Balancing people's lives

Claude Clarke, GUEST COLUMNIST

As one watches the latest iteration of the People's National Party (PNP) in government, one cannot but wonder how it will handle the challenge of converting the several attractive mantras on which it was elected into actionable policies that will achieve the promised outcomes.

Perhaps the most frequently repeated of these mantras is "balancing people's lives while balancing the books". While its sincerity may not be doubted, its practicality will be severely tested in the upcoming negotiations with the International Monetary Fund (IMF). And the shape of the agreement that emerges will determine its true value as a workable principle for governance.

Apart from being an effective slogan, the mantra's meaning and applicability are so far unclear. But if we are to assume that it represents a commitment to ensuring that fiscal and economic management accommodates sustainable improvement in the quality of life of the ordinary people, the shape of the agreement that emerges from the negotiations with the IMF must reflect the policy framework that will make that possible.

No doubt, the IMF will be pressing the Government to speedily bring revenues and expenditure into balance. But recent indications are that taxes have already reached or passed the point of diminishing returns. Revenue targets are perennially unattainable. So far this year, overall revenues and grants are seven per cent behind target. Expenditure has been cut back, while essential social services are creaking for lack of funds.

Given these realities, higher taxes and reduced expenditure on essential services in order to balance the Budget will have catastrophic social and economic consequences. It is equally clear that the strategy of using debt to bridge revenue shortfalls has been economically destructive and can no longer be the basis of our fiscal arrangements.

In these circumstances, how will the Government fulfil its promise to balance the people's lives?

no sustainable opportunity

Jamaican governments have been accustomed to aiding the poor with special work and assistance programmes. But these strategies have never been able to provide sustainable economic opportunity and social advancement for the people. For the principle of 'balancing people's lives' to be of practical benefit, it must be founded on real economic opportunity through the creation of sustainable jobs and the provision of education and skills that will increase the people's capacity to produce economic value.

The negotiations with the IMF should begin by accepting the simple fact that in the social wasteland that economic deprivation creates, fiscal balance, if achieved, cannot be maintained as economic output withers in a socially unstable environment. Nor can the quality of people's lives improve without sustainable economic means.

Currently, those means do not exist in Jamaica. The productive capacity of the country has been gutted by almost two decades of anti-production macroeconomic policies. Manufacturing's contribution to GDP has declined by 60 per cent; and exports, which almost equalled imports 30 years ago, can now cover only a quarter of our import bill. Our attractiveness to capital has been compromised by our loss of macroeconomic competitiveness. Our worker productivity has been declining annually by between 1.3 and 3.4 per cent for almost 40 years, while that of our trading partners has been rising.

The resulting economic contraction has led to increasing economic deprivation among our people. This, married to the growing expectations and materialism fuelled by ubiquitous images of Western affluence through the proliferation of cable and the Internet, has resulted in an environment of crime and disorder that has poisoned the economic climate. The doors of economic opportunity have been closing, while the people's aspirations for the good life have been climbing. The 'poverty trap', as Jeffrey Sachs describes it, has tightened around us.

Our lost productive capacity will have to be rebuilt and further expanded if we are to achieve lasting economic stability. It has been decades since government has provided an economic framework within which production is able to grow. During the 1990s and early 2000s, the gap between productive output and consumption widened and was filled by 'bandooloo' pyramid schemes and careless government spending, fed by deepening debt. These artificial means of creating a sense of well-being are no longer available. The parasitic pyramids have been toppled and wasteful government expenditure is being contained by the strong hand of the IMF.

wealth creation key

But the way out of this poverty trap cannot be simply fiscal tightening; it must be wealth creation through production. This cannot be carried out by the Government. The crippling cost of its past commercial ventures, from alumina to the airline industry, has disqualified the Government from ever becoming involved in business enterprises again, except in the most compelling circumstances.

However, it is government that must lead the drive towards increased production: not with slogans and high-sounding platitudes, as has been their custom; but by establishing the economic policy environment within which wealth can be created. The people will do the rest.

For there to be economic opportunities to better people's lives, government must organise the economy in a way that encourages, promotes, motivates and expands private productive business activity. The entrepreneurial spirit and drive at all levels of society, from the microbusiness to the mega conglomerate, must be stimulated and encouraged. Both foreign investors and local entrepreneurs must be attracted to the effort by the realistic prospect of profits.

Past policies, which subordinated productive entrepreneurship to the Government's bookkeeping needs and the profits of the financial sector, frustrated the efforts of industrial entrepreneurs. These policies were continued under the now-abandoned IMF agreement. But if the Government is true to its declared belief in balancing the people's lives, it will not allow such policies to form part of a new agreement.

Government must focus its efforts on the things that will allow people to better their lives through their own efforts. That is why it is heartening to see that it will be taking one of the most important steps towards creating an economically conducive environment.

Energy is central to successful production, and I am happy that the Government has adopted the approach to reducing electricity costs that I advocated in my article published in The Sunday Gleaner of July 31, 2011 titled 'Jamaica's energy inertia'. Moving the responsibility for selecting electricity fuel sources to private power producers, who will compete on price and other economic criteria, subject to the Government's environmental policies, will certainly have the effect of reducing electricity rates to below 15 US cents per kilowatt-hour. In this way, coal or petcoke, the most economical base fuel sources for us, are most likely to be used.

The Government might also move closer to creating an enabling environment for people to balance their lives by adopting suggestions for job creation made in my article 'Crime's growing zone of opportunity', published in The Sunday Gleaner of February 27, 2011. The suggestions, in summary, are:

Infrastructural development projects, including the Jamaica Development Infrastructure Programme, should be organised with a view to maximising the use of labour over machinery without sacrificing efficiency and quality.

The Ministry of Labour should be reorganised to be a proactive job promoter and the minister to be a jobs czar. The conventional preoccupation with industrial dispute resolution pursued by the ministry for decades is an anachronism in the context of a development-focused economy, and its attention should now be placed on playing a really meaningful role in job creation and economic development.

JAMPRO's investment-promotion programmes should be required to interface with the labour ministry to provide an opportunity for the ministry's job-creation role to be accommodated.

Economic policy needs to be built on the recognition that it is production, not consumption, that will spur our economy to growth and job creation.

The challenge facing the new minister of finance is to reconcile the IMF's demands to balance the books with his party's commitment to balance people's lives. It can only be done by anchoring the new agreement to production. He must, therefore, ensure that the macroeconomic policies that previously closed the doors of opportunity for production and sustainable jobs are no longer at the centre of economic policy.

At 131 per cent of GDP, debt and the almost half of Government's Budget it takes to service it are sapping the vitality of the economy and locking our people in the poverty trap.

The upcoming negotiations with the IMF may hold the opportunity to finally break free. But to do so, we must put the economic opportunities that people need at the forefront, while ensuring fiscal prudence is practised. The two are not mutually exclusive. Fiscal prudence and people development can find common ground. This is the only way that balance and stability will be achieved and hope and opportunity for the people restored.

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