the country, Jamaica's competitiveness will continue to fall, our people will be increasingly impoverished, our Gov-ernment progressively indebted and our economy ever more unattractive to investments.

The economic costs burdening our producers are many. High on the list is the Government itself. Government has been an increasingly unbearable burden on our economy. Costing more than 40 per cent of our total economic output, its services contribute only 12 per cent to GDP. Reducing its cost must, therefore, be a central priority for regaining Jamaica's competitiveness. Because it produces far less than it consumes, Government is inherently wasteful and is a drag on the productivity of the entire country. Reducing its cost and increasing its output of the services that only Government can provide is a fundamental prerequisite for our economic competitiveness. Why doesn't Government focus its attention on healing itself as a first step to fixing the economy?

Were it to do this, it would be in a far better position to address the other pressing problems facing the country. It certainly would be able to contain the withering cost of living that leads to higher people costs, as companies increase wages and salaries to enable their employees to cope with the rising expenses of their daily lives. People costs have risen faster than output simply because wages are adjusted to meet the increases in the normal living expenses of employees. The major elements driving the cost of living must be specifically targeted and strategies developed to drive down their costs for people productivity to be lifted.

People productivity is not the only production factor affected by the cost of living, capital invested in production is also less productive because lower people productivity requires more capital to generate the same production.

The high cost of energy is another critical driver of the cost of living that is within Government's ability to correct. Electricity at 40 cents per kilowatt-hour will not allow our economy to survive in a liberalised, globalised world where foreign competitors' costs are 10 cents per kilowatt-hour. And while the Government dithers and tinkers around the edges of the problem, the comprehensive, lasting and relatively immediate solution continues to elude us.

We have been lost in a wilderness of indecision while production struggles to be competitive under the handicap of electricity costs as much as four times higher than those of our competition. Now, the Government would have us wait four more years for new LNG-powered plants to be installed to realise a price reduction of less than 20 per cent. This is not sufficient to bring us within the realm of competitiveness. And, in three or four years, our competitors will have widened their economic advantage, making it ever harder to catch up. We must plan for a far more aggressive and more immediate electricity cost reduction if Jamaica is to be in the competitive race.

Beyond energy

But impediments to Jamaica's economic viability go beyond energy and the cost of government. More than a decade ago, the garment sector was ravaged by the effects of a constantly revaluing currency, and we lost it. The entire productive sector has been equally disadvantaged, though its demise has not been quite as dramatic. However, our Government seems to have learned nothing from these experiences. After all, the economic destruction we have suffered from currency revaluations, the present Government is celebrating its recent 'success' in again revaluing the Jamaican dollar.

What we now have to show for these more recent revaluations are economic decline of five per cent in the last three years, a widening trade deficit that in the first four months of this year was 17 per cent overall and 49 per cent with CARICOM; and an increase in our national debt of more than 60 per cent in four years. Einstein's definition of lunacy could not be more accurately dem-onstrated. The surprise expressed by government spokespersons at the recently publicised negative economic outcomes suggests that they were expecting different results from administering repeated doses of the same economic prescription that produced the economic decline of the 1990s and 2000s.

No rational economist would posit that a successful economy can either be attained or sustained with an uncompetitive currency. Why then does the Government continue to pursue that fool's goal? Why does the Government not mandate the Bank of Jamaica to attain and maintain the competitiveness of the Jamaican dollar? The Jamaican producer who faces the world of international competition has been yoked by the continued mis-management of the value of the Jamaican dollar that leaves him unable to compete, regardless of his efforts to be efficient.

The evidence of Jamaica's disappearing competitiveness was overwhelming, even before the Global Competitiveness Report told us so. Our continuously widening trade, current account and balance of payments deficits have been screaming the message to our Government for many years. The ballooning debt and crippling debt-service obligations which, despite the successful JDX, rob us of 12 per cent of our GDP and the vital government services it could provide are painful consequences of policies that had no other possible outcome than the destruction of the productive engine of the economy.

The uncompetitiveness of the Jamaican economy has also led to the widespread squandering of large portions of the country's productive assets. The low demand for our uncompetitive goods and services has left several of our vital productive assets idle. A significantly lower percentage of our people are employed than our trading partners, hundreds of thousands of square feet of factory buildings are shuttered or converted to use as warehouses, and hundreds of hectares of arable land lies fallow, while millions of dollars are used to import agricultural produce.

ocoa crunch

Fields of commercial crops previously planted stand unhusbanded and unreaped as it is now uneconomic to care for or harvest them. Cocoa, a proud Jamaican product with a premium international image fetching a premium price and with a significant value-added and foreign exchange-earning potential, typifies the decline of Jamaica's productive prowess. A few decades ago, Jamaica's cocoa production stood at more than 2,000 tonnes. By last year, it had shrunk by more than 90 per cent to a mere 200 tonnes. This is happening at a time when world cocoa prices have been at record highs, able to provide an adequate incentive for increased production. But our uncom-petitive costs have let this opportunity for production and foreign exchange earning go by. This is the story of Jamaica's economy: uncompetitiveness driving production into the ground.

Rather than tackle this fundamental problem directly, our governments have found it more convenient to tinker with special programmes and little initiatives to appease each interest group that squeals for help. But the task of lifting our economy out of the doldrums and putting it on a trajectory of growth and development requires bold action using comprehensive and coordinated policies that will set a framework within which production can take place on a competitive basis.

Government's failure to do this can best be attributed to a fear that the right action will bear political consequences. They seem to believe they can't make these changes and be politically viable at the same time.

The garment-export industry has been lost, and the banana export industry, which once led Jamaica's export development, has ended. Will other industries follow them into the dust while our leaders sit paralysed by fear of a political price?

Claude Clarke is a businessman and former minister of trade. Email feedback to columns@gleanerjm.com.