Macroeconomic stability, productivity, and the education system

Canute Thompson

Sunday, August 19, 2018

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The Jamaican economy has been experiencing unprecedented stability over the last five years. Despite the level of stability experienced, real gross domestic product (GDP) growth has averaged less than one per cent. The stability in the economy, which began in 2013, has resulted in part from support by the World Bank, the International Monetary Fund, and the Inter-American Development Bank, which have provided policy development and investment financing to support private sector-led growth, public sector transformation, and building social and climate resilience, according to a World Bank report.

The World Bank's report recalls that Jamaica's GDP grew by about 0.5 per cent in 2017, which represented a significant decline when compared to the 1.4 per cent in 2016. This decline was due largely to severe floods and other adverse weather during the first half of 2017. Notwithstanding, the country's macroeconomic indicators are all heading in the right direction — low inflation, large net international reserves, low interest rates, reduction in the public debt, and political stability.

There are other fruits being reaped from the economic reforms which began in 2013, evidenced in lower poverty and higher employment rates. But, despite the praiseworthy macroeconomic stability, having attained GDP growth of 1.4 per cent in 2016, the forecast for 2018 is a mere 0.3 per cent higher at 1.7 per cent.

The big question we must therefore ask is: What is the explanation for the anaemic economic growth being experienced (external shocks such as flooding aside), despite the stable macroeconomic environment in which we operate?

I submit that the answer to this question lies in our culture of a lack of productivity which in part has its roots in our education system.

Economic stability not an end in itself

One of the mistakes successive political administrations here in Jamaica have made is that of seemingly conceiving of macroeconomic stability as an end in itself, rather than a means to an end (or various ends). It is almost trite logic, but an overlooked fact that macroeconomic stability is not intended to protect the private sector or insulate the poor against hardships or enable the State to fund social protection programmes when hardships occur. Macroeconomic stability, I submit, is to be pursued as a means of stimulating increased production and higher levels of productivity across all areas of the economy.

Jamaica can learn quite a bit from other countries which have successfully pursued macroeconomic stability but have not attained significant economic growth. Mexico is a good example of this. Jose Cordova and Juan Padilla, both of whom are employees of the Ministry of Finance in Mexico, in a 2016 article entitled 'Productivity in Mexico: Trends, Drivers and Institutional Framework', contend that while Mexico is the poster child for the implementation of economic policies that should foster strong economic and stable growth, economic growth in that country has been lacklustre. The country's real GDP growth has averaged 2.4 per cent between 1980 and 2014.

Among the strategies undertaken by successive political administrations in Mexico to achieve macroeconomic stability are: making the central bank autonomous, reducing the public deficit, establishing new rules which guarantee responsible management of public finances, the transition to a flexible exchange rate, and the pursuit of a policy of low inflation. The resulting macroeconomic stability stimulated reductions in the cost of credit (interest rates on loans) and increased foreign investment, especially after Mexico's entry into the North American Free Trade Agreement in 1994.

All, but one, of the foregoing measures taken by Mexico have been adopted by Jamaica, and the signs are there to show that Jamaica is experiencing macroeconomic stability. But, as is the case with Jamaica — with its low economic growth, despite macroeconomic stability — so it is with Mexico.

Mexico's average GDP growth of 2.4 per cent between 1980 and 2014 (which is much greater than Jamaica's) is about half the average of 4.6 per cent experienced by emerging and developing economies. The reason advanced by Cordova and Padilla for Mexico's low GDP growth, despite unprecedented macroeconomic stability, is weak multifactor productivity growth. The most recent figures on GDP growth in Mexico show two per cent in 2017, which is lower than the average of the previous 34 years. The April - June quarter of 2018 has shown a shrinkage of 0.1 per cent. The chief factor responsible for this latest performance, the first since 2015, was decline in productivity levels, particularly agriculture.

Ja's productivity profile compared

Jamaica's low productivity, which was at its peak in the 1970s due to record-level outputs in bauxite and agricultural produce, has been the subject of much talk, but little real concrete action over the last several years. Brian Wynter, governor of the Bank of Jamaica, in a September 2011 speech entitled 'Productivity in Jamaica', notes that total factor productivity (also known as multifactor productivity) had declined at a rate of 2.1 per cent over the 20-year period from 1990 to 2010, while labour productivity (output per worker) had declined 0.5 per cent over the same period resulting in economic growth between 2000 and 2010 averaging 0.8 per cent, compared to a rate of 2.6 per cent, per year, of our Caribbean neighbours.

As shown above, our economic growth continues to be in the region of one per cent per year, or less. By contrast the productivity and economic growth of countries in Asia and Europe have seen increases. The Asian Productivity Organization (APO), in its 2016 Productivity Databook, assert that countries in that region experienced economic growth of between 5.4 per cent and 5.7 per cent over the period 2010 - 2014, while China's growth slowed to 7.8 per cent during the same period.

In relation to labour productivity, the APO found that between 2005 and 2014 China's labour productivity grew by nine per cent, while Myanmar's and Mongolia's grew by 7.8 per cent and 7.2 per cent. These rates of growth in productivity per worker compare with declines in Jamaica. Among the factors to which economic growth and productivity in Asia have been attributed are the availability of capital, the structure of industries, industry diversification, forecasting of and focusing on key areas for growth, and the base structure of a skills-learning education system.

In relation to the last two factors, one country that has shown tremendous creativity and reaped great success is India. India has shifted its economy and education system to one which focuses on services and skill development, and this in part explains its membership in the emerging economic and financial power known as the BRICS (Brazil, Russia, India, China and South Africa). India's annual GDP growth was 7.71 per cent in 2016 with a labour productivity rate averaging 4.95 per cent between December 1992 and December 2017.

The growth in GDP and labour productivity being experienced by countries in Asia, as well as India, is not only attributable to the design of their education systems, but to their focus on transforming primary products into value-added consumer products, as well as on services. Forty-five years ago the late George Beckford recommended that if the former plantation economies of the Caribbean were to overcome persistent power their economic model had to be changed from being merely exporters of raw materials and primary products to exporters of value-added, high-end goods, and the provider of services. If we are to experience meaningful GDP growth we must heed Beckford's timeless advice.

Overhauling the EDUCATION SYSTEM

There have been noble efforts to revamp Jamaica's education system. These efforts include the implementation of recommendations of the 2004 Task Force Report on Education (a matter which now needs a thorough evaluation), the recently implemented New Standards Curriculum, and the staging of a Tertiary Education Summit (with a set of possible actions discussed).

I am of the view that these initiatives are good, but not good enough, and far more needs to be done to radically shake up the education sector with a view to aligning its work to the canons of productivity as its principal purpose. There will still be room for ancillary and important functions such as socialisation and creating responsible citizens, but above those must stand the mandate to empower and equip graduates to be productive.

It is, in my view, very striking that while university enrolment and graduation rates have increased dramatically over the last 40 years, our productivity has not merely remained low but has declined. In the five-year period 2011/12 t0 2015/16, enrolment at the Mona Campus of The University of the West Indies has grown by about 12.5 per cent from approximately 16,000 in 2011/12 to 18,000 in 2015/16. Enrolment in science, technology, engineering, and mathematics (STEM) programmes has increased marginally over the period from 38.1 per cent in 2011/12 to 42.7 per cent in 2015/16. When one reflects on the total size of the graduate population in 2018, compared to 40 years ago when only about three per cent of the population accessed university, one has to ask: What are we, as graduates, producing, given the country's declining productivity.

India, which in the 1980s faced a situation of people with PhD's driving taxis, revolutionised its education system into three tiers. In Tier 1 they placed the research universities whose focus was, among other things, on studying new global and national economic developments and offering recommendations on how to position the education system to respond. Tier 2 consists of teachers' colleges which, with the support of research outputs from the universities, strengthened and repositioned the processes of preparing teachers for services at the early childhood to secondary levels. In Tier 3 are the polytechnics and community colleges, whose focus is to prepare skilled and certified workers for all sectors of a highly technologically driven service economy. The programmes of training offered are informed by university-led research. Jamaica is advised to explore and adopt such a system. In addition to India's miracle is the more well known China charm, which has a highly skilled and disciplined workforce, 50 per cent of which is technical and vocational education and training and STEM-trained.

More than macroeconomic stability

So, ultimately, while macroeconomic stability is good, right, and necessary, in and of itself and by itself, it does not make for an improved quality of life for the majority, nor does it by itself improve productivity. The experience of our not-too-distant geographical neighbour, Mexico, has proven this. Thus our success at creating and maintaining macroeconomic stability does not address many of the difficult economic challenges faced by low-wage and middle-income workers and the implications of these challenges to meet health care costs and tuition fees. There is, therefore, need for a more robust relationship between the pursuit and preservation of macroeconomic stability and the positioning, partitioning, and planning of our education system, in order for macroeconomic stability and productivity (both multifactor and labour) to go hand in hand.

It is not without significance that the mission of the Caribbean Centre for Educational Planning is: “To support regional development and productivity through the provision of high quality educational planning services to countries of the Caribbean”.

Dr Canute Thompson is head of the Caribbean Centre for Educational Planning, lecturer in the School of Education, and co-founder and chief consultant for the Caribbean Leadership Re-Imagination Initiative, at The University of the West Indies, Mona. He is also author of three books and several articles on leadership. Send comments to the Observer or

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