Why can't Jamaica have decent growth?

Why can't Jamaica have decent growth?


Friday, February 07, 2020

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The last time Jamaica saw any decent level of growth was in the 1960s. During that period we saw growth as high as 12 per cent, and the average for that decade was in fact around six to seven per cent. Since then we had about three to four years of growth averaging around six per cent in the 1980s, but even though the growth rates were decent during the 1980s, it was not sustainable.

I say it wasn't sustainable during the 1908s because debt to gross domestic product (GDP) also reached a record 212 per cent, which implied that growth was being driven by the high levels of debt.

Don't get me wrong though, as I think that the debt was necessary to take us out of the significant decline of the 1970s, where the economy declined a whopping 20 per cent approximately.

Coming out of the 1980s, we never capitalised on the debt momentum, which started in the 1980s, and in addition to not setting the environment for growth we also continued the high levels of borrowing, which eventually led to our financial crisis in the 1990s (FINSAC).

Even with the high levels of debt in the 1990s we were lucky to achieve three per cent in any one year.

Fast forward to today, and even after the sacrifices made by Jamaicans, we are still not able to achieve more than one per cent growth in any year. This is even after the reduction in the debt to GDP to under 100 per cent (with the programme across administrations) and the boom in construction in recent years.

Again, I think that both the economic programme, started by Phillips, and the construction boom, under Holness, were necessary to get us to where we are today. And we are certainly in a far better position than we were in 2013.

The question though is why have we been unable to achieve any sustainable respectable levels of growth since the end of 1971/2, which was some 48 years ago?

Think about the implications if you for 48 years you are making less progress than others around you. You would end up, as Jamaica did, in a much worse position than you were relatively 48 years before.

I was speaking to a leading figure in the financial industry recently, and he asked me the question, what is the use of having the high levels of foreign exchange reserves if we are unable to bring some stability to the currency markets. And despite what the authorities want to say, the instability in the FX market matters to business people, as was demonstrated in the explanation for the third consecutive quarter of decline in the business index.

My answer to him was simple, if you look at the economic advancements made in this country it has not come as a result of the fiscal policies we have implemented over the past 48 years. Growth has come as a result of sacrifices made by Jamaicans (such as more taxes), debt (high debt to GDP levels), foreign aid, and sacrifices made by the business community.

In particular the financial industry in 2010 and 2013 gave up hundreds of millions, if not billions of dollars, to bail out the Government and country through the two debt exchanges. Let us not fool ourselves, if that sacrifice was not made (because they could have said no and walked away like institutions in other countries) the country would have been in serious trouble as a debt default was imminent.

So as I said to my friend, when you think about it, we have not, since the 1960s seen any real sustainable and respectable GDP growth. As I said the 1980s growth was based on increasing debt levels, as necessary as it was.

So why have we not been able to achieve any sustainable growth levels without the aid of the crutches mentioned above?

The fact is that we have made very poor fiscal policy decisions. We should all remember that growth is achieved when there is value added, and the truth is that we have not really had much value added in Jamaica.

Sure we see tourism numbers increasing every year, but we negate it with high levels of food imports. Sure we see booming construction in the economy, but most of the inputs are imported. And the list goes on and on, as we always seem to have an equal or greater negative value to every added value we create — when growth is nothing more than an increase in value added over the corresponding prior period.

So in our case, growth would be the additional value created in the economy from labour productivity or other forms of local input, above the value of the imported inputs.

The problem we have is that even while our production is increasing and more employment is created, we are importing most of the inputs to produce, or sustain the growth, when high levels of real growth will only come when the rate of increase of the local inputs far exceed the rate of increase of the imported inputs.

As well intentioned as those in authority are, the fact is that our policy framework and our production rules are not structured for us to achieve that sustainable growth.

The only way to change the effect positively, is to change the environment in which we operate. But to change the environment requires bold decisions to go against the political trend.

For example, there is one primary thing that can be done to give us much greater value added while also significantly reducing our FX inputs, but I don't know if we will ever see the political will to address it. — all we need to do is provide a very efficient and secure transportation system.

This is not difficult to do but it means getting beyond the political order of providing jobs, taking strong action against indisciplined driving, and changing our mindset about funding for a proper transportation system. If this is done it will enhance productivity (less traffic), reduce our energy bill significantly (less cars on the road), reduce our FX requirements as a result (less need to import cars), and as a result leave more income in the hands of Jamaicans and increase living standards.

Will we ever make the right fiscal decisions in defiance of preferred political ones? I don't know, but what I do know is that if we don't then we will continue to only chug along.

Dennis Chung is the author of Charting Jamaica's Economic and Social Development AND Achieving Life's Equilibrium. His blog is dcjottings.blogspot.com. Email: drachung@gmail.com

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