Public affairs: Budget cuts and sacred cows

Gordon Robinson, Contributor

Why are all our budget-fixing geniuses treating expenditure cuts like a visit from the mother-in-law?

Everybody seems to think that we can only reduce the deficit by spending more, raising taxes, and ordering interest rates down. In his treatise on interest-rate reduction in The Sunday Gleaner of January 10, Edward Seaga grudgingly listed expenditure cuts as an available option, but argued that the full benefit of cuts (apparently limited to staff reductions) would be postponed for a year due to redundancy payments. So why not postpone redundancy payments? Why the reticence by a Government notorious for postponing salary payments?

It is as if spending less isn't an option. Seaga admits that expenditure cuts will help partly now and fully eventually, but prefers full gratification instantly, using the method of interest-rate reduction by edict. But even after a "successful" Jamaica Debt Exchange (JDX), our economic gurus are using that to talk about "fiscal room" and a basis for increased spending. Good grief!

Why not cut recurrent expenditure unrelated to government borrowing instantly? We, too, often, tiptoe around sacred cows and refuse to think outside the box. How much did we save with the JDX versus, for example, what we might have saved had we shut down Air Jamaica years ago? Now that we have finally 'divested' Air Jamaica, what exactly have we saved by comparison with the savings we would have made had we abandoned 'divestment' five years or so ago, bit the bullet, and closed it down?

Alleged prospect

What exactly have we 'divested'? Has Trinidad taken over the massive debt, or did we have to hug that up anyway? For years, we were terrified into inaction by the alleged prospect of job losses and tourism downturns, but a few Air Jamaica jobs (which were lost anyway) now pale into insignificance against jobs lost elsewhere in the economy while we were carrying that bloated handicap. And we've engineered a pretty significant tourism downturn all by ourselves without any help from any Air Jamaica liquidation by killing 73 people in west Kingston, thus frightening the bejeezus out of prospective visitors. Air Jamaica cost us US$150 million per year for umpteen years. To what end? It was nonsensical to have expected that visitors would be barred from Jamaica because we don't own an airline.

Despite the usual lip service, Government seems committed to postponing the evil day of expenditure cuts for as long as possible, preferably until after the next election. Where are the long-promised cuts in the public service? Instead, we promise public servants pay increases but fail to pay them! When are we going to simply draw a line in the sand, and, like Roberto Duran, say no más (no more), thereby immediately cutting as much as possible as soon as possible from the expenditure budget? Are there any more Air Jamaicas out there requiring immediate elimination rather than the blind, automatic, recurrent pouring of cash down their sacred throats?

In the light of announced plans to cut public-service jobs, what is the Government doing about that most sacred of pork barrels: the Constituency Development Fund (CDF)? In our parlous economic situation, are we to tolerate "creng-creng" projects forever? Or do we just put down that description of the use to which the CDF has been put as standard buffoonery from a source obviously bidding for the title of Clown Prince of Parliament, have a good laugh at his expense, and move on?

Economic suicide

As if the postponement of expenditure cuts were not sufficient economic suicide we have pundits weighing in at the other end of the ridiculous spectrum arguing for additional expenditure by way of increased state involvement. Ian Boyne, in a Gleaner column also appearing on January 10, cited alleged successes by Japan, Korea, Taiwan, Chile, China, and India for proposing that the Government should own or heavily subsidise the commanding heights of the economy. He writes that China in particular "has shown that its protection of industry, restriction of foreign investment and capital outflows, and state-directed activities provided the foundation for its growth. In other words, outward-orientation and neoliberal reforms were boosted by import-substitution, protectionist and statist policies."

Boyne praised Chile for using capital controls to reduce the flow of short-term speculative funds. Surely he jests! Chile briefly tried this in 1998 when a large deficit resulted in tight monetary policies which caused a recession, but as far as I know, exactly the opposite is otherwise true as the military government (1973-1990) sold many state-owned companies, and Chile's success is widely attributed to the limited involvement of the government in the economy. After the return to democratic rule, the economic reforms were strengthened and Chile has for 20 years boasted a dynamic market-oriented economy featuring a free-trade agreement with the United States (US), a high level of foreign trade generally, and is neither statist nor protectionist.

It is absolutely incorrect to credit any of these countries' economic growth to statist/protectionist policies. India tried those policies in the 1980s, resulting in it needing an International Monetary Fund (IMF) US$1.8-million bailout at the end of that decade. The bailout came with IMF reform demands, which forced India to pursue a more liberalised economic path towards a market-based system. This led to India's accelerated growth from 1991-2008.

Japan's economy was the world's second largest until this year when it was passed by China. Need I say anything more? In the 1990s, statist policies aimed at preventing real estate and stock-market speculation actually caused a decade of stagnant growth in Japan. Massive fiscal deficits were run up during the 1990s to finance large public-works programmes (creng-creng?), but this failed to stimulate the economy. Subsequent economic reforms and an emphasis on exports eventually worked. Japan is ranked 17th on Transparency International's Corruption Perception Index (Chile 25), and any scandal is likely to lead to a politician committing seppuku. We don't even apologise.

Additional expenditures have a chance where corruption is low and best effects are presumed. Jamaica recently improved its position on the Corruption Perception Index from 99 to 87, based on obviously flawed data, and despite the ongoing Cuban light-bulb, sugar divestment, Mabey and Johnson bribery, and Dudus Defence sagas, which only proves what creative analysis can do. Even with this cosmetic "improvement', 87, a position from which every Australian would recoil, is just another shade of very bad. When the Jamaican State spends, four-lane creng-creng projects become more important than education or flood prevention.

It is China's gradual switch from state controls to more private-sector involvement that has increased its influence on the world markets to where it is today. China has found the correct balance whereby government investments in infrastructure, heavy industries, energy, and utilities facilitate private-sector growth in light industry and exports. Jamaica has sold key utilities, taxed alternative energy to death, and sold out infrastructure (e.g. toll roads) to foreign private interests while retaining ownership of a horse-racing track and a bus company, which it runs into rack and ruin despite captive markets.

Taiwan is another country with a dynamic capitalist economy, a positive trade balance of more than $30 billion, and a budget surplus of more than $300 million.

Statist/protectionist approach? Where? Am I living in the same world? Somebody must be high!

If there are lessons to be learnt, it is from Japan (and China) whose economic problems are like ours, but whose economy is somewhat insulated from these problems by its sheer size, which gives it a loud voice in the new economic empire. Since 2001, the US debt has grown by $1.7 trillion. Foreigners financed 75 per cent - about $1.3 trillion - of this, with China alone holding $327 billion of the total US debt increase.

Embarrassing shambles

In 1941, Japan ambushed the US at Pearl Harbour. In 1945, the US dropped two nuclear bombs on Japanese cities, reducing the nation to an embarrassing shambles. By 1991, Japan had US$148 billion of direct investment in the US and held US$100 billion of securities, which helped fund the US budget deficit. By 2010, Japan has become the US' key ally in the Pacific. Goodman's Law: Don't ask if it's about the money. It is always about the money.

We can continue to fool ourselves as we limp from election to election while pandering to the God of "sovereignty", but the simple long-term solution to our economic/budgetary problems is to first understand that size matters, and we're too small to survive alone. Furthermore, we'll never spend our way to economic success. Production and creativity are the keys. The emphasis must be on increasing exports, not on handing out Christmas work.

Expenditure cuts are essential, but only a beginning. A union (yes, that dirty word "federation" again) with similar nations so that our combined economy will have a chance against the new economic empire is a must. It's time to swallow our nationalistic pride, admit that Norman Manley was a visionary, and get the show on the road.

Unless, of course, we want to take the Japanese route to economic success and begin a 60-year strategic plan by declaring war on the United States.

Peace and love.

Gordon Robinson is an attorney-at-law. Feedback may sent to columns@gleanerjm.com.