Can the prime minister’s partnership for productivity and peace end Jamaica’s long stagnation?
It was encouraging to hear Prime Minister Andrew Holness advocate a partnership for productivity and peace at Sunday’s Jamaica Labour Party annual conference. It has long been clear that a true problem-solving approach, embedded in the consultative principles of social partnership, was the only real way forward for Jamaica. Indeed, such an approach accounts for Jamaica’s main economic policy achievement of the last decade — macroeconomic stability built on balanced budgets monitored by the Economic Programme Oversight Committee (EPOC), which the International Monetary Fund (IMF) now regards as a global success story.
However, other than a small- scale “energy” version of the partnership, there has been no similar successful effort despite a social partnership process being in place since 2013. This has not been for lack of trying; for example, the Crime Consensus Monitoring Committee (CMOC), modelled after EPOC. Fortunately, the renewed emphasis on “peace” suggests that there may finally be an emerging consensus to deal with such a difficult and many-layered problem as crime.
It is, however, his emphasis on a partnership for “productivity” that is most interesting.
Jamaican economist Peter Blair Henry’s recent speech on Jamaica’s last 60 years of development as part of the Planning Institute of Jamaica’s Dialogue for Development series, titled ‘Productive Public Investment: An Innovative Framework for Aligning Jamaica’s Economic and Social Priorities’, did an excellent job of demonstrating why emphasising productivity is important.
He began with the World Bank database World Development Indicators (these are measured in constant US dollars) and calculated Jamaica’s gross domestic product (GDP) per person and GDP per worker (more commonly called productivity) between 1962 and 2022. According to Henry, in 1962 Jamaica’s GDP per person was US$3,479 and GDP per worker was US$8,650. In 2022 Jamaica’s GDP per person was US$5,187, while its GDP per worker was US$8,244. These abysmal statistics mean that over a 60-year period GDP per person has increased by a mere 0.7 per cent per annum, while GDP per worker has actually declined by 0.1 per cent per annum.
The situation is even worse if measured from 1972, when Jamaica’s productivity apparently peaked. According to Henry, this means the average member of the Jamaican labour force today is only three-fifths as productive as the average worker was in 1972, and consequently the average Jamaican is less well off than the average Jamaican was in 1972.
Henry does a quick tour through the decades which he characterises as follows: Post-Independence Boom (1962 to 1972); The Self-Reliance Bust (1973 – 1980); Reform and (Partial) Recovery (1981 – 1994); Financial Crisis and Stagnation (1995 – 2012); and finally Stabilisation and Resilience (2013 – Present), which we will review next week. His key message here is Jamaica’s two positive recovery periods involved one party continuing the other’s policies, for example, 1989 and 2016.
His key point is that our continual “past debt crises” reflected spending “not aligned with the public’s development priorities”. Jamaica’s skyrocketing debt following the 1995 financial crisis crowded out public spending on education, whereas previously human capital in Jamaica had grown every year until 2000. The result is that there has been “little to no improvement in the skill level of our labour force after 2000”, which he links to the drift down in productivity. We will cover his comments on physical infrastructure in another article.
In addition to the very serious problem of low human capital, another seminar, titled ‘Fifty years of economic stagnation: How do we break the mould?’, put on by Sterling Asset Management on November 16, gives us some further insight into the reasons for Jamaica’s poor growth.
At the seminar, the World Bank’s lead regional economist Nataliya Mylenko cautiously noted that not all of Jamaica’s low and volatile growth was due to natural disasters or global shocks, but also to our many crises, observing, however, that macroeconomic stability was a necessary but not sufficient condition for faster growth. She emphasised instead the need for further structural reforms leading to greater innovation, improving the value-added in the structure of the economy, citing Grenada’s economy as half its offshore university and half tourism, and that there could be no large-scale manufacturing in Jamaica without reducing our very high cost of electricity.
Echoing Mylenko, former IMF and Bank of England economist Dennis Jones observed that for most of the past 50 years Jamaica has had inconsistent economic policy, with only a recent period of consensus. He added that it was well known that moving into more productive sectors produces faster growth, whereas a dependence on agriculture and mining tended to produce lower growth.
University economist Dr Samuel Braithwaite in turn argued that to grow, small countries such as Jamaica need to trade with large countries, citing the success of Singapore in taking advantage of its shipping location.
Finally, Sterling Asset Management founder Dr Charles Ross, who was executive director of the Private Sector Organisation of Jamaica in the very turbulent decade between 1991 and 2001, forcefully argued that our very poor fiscal and monetary policies over most of the past 50 years, meaning a combination of very poor monetary policy and particularly a policy of favouring an overvalued exchange rate, had been amongst the key drivers in Jamaica’s very poor economic performance.
It is worth noting that even this implied list: exchange rate overvaluation; excessively high interest rates; high perceived macroeconomic risk discouraging investment; not taking advantage of Jamaica’s strategic location; lack of consensus on implementation of economic reform other than balanced budgets; low innovation and new industry creation; overly high energy costs and is in no sense a complete list of the issues impacting productivity in Jamaica. Such a complex problem as improving productivity in Jamaica is, of course, ideally suited to a partnership problem-solving approach.