How Jamaica can avoid the Greek tragedy


Thursday, June 25, 2015

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The Greek drama, or more accurately tragedy, continues as Wednesday's meeting of European finance ministers broke up without a deal. Subsequent last-ditch debt talks between Greece and the finance ministers collapsed for the second time in less than 24 hours yesterday afternoon.

The ongoing collapse of confidence in the Greek economy, most visibly demonstrated by the massive capital flight out of the Greek banking system into Euro cash and overseas banks, suggests that without a settlement, presumably at the 11th hour, the most likely outcome is a catastrophic collapse of the Greek economy when ECB support runs out.

Greece's economic performance over the past five years has the distinction of being one of the worst in the world, with GDP declining by roughly a quarter (similar to Jamaica's 1970s performance), but towards the end of last year its economy appeared to be bottoming. In contrast, all that the past six months of acrimonious negotiations with the European Union have produced for Greece is a severely damaged economy, further impoverishing the very people Syriza were elected to help. Last year Greece had even regained capital market access, making the current contrast with Jamaica even sharper, as preliminary feedback from international investors on Jamaica's just completed non deal roadshow is that Jamaica is no longer viewed as a "risky" credit.

The Irish model

Domestic confidence amongst Jamaicans, however, still appears to be lagging. The issue is partly one of trust, in that the credibility gained by the Minister of Finance over the past two years is still largely offset by the accumulated weight of Jamaica's decades of poor governance. For locals, Jamaica remains a high risk place. One of these risks, Jamaica's current public sector wage negotiations, is indicative of this overall lack of true consensus on the way forward, and how to reach our goals.

In searching for a consensus, it is useful to look back to November 19th, 2008, when the Caribbean Policy Research Institute (CAPRI) hosted a seminar entitled Social Partnership in Jamaica -- Elements of Success. The key presentation of the seminar, entitled Ireland's Transformation -- An Insight was made by Irishman Paul Haran. Haran noted the critical importance of Jamaicans collectively identifying their problems and deciding collectively to fix them -- such "teamwork" being the only way to "change our future."

In Ireland's case in 1987, he stated, the size of their Government was far too big and expensive for the size of the economy at the time. This had led to rising deficits, and wage increases completely eroded by inflation and taxation. The Irish Government eventually came to the conclusion that their previous policies were not working -- "we were very slow learners". In sharp contrast, up to now in Jamaica there has been a reluctance to publicly accept that our government is too big for the size of our economy, due no doubt to the political unpalatability of this message.

In one of the many stakeholder meetings that he held with the Jamaican private sector (he also met with our unions), Haran stated that the goal of the Jamaican government and society should not be to form a social partnership -- "that should not be anybody's goal" -- but the emphasis should solely be on solving problems.

Instead of management and unions regarding conflict as inevitable in an internal zero sum game, both groups needed to look outward to compete on the world stage -- the only way small poor countries can survive. The unions would always want to know what the private sector would give up (according to Haran sadly this would always be very little) and if it became merely the unions and private sector bargaining about a wage agreement, social partnership would accomplish nothing.

Avoiding such a negative outcome required the intervention of the government to ensure that "it was not two people in a destructive bargain" over say wages, but an agreement aimed at fixing key problems in the society. In Ireland, the name of each successive three year agreement, starting with their first agreement in 1987 entitled the Programme for National Recovery, represented the core problems facing the society. The actual wage piece of the agreement was an addendum, and was determined after the partners had internalised the problems through a shared analysis.

It was however the process of shared understanding required to fix short term problems within a fixed time frame (eg the next three years) that was important, not signing an agreement for agreements sake or an unrealistic vision of 25 years time. People have to come together to create a set of doable actions, as nobody wants to attend meetings that are just an ongoing talk shop. Trust was built by doing (a no surprises approach) and success grew over time from a series of small wins, which gave the partners the confidence to continue on the long road ahead.

While Jamaica is doing much better than Greece in consensus building (for example the signing of the Partnership for Jamaica), governance (the European Union's contribution to the improvement in our public financial management is noteworthy), and fiscal discipline (our achievement of the long standing balanced budget objective), Jamaica still needs to create a true problem solving approach focussed on improving our international competitiveness if we want to prove once and for all that we are not Greece.

Ireland, particularly its recent economic turnaround, is therefore worth another look, along with everybody's favourite case study, Singapore.

Despite a catastrophic domestic banking crisis in 2010 (substantially bigger and more costly even than Jamaica's world record financial crisis in the 1990's), triggered although not really caused by the global financial crisis, Ireland successfully exited its IMF agreement at the end of 2013, and was Europe's fastest growing economy in 2014, when its GDP grew 4.8 per cent.

The European Union expects it to again be Europe's fastest growing economy in 2015 at roughly 4.0 per cent growth, which also makes it likely to be amongst the fastest growing countries in the OECD.

Jamaica has much to learn from Ireland's clear focus on international competitiveness (what being business friendly really means) if we want to finally achieve our own economic turnaround, a longer conversation for another day.




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