Business

Eliminate poverty be creating wealth

Keith Collister

Wednesday, August 29, 2012    

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Just over a week ago on Monday evening, Finance Minister Dr. Peter Phillips gave a very thoughtful "keynote" address, entitled "Caribbean Independence - Past, Present and Future - A Reckoning" , for the opening of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) 50/50 conference marking Jamaica's and Trinidad and Tobago's golden jubilee celebrations of their independence.

It is not possible to cover all of the issues raised in a wide ranging address in a short newspaper article, but it is clear that despite what he calls the political and social "gains" since independence, Phillips is extremely concerned about the remaining "deficits", particularly poverty, income inequality and educational under performance. He very clearly states that the tasks for the first decade of the next fifty years is "the elimination of poverty through wealth creation."

Phillips observes that "a major explanation of the long term persistence of poverty lies in Jamaica's failure to maintain high rates of economic growth", even after an initially strong performance in the early post -independence decade when the economy grew by more than 5% per year. As he notes, average growth for the entire post- independence has been less than 2% with per capita income hardly changing. He observes further that despite an average growth rate of less than 1% since 1973, public debt has increased more than 700%, and that at 130% of gross domestic product (GDP) "Jamaica is now at the point where the debt is unsustainable". He warns that "the country risks isolation from global capital markets and is confronted by the prospect of a sharp reversal of such social gains as have been made as an increasingly large share of revenues is spent on debt service".

Phillips outlines the by now well known elements of the required "new economic architecture", namely debt reduction (requiring fiscal and tax reforms), and public sector transformation to reduce operating costs and efficiency.

Most importantly, he notes that fiscal measures will not suffice without improving the competitiveness of the productive sector through the creation of a more enabling environment, mentioning the by now very well understood need to improve time taken for company registration, development approvals, registering mortgages, and land titling, and including the need for tax credits for worker training and research and development.

Perhaps the most interesting statistic in his presentation was that in 1970, after a decade of economic growth averaging 5.2% per annum, the United Nations Development Programme (UNDP) estimated that based on its Human Development Indicators (combining per capita income, life expectancy and educational attainment) calculated for 79 industrial and developing countries, Jamaica ranked first among developing countries. At number 19, Jamaica was ahead of regional rivals Barbados, at number 20, and Trinidad and Tobago, at number 22. Significantly all three Caribbean countries ranked above such current development stars as Chile, at number 24, Costa Rica, at number 25, and Singapore, at number 26.

However, as Phillips notes, as early as 1960 nobel laureate Sir Arthur Lewis, in studying Jamaica's development over the previous decade (when GDP grew at over 6% per annum) had posed the question, how does a country double its output, lose 11% of its labour force by migration and still have 12% unemployment. By 1970, Phillips observed, unemployment had risen even higher to over 20%. Despite the initial success of the policy of industrialization, largely based on import substitution, in achieving positive GDP growth in the first decade after independence, as Phillips notes that the oil shock of 1973 made exports even more uncompetitive in the global market. Moreover, local manufacturers were wiped out as local producers found it increasingly difficult to compete against imports even in their own domestic market.

The implied question, although not asked or answered in Phillips speech, is why did Jamaica not shift to a strategy of export led growth, particularly to create a manufacturing sector, at that time. As Phillips notes, Sir Arthur Lewis, in a 1948 report to the Caribbean Commission, had outlined a framework for the industrialisation of the West Indies based on the success of the Puerto Rican model. The "Lewis" model proposed a set of industrial policy measures including concessions to attract foreign capital for the establishment of a manufacturing sector, based on the need for investment above what could be financed by domestic savings, and that the region would benefit from the opportunity to learn international marketing.

Encouragingly, the conclusion of Phillip's speech did not pretend to have all the answers but sought to ask important questions, of his scholarly audience and the wider public, as to how to identify possible political mechanisms to build national consensus and reduce public debt, improve the performance of the non-traditional schools, and analyse the liabilities and benefits of the small size of Caribbean countries.

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