A clash of ideologies plunged the decade of the 1970s in Jamaica into turmoil. The confrontation, which was political at first, developed into the most violent period of Jamaican history, as opposing forces battled in the streets.

The sharp swing to the radical left by the governing People’s National Party (PNP), led by Michael Manley, created hysteria among professionals, and owners of business and property, resulting inevitably in a panic-driven migration. A majority of the people also felt this panic at all levels: shortages of equipment, raw materials, consumer goods, drugs, and fuel prevailed.

Social tensions escalated and political confrontations frequently occurred. The country became dysfunctional until the epic general election of 1980, won by the Jamaica Labour Party (JLP), reversed the socialist misadventure. This was followed by the equally epic struggle for restoration and recovery, with new upheavals, challenges and different results.

Most newly independent countries of the past 50 years or more have followed a standard pattern in selecting one of the two principal strategies for development: A market economy sometimes attracted by generous incentives, or socialism driven by the State. Depending on the political ideology adopted, variations were devised which softened or deepened the orthodox models, both of which received support from developing countries.

The market economy was prominently promoted by the World Bank and such renowned economists as Arthur Lewis and Raoul Brebisca of Puerto Rico, setting the example with a strong response in attracting new manufacturing industries. This programme, known as Operation Bootstrap, was used as the example for others to follow. Puerto Rico, however, as a result of its dependent relationship with the USA, had special benefits not available to other countries.

Over the years, suspicions arose that the strategy was not as effective as promoted. In a study covering the period 1953 to 1962, the doctoral dissertation of Paul Chen Young at Pittsburgh University in 1966, ‘An Economic Evaluation of the Incentive Program in Jamaica’, raised the question of cost and benefit. The result revealed that the total revenue derived was only 47 per cent of the cost. Nevertheless, it was allowed to continue, partly because the result was not publicly available.

The alternative, socialism, was the next strategy to be promoted.

Michael Manley introduced democratic socialism after winning the 1972 general election. It was a hybrid type of socialism that centred on orthodox socialist commitments to egalitarianism, little incentive for work and ownership of the commanding heights of the economy, with softer elements introducing social programmes and the attainment of social justice.

Populism, one other strategic element not generically socialist, was added. This was largely to generate make-work projects, provide housing or small plots of land for development which were subsidised.

The programme introduced by Michael Manley was very appealing to the poor because of the benefits it distributed in jobs, housing and land made available for farming. This allowed him to define socialism as “love”. But together with other social projects, in particular an unaffordable free education programme, the increase in public expenditure became an unsustainable budget deficit.

Despite the deficit position, a very costly programme of State acquisition of the commanding heights of the economy was pursued for ideological reasons. The acquisitions were, by and large, popular with the people, though unaffordable.

The most effective features of democratic socialism were the politics and legislation introduced to erase glaring social injustices, but it was the attempt to give effect to the socialist cornerstone policy of egalitarianism, or equality, that first raised deep concerns. This was intended to reduce the power of wealth and privilege of class to ordinary levels. It spurred the beginning of capital flight.

To this deep concern was added Manley’s political friendship with Fidel Castro, which sent signals as to what the future political direction of Jamaica could be under Manley’s leadership. This signal later became more startling when, in an interview with a Soviet journalist, he spoke of his admiration for the Cuban and Soviet systems.

With these cues, capital flight and reduced export earnings soon wiped out the foreign exchange reserves, forcing the Bank of Jamaica to operate on negative balances for the first time. Extensive shortages, outages and stoppages followed, crippling the economy. Heavy expenditure on social programmes extended the budget deficit to even more unsustainable levels, exceeding all but a few other countries. A record eight consecutive years of negative growth, backed by unprecedented inflation, interest rates and historically high unemployment, filled out the most disastrous decade ever.

My strategy of presenting myself as a beacon of rational leadership was a major factor in Manley’s defeat in 1980. I characterised him repeatedly as irrational, irresponsible and having little credibility or stability. I maintained a stream of invective on the unsuitability of socialism for Jamaica. By the end of the decade the inappropriate policies, the politically frightening pronunciations by Manley, and effective opposition brought the country to a position requiring a new development strategy.

The general election of 1980 saw the end of the socialist misadventure — not only was it declared to be a failure, but eventually, even Manley acknowledged that “socialism is dead”; the market system, though, less effective than anticipated, was considered to be a better choice.

The change of Government in 1981 brought a change of fortunes. Over the first two years, all but one of the major economic indicators were reversed from negative to positive. But this direction was soon reversed again as the worst global recession in 50 years hit the Jamaican economy in 1983.

Bauxite earnings plunged precipitously as the demand for bauxite and alumina declined dramatically throughout the world to half the 1980 figure. By 1985, the loss of revenue and foreign exchange was crippling, and for the decade, bauxite earnings in foreign exchange fell by 36 per cent while the fall in bauxite levy, as revenue expected, fell by 44 per cent.

The new strategy to be pursued during the 1980s was liberalisation of the economy:

• To encourage cheaper imports, which could reduce prices by competing with costly locally manufactured goods. This would help to contain inflation. Pressure on the reduction of costs would also improve the potential for exportable goods. Accordingly, high import duties were reduced substantially.

• To remove price controls, enabling reasonable earnings to encourage profits and job creation.

• To divest the commercial assets of government.

But first, the legacy of the 1970s — a staggering budget deficit and a wipeout of the foreign exchange reserves — had to be tackled. These were formidable obstacles, presenting unprecedented, almost insurmountable, political and economic problems.

To balance the budget, the International Monetary Fund (IMF) insisted on savage expenditure cuts. Expenditure had to be considerably reduced to enable the budget to produce a surplus to repay debt.

The World Bank promoted a plan to reduce export costs to earn more foreign exchange by a series of devaluations of the rate of exchange of the Jamaican dollar, but each devaluation increased local costs, pushing up consumer prices, in particular, out of the reach of the poor, and causing higher inflation and more suffering. In 1987, after a prolonged battle with the IMF, I demonstrated the futility of further devaluations and convinced the IMF to agree to the exchange rate being pegged to a prescribed value of J$5.50 to US$1.00.

The peg exchange rate endured for two-and-a-half years. With effective completion of the other prescribed reforms, the economy turned around to produce lower interest rates, low inflation, record job creation, reduced unemployment and robust growth.

Economic health, though still fragile, was successfully restored by 1987, after the most gruelling programme of adjustments ever undertaken by the country.

But there was a price to be paid. Although economic health was restored, the bitter medicine was too strong for the body politic. Led by Michael Manley, the electorate was focused not on the benefits of the reforms that restored economic strength after 15 years of incomparable hardships, but on the loss of some of the expected social services, which were the casualties of the past two decades. These caused the JLP to lose the general election in 1989.

Manley promised the business community that he would continue the successful JLP economic policy while assuring the people of a restoration of social benefits. He soon realised that this mix was impossible because, as the JLP warned, “it takes cash to care”, and there was little cash.

Manley, despite, his emotional attachment to left-wing economic doctrine, allowed the IMF to guide him through the wilderness of the capitalist market system economy. He was prompted to abandon the auction system which maintained the pegged exchange rate. This revision of policy caused the rate of exchange to move perilously. Within 17 months of the new term, the value of J$1 fell from US$0.18 to US$0.07. Panic set in.

Unfamiliar with the mechanisms of the market system, Manley allowed himself to be persuaded to remove the restrictions on foreign exchange moving freely in and out of the country. In September 1991 he made a fateful decision which precipitated economic cataclysm: exchange control regulations, which prohibited the movement of foreign exchange out of the country, were repealed, opening the door for capital to be moved out without the Bank of Jamaica having reserves to weather the outflow. He expected compensating inflows of foreign exchange, which I warned him would not simultaneously materialise.

With the door now open for capital flight, the foreign exchange rate soared through the roof, interest and inflation rates zoomed through the window, and economic growth plunged through the floor. All but a small number of financial institutions collapsed.

This was the beginning of an economic meltdown which eventually cost the Government a massive $140 billion in compensation to failed institutions to enable them to protect depositors. This was 45 per cent of the GDP, ranking Jamaica third on the list of countries experiencing economic breakdown. Only Argentina (55 per cent) and Indonesia (50 per cent) were more severe.

The decade of the 1990s and the early years of the new century were lost, as was the decade of the 1970s, because of the inappropriate policies and unlearned, or easily misled leadership. Economic growth stagnated, the budget was once again in deficit, average inflation and interest rates were prohibitive at first, before declining.

Ironically, in a climate of little or no growth, unemployment decreased. Not so the Poverty Index, in part, because frantic relatives abroad rushed rescue packages of remittances and barrels of goodies to help families cope with the hardships. Government also introduced effective poverty reduction measures. Whatever the reason for this mixture of good or ill fortune, the hard conditions calcified, indicating that this was not a way forward.

Indeed, of the many trials and rejections of strategies over the decades from pre- and post-independence, only the liberalisation programme of the 1980s, coupled with macro-economic stability and a pegged exchange rate proved to be a positive course. The principal policy of the 1980s which restored health — pegging the exchange rate — was not adopted by succeeding governments, although in force in most of the stable economies of the region. IMF thinking continued to exert its pressure for a record period of more than 12 years of stagnation, and continuing. It was unable to reduce the massive public debt or deal with the accumulating needs of a dysfunctional education structure and a corrupt criminal justice system.

Lack of appropriate political policies and political will were at the root of this débâcle. Part of the failure was the flip-flop of policies of alien ideologies, tough IMF strategies tugging at the heart-strings and the bewildered minds of the bedazzled leaders, who could not decide on a single route, although history had shown that there was no fork in the road. In reality, it was Hobson’s choice: a time to lead, not to follow.

Meanwhile, the ‘ism’ game continued with regionalism, through Caricom and its flagship, the moribund Caribbean Single Market and Economy (CSME), to which was added the Economic Partnership Agreements (EPA) that was supported by Jamaica although it was counterproductive. Jamaica has nothing to gain from the CSME or EPA, which opened the door to duty-free exports from partner countries in return for duty-free entry of Jamaican exports to these countries.

The Jamaican economy is a strong importer but weak producer and uncompetitive exporter. As such, it could not benefit from increased export earnings in the CSME or EPA schemes. It is the supermarket, while some others are the factories.

Because the economy played such a crucial role in Jamaica after independence, this summation of the period is largely the story of post-independence Jamaica.

The inevitable question directed to me is: “Are there any projects which you have fostered but were unable to complete?’ There are in fact two such projects which must wait for the time being.

I continue to believe in the future of Jamaica, located as it is a few hundred miles from the world’s wealthiest marketplace, endowed with rich natural resources, gifted with people who are keen to learn and who can respond to training, and blessed with some of the most creative cultural and athletic talent in the world.

With these resources, Jamaica has no reason to be poor!

— Edward Seaga is a former Prime Minister of Jamaica, the Chancellor of the University of Technology and is a Distinguished Fellow at the University of the West Indies.