In the late 1960s, early 1970s Edward Seaga embarked on a policy of Jamaicanisation of the financial sector. The genius of a man understood quite clearly that a country could not grow and prosper without control of its monetary policy and control and command of its capital. To that end, Seaga called in some of the leading financial entities at the time — North American Life, Colonial Life, Manufactures Life and Dominion Life — and outlined his desire to allow Jamaicans to get control of these entities. The intention was to have the companies relinquish majority interest in the targeted companies. The companies, instead, offered to give up all interest. This was readily accepted.
Out of that exercise, Life of Jamaica and Island Life emerged and joined Mutual Life, and they became the dominant players in Jamaica's life insurance sector. In the banking sector, instead of seeking control of the existing banks at the time — Barclays Bank, Bank of Nova Scotia, Royal Bank, and CIBC — he went about establishing parallel Jamaican banking institutions — Jamaican Citizens Bank (with the Government owning substantial amounts of the shares) and Jamaica Mortgage Bank were established.
At that time, postal banking was widely practised and encouraged. Postal banking is one of the financial pillars on which the Japanese economy was built. In the 1970s Michael Manley transformed the postal banking system into Workers Bank and he nationalised Barclay's Bank and called it National Commercial Bank (NCB), and NCB was fully owned by the Government.
The Jamaicanisation of the financial sector by Seaga, and the creation of NCB and Workers Bank by Michael Manley, was right for the times. Countries have to take charge of their capital. Capital is the lifeblood of a nation. And, while there are governments which abuse this control, there are equal numbers of governments which use this control in the interest of their people and countries.
China will in short order become the dominant economy in the world. China's capital was and still is controlled by the Government. Singapore — the poster child for a prosperous economy, its capital, both its accumulation and use, is dominated by its Government. Singaporean Government has major or majority interest in almost everything which makes Singapore work, including the development of about 80 per cent of the housing stock in the country. Among the secrets to the success of South Korea are its establishment of State-owned banks; the Government of Park Chung Hee taking on the role of “director of entrepreneurism”; and the targeting of industries and making available the capital that was needed to ensure their success.
We have fallen victim to the idiotic, neo-conservatives thinking which suggests that Government cannot do anything good, and that the free market should be left alone to solve all economic problems. If societal free-for-all is bad, and it is. If, as Thomas Hobbes has observed, that without rules, laws, and regulations life would be “solitary, poor, nasty, brutish, and short”, how then what is bad for society can make good economic sense? If, as Hobbes has recommended, that society needs a leviathan to maintain good order, why do these neo-cons think that we no longer do? Government must be the leviathan for society, both socially and economically.
The role of the Government in society was besmirched by neo-cons Ronald Reagan and Margaret Thatcher. Reagan's infamous quote was that the 12 worst words are: “I am from the Government and I am here to help you.” Thatcher thought so little of government she sold everything with British on it, including British Petroleum, British Steel, British Airways, etc. She also thought that the Government had no role setting interest rates and she turned this function over to the banks. London Inter-Bank Offer Rate (LIBOR) is the benchmark used to determine interest rates because of Thatcher's views on the role of Government in the economy. We should all remember the LIBOR scandal in which banks took the opportunity to rig interest rates in their favour.
Thatcher also believed that the Government had no role deciding how capital should be allocated, because the all-powerful free market would know best how to do so. But the proof of a pudding is in its eating. The proof of a policy is in the prosperity it has brought. Where is the prosperity Thatcher's “big bang” has brought Britain and the world? How prosperous is Britain? The Empire on which the sun never sets is now reduced to England, Wales, Scotland, and Northern Ireland. And I believe that by the next Scottish referendum Scotland will be gone. People do not leave good. Scotland will likely go because of the misery Thatcher's policies have brought on the Scottish people.
We in Jamaica must abandon these crazy ideas of neo-cons and go back to things that work. as demonstrated by our illustrious teacher Edward Seaga. I was heartened to hear Prime Minister Andrew Holness's recent spirited defence of government in the parliament. He can easily become Jamaica's greatest prime minister, but he must seize the moment. His steering of ship Jamaica through the turbulent COVID-19 storms is admired worldwide. But for him to achieve greatness he must grow the economy in excess of five per cent. Bustamante grew the economy by as much as 14 per cent in the early 1950s. Hugh Shearer grew the economy by almost 12 per cent in 1970. And Edward Seaga grew the economy by as much as 7.9 per cent in 1987 after he was given basket to carry water.
I do not want to hear that low growth of 2 per cent to 3 per cent is the new normal. No! It is neo-conservatives' normal. Low growth is what neo-con economic thinking and policies cause. It is a reason the poorest states in America are conservative states run by Republicans. A study of over 64 years in America shows that when Democrats are in the White House the economy grows by an average 4.35 per cent, but when Republicans are in charge the average growth is only 2.54 per cent. This astoundingly large difference is, without any doubt, the difference between liberal policies and neo-con policies.
To achieve substantial growth there has to be a policy shift. We must abandon what is not working and go back to what worked. The greatest ingredient for growth is capital. The privately held banks in Jamaica are strangling the economy and they are causing economic blight. I recently heard Minister of Agriculture Floyd Green bawling out for help for the farmers; so too was a member of the Masterbuilders Association crying out. All these cries are falling on deaf ears because the banks who feel that they are in business only to make money are making billions doing nothing. They are making billions by maintaining a ridiculously broad interest rate spread. They make billions by having an exceptionally wide foreign exchange rate differential. Recently the US dollar hovered around US$1: J$150. People getting remittance are lucky when they get $130 for a US dollar. At that rate, on every one billion of US dollar remitted, $20 billion is sucked out of circulation and goes into the profits of these institutions — which may pay out some in the form of dividends quarterly to people who may not encash them for months restricting the amount and the velocity of money going through the economy.
If the Government does not want to tell banks what to do and do not want to legislate changes in behaviour, then the Government is to set up a parallel bank like Jamaican Citizens Bank, or like NCB was previously, and show them how banking should be done in the interest of the people and country. Giving more private banking licences in the belief that more competition will drive down prices and provide better services will not work because all that the new entrants will do is to follow the leaders, while the Jamaican people and the economy will continue to experience stunted growth. To avoid this, Government must provide the competition to an unresponsive banking sector.
Dorlan H Francis is a personal financial adviser, Jamaica Labour Party caretaker for St Andrew Western, and author. Among his books is The Economic and Financial Crisis of 2007 — What caused it; how to avoid a repeat. Francis is also Jamaica Labour Party caretaker for St Andrew Western. Send comments to the Observer or email@example.com.