Jamaica's nimble informal economy may help beat COVID-19Wednesday, May 20, 2020
BY Dennis Jones
For a large part of its post-independence life, Jamaica has been an economic conundrum: The official data showed for years a country that was hardly growing. However, on the ground there were always signs that Jamaica was not an economic wasteland.
That, in part, reflected huge economic inequalities, which left some with a great quality of life while some Jamaicans lived in poor and very difficult situations.
Those in greatest difficulty were in the rural areas and in the urban inner-city areas, especially near downtown Kingston. There, large inflows of people from the late 1950s/early 1960s squeezed themselves into a geographic space not ready for them in terms of available housing, and squatting and crowded living became the norm.
But, we ended up with too many people vying for too few jobs and with too few skills to command anything but the most basic of employment. So, make a job for yourself: vendor, cart pusher, go-for, yard work, domestic worker, whatever.
The conundrum also represented a somewhat complicated story about how public finance was misused and left the country less productive than it should have been, with an infrastructure that reflected massive misallocation of resources. Private resources were much better used and that is evident in such material areas as housing stock and purchase of 'luxury' and 'high-quality' imported goods.
The apparent discrepancy between official data and what one could often see was also reflective of a large informal economy, not all involving legal activities, that was largely bypassed in official statistics. One of its greatest missing pieces was how money from illegal drugs trading supported many households.
Policymakers had to accept, therefore, that the levers they had at their disposal could not steer the economy and society well because it was not driving the greater part of it. But, following conventional wisdom, the lever had to be pulled.
The bottom line, though, was that in a very real sense Jamaica's economic growth performance was badly underestimated. In a simplistic sense, it means that policy was always tending to overcorrect, and in the most recent period when the 'good' performance was being recorded under an International Monetary Fund programme, the primary deficit target was far too stringent.
In other words, too much austerity was being pushed onto the economy (with primary surpluses that would severely hamper even the strongest of economies) and the worst of that is that the effect was probably disproportionately felt by the formal sector.
My personal view is that Jamaica's large informal economy may hold an ace that saves Jamaica having a very difficult economic time during the pandemic and coming out of it. Here's why, in my mind.
So many parts of the informal economy are atomistic, by that I mean operations involving either one person or very few people and doing things that do not require a large amount of capital.
That means starting up again could be relatively easy, so long as supply chains have not been too badly disrupted. That atomistic characteristic is also important in an economic sense because it represents many of the supposed good things about a competitive economic environment:
Many small firms
The absence of economies of scale
Firms do not have the ability to set prices (they are price takers)
Low profits and low prices for consumers
Jamaicans have benefited greatly from this in many relatable ways, including what many take for granted with the availability of fresh produce, household help, and lots of other features of life that depend on the 'little man/woman' ready to 'do a t'ing' and earn money by proving goods and services.
It's also given the country a certain flexibility when it comes to dealing with varied economic conditions. The resilience and durability of the informal sector in Jamaica, and the opportunities it provided for income and therefore survival and advancement has been one of the pillars that has stopped the country from a serious social explosion.
The anecdotes about domestic workers and higglers and taximen who have supported their families and given their children better educational opportunities are not trivial.
Although many of these small operators have had a hard time, they could bounce back fast because their capital losses will be small and their need for survival is personal. The thing that will hamper them most is what has happened to their supply chains.
Those who will have suffered least are likely to be those directly offering agricultural produce, because they control their supplies. At the other end of the spectrum will be those who are dependent on large units of goods that are broken down and sold all over Jamaica by vendors.
Anecdotes already show that nimbleness is at work. One story is of a hairdresser whose clientele at her business location has dropped to a trickle, but has seen that her business space can become a place for the buying, selling, and collection of agricultural produce. Even if that were just satisfying demand from her previous clients, that's not a bad trade-off, temporarily, and who knows where it may lead.
While Jamaica badly needs the major employers and foreign exchange (FX) generators in tourism and the business processing sector, plus the FX from bauxite and remittances, it needs its small entrepreneurs, too, for all the employment and money transmission that they have provided.
Where the informal sector may have problems going forward is that the world will demand (at least in the foreseeable short-term) more stringent health assurances. To do that will require more regulation of all aspects of life — almost the antithesis of informal activities — so that checks for compliance with those assurances are as good as possible.
That would mean many in the informal sector having to be fully recognised for what they do; let's call it being licensed as a catch-all. That may, in principle, put at risk what attracts many to the informal sector – the relative anonymity, especially with regard to fiscal/tax obligations.
That economic anonymity has been part of the unequal burden that the Jamaican society has had to bear for decades.The fiscal burden on the formal sector has not been fair, but the trade-off has been that the overall cost of living has been considerably lower because of informal activities. So, we should watch how that tension gets resolved.
Dennis G Jones is a JP and economist.