Morrison
To paraphrase Michael Manley, "It is impatient of debate that Jamaica" must make adjustments to its economic policies and strategies to cope with the effects of the global economic crisis. The nature and extent of such adjustments, as well as the pace at which they are implemented, will be the main items of negotiations with the International Monetary Fund (IMF). And whether it is the 'old IMF', or the new version that is being spoken about, economic policies geared to improving macro-economic stability will be at the top of the list.
As Jamaica's own experience has shown, rising inflation, widening gaps in the balance between exports and imports of goods and services, and sizeable fiscal deficits hinder the smooth functioning of an economy. Given the impact of the global crisis on the local economy as seen most visibly in the slump in export sectors, and the pre-existing problems of high external and fiscal deficits, there is no doubt that corrective measures are called for. In short, the economic environment has to be stabilised whether there is an agreement with the IMF or not.
But if stabilisation were to become the sole focus of economic policy, it is difficult to visualise how the Jamaican economy would get on to a recovery path. Judging by the commentary from financial analysts and business leaders, their preoccupation is with stabilisation and specifically, the correction of the fiscal deficit just as it was with inflation control and the advocacy of currency devaluation for much of the 1990s. A painful lesson of that period, however, is that while priority must be placed on getting the macro-economic variables right, at the same time, bold and sustained action is required at the level of industries and firms if the economy is to grow.
Indeed, gains made from stabilisation in terms of low inflation and currency stability are going to be only temporary unless they are consolidated by economic growth. The success of the Asian tigers (South Korea, Taiwan, et al) and more recently, China and other rapidly growing developing countries, has shown that investment is the main driver of economic growth. So, in mobilising to counteract the fallout from the global crisis, and in the search for a viable borrowing arrangement with the IMF, Jamaica should, therefore, be aiming to direct its financial and other resources towards an investment-driven recovery programme.
fuel investment
Such a programme should, among other things, facilitate and fuel investment in: broad tools, like energy and physical infrastructure that will raise the competitiveness of businesses and industries; the modernisation of industries that can survive after the crisis; and, the unleashing of new activities or industries. In other words, dynamic investment activity is a sine qua non for putting the Jamaican economy on a sustainable growth path.
Since private sector decision-makers are the ones who preside over the allocation of capital and lead businesses, it is important that they have plans for the various firms and industries. In addition to their concern about the macro- economic variables, we should be hearing from them about the micro-economy. For example, how many firms have drawn up plans for modernising their operations? What are their productivity levels, and how can they be improved? How many intend to expand, and what level of equity financing can they mobilise? What is the ranking of the firms in relation to local competitors? And how do they match up against similar entities in the Caribbean and beyond?
future direction of Ja's economy
Unfortunately, very little of the conversation about the future direction of Jamaica's economy is around questions of this nature. It is nearly always about the role of the State and about macro issues. Equally important, is whether Jamaica's private-sector bodies have informed views on the impact of the global crisis on specific sectors, and a sense of which can survive and what changes are needed to make them competitive.
This is not the job of Government and it should not be the primary responsibility of the State to formulate strategic responses that businesses should execute to strengthen their operations. Though the economic crisis is deep, we know that after the crisis must be recovery, hence preparation for an investment-driven recovery is essential. Are there Jamaican investors and entrepreneurs with ideas and plans to mount new industrial activities to exploit the economic landscape that will emerge when the current crisis is over? Where are the new dynamos to drive private-sector production?
We used to be told that the shortage of investment capital was an overwhelming constraint to growth and that wages ate too much of national income. But that has changed significantly with the liberalisation of the economy in the past quarter century. The data show that whereas compensation of employees represented 69 per cent of factor income in 1976, and operating surplus the balance of 31 per cent, the position was reversed by 1996, when the shares were 45.3 per cent and 54.7 per cent, respectively. And the balance has shifted further in favour of capital since then.
The time has, therefore, come for private sector leaders to take the initiative to bring relevance to the public conversation on the economic programme needed to move Jamaica on to a growth path. In doing so, they should point the directions in which the investment capital that they control will be deployed to expand production while making this economy more competitive.
Dennis E. Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.