Can we be honest on the economy?

Claude Clarke, Contributor

It is difficult to avoid the impression that, in commenting on Jamaica's failure to achieve an acceptable level of economic performance, most Jamaican opinion leaders have sought to occupy the safe position of blaming no one by implicating everyone.

The common refrain is that the entire stewardship of the last 40 years is to blame for our present economic predicament. In maintaining this, commentators are able to avoid the discomfort of being accused of political bias. However, this approach underserves Jamaica's best interests, as it fails to identify and distinguish between policies that have been helpful to the economy and those that are responsible for the economic mess in which the country finds itself today.

Even the most cynical among us would agree that over the last 40 years, there have been good, as well as bad, policies. And as it is with science, advances in economic thought take place when phenomena are objectively analysed and lessons learned by separating the beneficial elements from the undesirable.

Most Jamaican commentators, however, prefer to avoid honest analysis of the country's economic history and thus have denied the country the benefit of the lessons we should have learned from our experience. It is largely this failure to learn from our history that has allowed governments to escape accounting for their failures and be blind to constructive policies used by their political opponents.

The present administration returned to office without admitting its past policy missteps and with an insufficient appreciation of the dire economy that awaited it. As a result, it had no credible plan to deal with the economic crisis overwhelming the country. Instead, it touted a pair of illogical and unworkable job programmes, JEEP and Jamaica Employ, which were completely divorced from economic reality.

It is little wonder that since it was forced to acknowledge the stark reality of the country's economic hopelessness, the Government has acted like it has a mouthful of scorching 'chocolate tea': unable to spit or swallow.

LARGE DEBT

Over the past two decades, Jamaica has accumulated a sovereign debt so large and created an economy so disfigured that productive economic activity is substantially unviable. The debt could not be serviced without swallowing bitterly acrid medicine prescribed by the International Monetary Fund (IMF). That the new administration was unprepared to deal with the harsh consequences of debt, in the creation of which it had so large a hand, was remarkable.

The type of coordinated economic plan that would combine austere fiscal measures with policies laying the groundwork for viable production and economic growth was not there. In the absence of such a plan, this administration had no option but to accept the standard IMF solution for debt-laden economies: squeezing large primary surpluses out of governments' budget to repay it.

To the extent that this strategy reduces the excessive cost that Government imposes on the economy, it may be highly beneficial. But as it inevitably causes economic activity to contract, Government has the responsibility to ensure that policies to increase productive competitiveness are in place.

No Hope for Growth

Such policies do not currently exist. The economy has begun its expected decline, and in their absence there is no hope for growth. The predictable sequel of penury and pain is gaining intensity, and the Government can only offer the palliative promise of large foreign investments to come. Chief among these is the much-hyped Chinese investment in a large logistics centre to be sited, potentially, on the Goat Islands.

This proposed investment is, by no means, insignificant. It is large and could be an important addition to our economic landscape. But we must not be deluded into believing that it is the key to Jamaica's economic development or growth and should not hang our hopes on it.

To satisfy its own global strategic trading interest, China needs a piece of real estate on this side of the Panama Canal in order to reroute and reconsolidate cargo from mega liners coming and going through the canal. Its choice of Jamaica may be the result of geographical suitability, or it may be that our Government offered more advantageous terms than other countries in the region.

Enclave Activity

Regardless, it is an investment that, although offering some employment opportunities, has more to do with a conveniently positioned piece of real estate than with Jamaica's productive attractiveness. And while it is always good to have new investments, this is one that, without a domestic economy capable of competitive production, will be more of an enclave activity and not one that will have the penetrative effect that an investment in the productivity of our people would.

What the Government has not grasped is that it is investments in the productive capacity of the people that is key to development; not investment in our real estate. A logistics hub, which merely serves the strategic interest of China's global trade, offers far less value to Jamaica's economic interest than using the strategic position of our ports to allow Jamaican producers to directly access multiple markets around the world, efficiently and conveniently.

Even more important than a new logistics hub is putting Jamaican producers in a position to fully exploit the strategic opportunities that the present container trans-shipment port provides and that the proposed hub could offer. The real value of container trans-shipment ports or logistics hubs is the strategic competitive advantage in shipping they offer to the country in which they are located. However, this advantage can only be fully realised where the country's economic policies and productive infrastructure facilitate competitive production by the people.

Ultimately, there is no other route to economic development than the increase in the productive capacity of the people themselves. This requires Government to compress the cost of the inputs that go into domestic production. This will only be possible if monetary, exchange-rate and fiscal policies are used to raise the competitiveness of the country's production. Unfortunately, there is hardly any aspect of Government's present economic policies that point in that direction.

Since it began readying the country for the present IMF agreement, the Government has failed to change the most harmful aspect of our uncompetitiveness: the misalignment of our currency's price and its true value. The Jamaican dollar, despite depreciating by almost nine per cent, has not improved its competitiveness, as greater inflation than our trading partners completely erased its competitive gains. All that has changed in the economy is the intensity of the punishment imposed on the people by the IMF measures.

The uncompetitiveness that has hobbled Jamaica's production since the early 1990s continues with no policy prescription in place to abate it. And the IMF programme does little more than require the Government to reduce its debt stock using actions that will contract the economy, not expand it.

The Government needs to learn the lessons coming from Greece. Three years after the very generous IMF/European Union bailout package of more than US$300 billion, accompanied by the same type of contractionary austerity programme imposed on Jamaica, Greek economic output has collapsed by more than 20 per cent and continues in free fall.

The underlying problem facing the Greek economy is that the harmful factor that brought it to its knees continues unchanged. Its comparatively high inflation made its productive output uncompetitive and the high-priced euro, which it uses but does not control, leaves it without the most effective tool for countering uncompetitiveness: astute exchange-rate management. This is an encumbrance Jamaica does not have, but acts as if it does.

Exchange-Rate Management

When the Pacific Rim economies grappled with their financial crisis in the late 1990s, exchange-rate management was among the main tools used to restore their competitiveness and bring their economies back to the vigorous growth they now enjoy. Jamaica also has the opportunity to improve our economic competitiveness, increase our productive output, and provide greater employment for our people. But as I have frequently said, it is a solution that, over the years, has been sacrificed for political gain.

Today, the Government is opting for the politically safer course of promoting large foreign investments as magical economic solutions. But they are solutions that have never worked where economies are not already competitive. China's investments in Jamaican real estate, though large, cannot rescue us. They cannot do what the development of our people's productive capacity can. The Government's focus must be on creating an economic policy framework with growth of the people's capacity to produce at its centre.

Squeezing debt repayment out of our already-depleted economy, without having a strategy for growing economic output, will yield no better results than have been experienced in Greece: the further contraction and depletion of our economy.

Many have promoted the idea of a powerful economic minister to lead the drive to economic recovery; an idea disproved by our own experience with the powerful Ministry of Development, Planning and Production, which was headed by the most politically powerful deputy prime minister imaginable.

The real answer to Jamaica's problems lies in leadership with commitment, capacity and courage: commitment to the people's economic development; the capacity to guide the application of the required policies; and the courage to confront and overcome the political and private opposition that it will inevitably encounter.

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