Editorial | Productivity and growth

It is hard to impugn the substance of Prime Minister Andrew Holness’ argument, which is that significant wage hikes are unsustainable in the absence of improved labour and productivity.

Where Mr Holness erred, perhaps, was in his seeming presumption that macroeconomic stability, including continued lowering of Jamaica’s debt-to-GDP ratio, is a sufficient condition for delivering, and maintaining, strong economic growth at higher salaries.

Which is why The Gleaner repeats its suggestion for a robust discussion on the requirements for developing a more efficient and productive economy, which, we believe, must include a fit-for-purpose, 21st-century industrial policy. This means a project that involves all sectors of government that is also fully embraced by the private sector.

Speaking in Montego Bay last week at the opening of a retail business complex developed by Mark Kerr-Jarrett’s Barnett Limited, Mr Holness addressed the issue of workers’ demands for better wages and his view that the real fix is for Jamaica’s economic fundamentals to continue on their current trajectory.

“If you were to define Jamaica 20 years ago by virtue of the features of its economy, you would say that it is a country that had high debt, unstable exchange rate, high inflation, and high unemployment,” Mr Holness said. “How do you define Jamaica today? It is a country with low unemployment, stable exchange rate, inflation targeted and coming back to stability, and debt on its way down.”

All the conditions were in place, he said, to “improve our productivity”.

Those observations are, to a point, true. A dozen years ago, Jamaica’s debt was hurtling towards 150 per cent of gross domestic product (GDP). The current account deficit was close to 13 per cent of GDP. Unemployment was 14.9 per cent. International creditors had all but cut off credit to the island. Multilateral financial institutions, led by the International Monetary Fund (IMF), insisted on major fiscal overhaul in exchange for support.

UNDERLYING PROBLEMS

At the end of 2022 – after tough reforms across administrations – the debt was 84 per cent of GDP and projected to reach the Government’s target of 60 per cent by 2028. The unemployment rate in July was 4.4 per cent, a historic low. Rating agencies have improved their grading of Jamaica’s debt. In some sectors, employers complain of a labour shortage, and Prime Minister Holness has floated the idea of importing skilled workers.

But as impressive as these figures are, they mask underlying problems, not least of which is the island’s sluggish medium-term outlook for growth. After a pandemic-induced slump of 11 per cent in 2020-21, the economy grew by eight per cent in 2021-22, and by 3.5 per cent in 2022-23. GDP was expected to expand by only two per cent in the current fiscal year. In October, the IMF lowered that forecast to 1.8 per cent. Next year, growth is projected to be only marginally better – by 0.2 per cent.

These rates are better than the annual average one per cent over the four decades before Jamaica embarked on its reform. They are, however, not what was expected at this stage of the reform programme.

Further, the low unemployment rate notwithstanding, nearly three-quarter million (723,000) Jamaicans are outside the labour force. When adjusted for students and old people, the figure is still over 400,000. Additionally, the youth unemployment, though falling, is 13.3 per cent. Put another way, there are plenty of idle Jamaicans around.

Additionally, the productivity of those in jobs is not improving. In the five years between 2018 and 2022, “labour productivity decreased annually at an average rate of 0.8 per cent”, the Planning Institute of Jamaica (PIOJ) noted in its latest annual Economic and Social Survey.

“The decline,” it said, was “... due to the employed labour force growing at a higher rate annually than real gross domestic product (GDP)”. The employed labour force, on average, increased by two per cent a year, “while the average annual growth rate for GDP was 0.5 per cent”.

LOW INVESTMENT IN R&D

Part of the problem is the island’s low rate of investment in research and development (R&D). There is no readily available data overall on R&D spend, but it is estimated at under one per cent of GDP. Nonetheless, Jamaica was last year ranked 76, among 132 countries, on the Global Innovation Index (GII).

Low investment in R&D merely exacerbates the island’s low education outcomes, especially in science-related subjects, and the fact that nearly 70 per cent of workers have no specific qualification or training for the jobs they do. The result, in part, is an economy that the Jamaican sociologist and commentator, Professor Don Robotham, says is trapped in “low-value added, extractive raw materials and ‘raw services’ activities”.

Mr Holness is right that new perspectives on productivity are necessary. But the transformation will not occur only by workers asking themselves whether they are “giving the best I can give” and the country spending less on servicing its debt – and all that this implies. These have to be accompanied by a big, coordinated effort to deliver what in recent economic orthodoxy was the dirty term, until its rehabilitation by the United States: an industrial policy that is fit for purpose for a 21st-century economy.

The Biden administration’s bills to provide money to computer chip manufacturers and for green energy technology and training is just that – an industrial policy. Jamaica can do it its way. The conversation, however, must start.