The manifestos - a comparative economic analysis
By Earl Bartley, Contributor

Opposition Leader Edward Seaga displays the JLP's manifesto.Right: Prime Minister P. J. Patterson and Tourism and Sports Minister, Portia Simpson Miller in discussion about the PNP's manifesto. File Photos

Jamaica's two major political parties - the Jamaica Labour Party and the People's National Party, have both put out their manifestos for the October 16 elections, promising many wonderful things. How do the manifestos compare and how might we evaluate these proposals, given existing local and international conditions.

MACRO-ECONOMY

The People's National Party (PNP) appears to be continuing the monetarist policies it stumbled onto in the early 1990s in its desperate battle against inflation. Monetarism emphasises control of the money supply to influence price levels, interest rates, output and employment. The PNP has set precise targets it hopes to achieve in its fourth term, for growth: two to four per cent in the medium term, six per cent thereafter; inflation, about five per cent; unemployment 10 per cent and interest rates in single digits.

The Jamaica Labour Party (JLP) on the other hand is vague on targets, but has pledged to stimulate growth and promote savings and investment through a wide variety of "supply-side" tax incentives such as a tax write-off of mortgage interest payments to home owners; a 100 per cent write-off of venture capital investments; and a 20 per cent tax exemption on profits from approved value-added activities - among other tax incentives.

The question is which of these policy thrusts are better capable of achieving economic growth and increased employment while maintaining macro-economic stability.

Though I doubt that we are likely to see single digit interest rates any time soon (interest rates incorporate a calculation for inflation and an eight percentage points bank administrative cost), I do agree with Dr. Davies that after the terrible adjustments of the 1990s the economy has stabilised and growth targets of two to four per cent for the medium term are achievable.

On the other hand, Mr. Seaga's supply-side incentives (including the abolition of education cost-sharing) could to amount to $10 or $12 billion annually or 10-12 per cent of tax revenues - and destabilise the economy. Even if we say that this substantial increase to the money supply might not cause inflation in the short-term because of the excess capacity in the economy, chances are it would worsen the fiscal deficit and through import leakage, worsen the merchandise deficit of the external accounts. In fact, given the International Monetary Fund's pressure to lower the fiscal deficit from 5.3 per cent to 2.5 per cent of GDP, I very much doubt that they would agree to any portion, not to mention, all of these tax cuts.

The theory of the supply-siders that tax cuts now would so boost aggregate demand, employment and output that the taxes could be recouped later sounds good, but I do not believe our budget or balance of payments could withstand the abolition of cost-sharing, home-mortgage interest write-offs and the business incentives at the same time. Some of the business incentives, however, could be of immediate benefit to the economy. As regards other macro-economic objectives of the PNP, absent a prolonged slow-down in the world economy the proposal to reduce the debt to GDP ratio to 100 per cent by 2006, is achievable with modest growth targets of two to four per cent. But I do not see how that highly desired objective will square with the 15 mega-projects planned by the PNP, many of which will be dependent on loan financing, least of all, the 30 mega-projects being proposed by the JLP.

SECTORAL POLICIES

The JLP and the PNP are resting their hopes for economic growth and development on six or seven sectors. It is helpful to briefly review some of their proposals with regard to a few of these main sectors.

TOURISM

Both parties have good proposals for diversifying Jamaica's tourism product in its heritage and environmental aspects, though I believe the JLP's proposals are more innovative and precise. The centrepiece of the PNP's and the JLP's tourism proposals is to increase room capacity in the industry by 60 to 66 per cent above the 16,500 rooms now available in the industry. The JLP is proposing to add 10,000 more rooms in seven years and the PNP 11,000, ostensibly in five years. Both of these targets are overly ambitious considering: (a) there is considerable excess room capacity in the industry; (b) our deteriorating social environment continues to turn off visitors; (c) neither the financing of US$1.2 to US$1.5 billion nor the investors have for the most part been identified. The construction of 3,000 rooms are probably more realisable.

AGRICULTURE

The PNP's performance in agriculture over the past 13 years especially as it relates to producers of domestic crops, has ranged from indifference to disregard. The state-sponsored tractor service programme which formerly assisted farmers with land preparation was discontinued four years ago; credit to small farmers has been tight to non-existent; marketing support bas been very weak and unregulated importation (up to 2002) almost wiped-out small farmers.

The JLP is proposing Low Interest and Farming Expansion (LIFE), a programme to use Jamaica Development Bank surpluses to provide low interest loans to small farmers; a programme to provide farmers with increased access to farm equipment, and to actively use safeguard legislation to protect the domestic markets. The JLP is also promising to promote bio-technological research and extraction of essences and flavours from local plant species and to encourage pharmaceutical and nutraceutical industries.

These measures could strengthen and revitalise agriculture and could increase output, income and employment. The PNP is proposing many similar measures, of special interest being its proposal to encourage young people into farming by

providing them with land, but it is hard to see PNP's policies as credible, because like the Domestic Food Crop Programme and Tree Crop Planting Programme, they could mainly be policy pronouncements on paper without adequate resources to make them of substantial benefit to farmers.

Manufacturing

What the Patterson administration did not do for agriculture, it attempted to do in manufacturing, providing hundred of millions in low-interest loans to help the manufacturing sector mitigate the effects of high interest rates and to replace obsolete machinery and equipment. Despite this assistance, the manufacturing sector declined from 22 per cent of GDP in 1990 to under 16 per cent today.

In its manifesto the PNP seems to have consolidated the refocusing of Jamaica's manufacturing policy away from high volume labour intensive activities using imported raw-materials, to activities emphasising value-added and the use of local raw-materials. It has stated its priorities to be agro-processing, the development of herbal medicines and nutraceuticals and promises incentives linked to productivity.

The JLP is proposing an Integrated Energy Chemical Facility using imported methanol to make a wide range of consumer plastic products, and it is also promising "subject to market demand," to expand aluminium production by 2.3 million tons. As previously, the JLP is proposing a number of investment incentives to encourage higher value-added activities and venture capital initiatives.

Few of the new initiatives proposed by the JLP or the PNP will come on stream within the next two to three years, because neither the products nor projects are in any advanced state of readiness. Thus, additions to income and employment from manufacturing will mainly come from the utilisation of excess capacity within the sector.

Employment Creation

The PNP has promised to reduce unemployment to 10 per cent of the labour force in its next term, down from 16 per cent presently. Assuming the same annual increment to the labour force - about 28,700, this would mean creating approximately 180,000 jobs or roughly 36,000 jobs per year for the next five years. Given the state of readiness of projects and a less than buoyant international economy, manufacturing, agriculture and tourism are likely to yield only modest employment gains - about 6,000 to 7,000 direct jobs combined, substantial employment could come from state sponsored housing and infrastructural construction -probably another 8,000 to 10,000 annually. Given the PNP's strong emphasis on self-employment through MIDA and MicroFin funding, another 8,000 to 10,000 (somewhat marginal) jobs could be created through those means. Thus PNP policies could therefore create 20,000 to 25,000 direct jobs annually, and the employment multiplier could possibly generate another 15,000 indirectly to boost the total to 36,000 jobs annually. I believe stronger jobs could be created by setting - up community enterprise organisations and transferring technology to them, but these are nowhere contemplated in either of the manifestos.

The JLP has not stated a target for employment creation but it expects to create jobs through its supply-side tax cuts to mortgage interest-paying home-owners and parents of school children thereby boosting their disposable income which when spent would increase aggregate demand for goods and services and the demand for workers to produce the additional output.

There is no telling however how much of the additional disposable income might be saved by home owners (or parents), or how much might be leaked on imports thereby reducing the income expenditure effects in generating employment. There is thus no way of telling precisely what might be the likely employment gains from these tax cuts and though the investment climate might become more buoyant with a JLP victory, the fact is the JLP will be functioning with the same budgetary and international constraints as the PNP, and with projects in a far less ready stage of implementation.

In the short to medium term therefore, a JLP victory at the polls on October 16, 2002 is likely to create fewer jobs than a PNP return to office.