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The manifestos: jigsaw puzzles or blueprints?
Published in the Jamaica: Sunday | August 26, 2007
Edward Seaga
Economic growth seems to be at the centre of both the Jamaica Labour Party and People's National Party manifestos. That is understandable. Finance is the driver of growth and the source of development which the manifestos are proposing.
Economic growth is the centre of discussion because it has been so elusive over the past 16 years. During that period, growth has averaged an abysmally low 0.6 per cent annually. Hence the focus on the need to increase future economic growth.
But there are some anomalies which require serious investigation and study before growth can reach the for per cent-five per cent level which is targeted.
Investment is required to produce growth. On that basis, high investment should produce robust growth. But that is not the case currently. Investment over the past five years (30.7 per cent per annum) has been as high as the record period of the late 1960s, yet the level of growth has failed to reach two per cent. Why?
Another anomaly is the opposite position. It does not always require high investment to produce substantial growth. In 1986-1990, investment averaged a modest 23.2 per cent while growth was a robust five per cent per annum.
A good part of the reason for this was that new jobs averaged 30,000 per annum, which meant more people were at work earning more money and paying more taxes. Yet the opposite is also true. Over the past five years, new jobs were near the high level of the late 1980s, 30,000 per annum, but, in contrast, growth was very low.
Producing robust economic growth
Some conclusions can be drawn. It does not require heavy investment to produce high growth. The 1980s proved that. And it does not take record job creation to produce high growth. The low growth of the past five years of high employment proves that.
It would seem that the standard presumptions on how to produce robust economic growth are becoming loose economic principles. On another occasion I would like to address this further.
There is another contradictory element in this puzzle. In the late 1980s, remittances were only US$160 million, or 8.2 per cent of the present-day transfers. With much larger sums, nearly US$2 billion, being transferred currently, economic growth should be strong today. But this is not so. It is anaemic. Is it that remittances which are now the largest inflow of foreign exchange are not as productive as presumed?
Perhaps the most worrying aspect of projecting future performance is the concern about what will happen when the present bubble of hotel construction is deflated. How long will this take? What will replace this strong performance in the economy? Projections of future performance will turn on this.
It is recognised that there is little prime beach land left to stage another massive expansion of hotel rooms, as is currently taking place. There is talk of 15,000 more rooms to be built. Where? This sounds like an ominous possibility of environmental hazards.
Since the job-creating potential, except for agriculture, is minimal in other productive sectors, a clear statement on the future employment potential of the tourism industry is needed to determine whether it can sustain the current high employment, or a cutback of the current boom will occur.
Difficult exercise
If it is not possible to predict the job creation and employment levels for the next five years, why is time being spent on a far more difficult exercise of drafting a 30-year plan to take Jamaica into the first world growing at six per cent per annum, which has not happened for 17 years? The problem is that at the 30-year mark, the targets we are seeking to achieve then would have advanced a further 20-30 years, leaving Jamaican economy still very far behind.
In a budget speech some years ago, I recall calculating that Jamaica would have to grow at a rate of seven per cent per annum, five times greater than the then current level, for 45 years, to catch up with Barbados, assuming that Barbados did not grow by even one per cent over the next 30 years.
Prediction of economic growth over the past 15 years or more has been generally misleading. Even the data studiously compiled for the publication of the now moribund National Industrial Policy in 1996 led to a projection of six per cent per annum in future growth. This, of course, was never attained, as real growth since then has been less than one per cent annually.
In the 1980s, an input-output model was developed under the leadership of Dr. Headley Brown, former Governor of the Bank of Jamaica. It proved to be remarkably accurate and was a valuable tool to take the country out of the tailspin of the worst recession for 50 years which badly damaged the Jamaican economy in the early to mid 1980s.
'Melt-down'
That model, painstakingly constructed, was allowed to fall into disuse even in the first half of the 1990s when the economy was in the process of 'melt-down'. Hence, by 1996 it became useless since the data was no longer up to date. Since then, it has proven difficult to predict growth performance consistently for even a two-year period.
The country does not need anymore séances to determine where it is heading and how it can be directed to a meaningful productive path which is sustainable.
Counting on future revenue to finance big spending on projects is likely to be a crystal ball exercise unless the variables can be pinned down and major new job-creating projects identified.
There is passing attention only being given to these essentials. Hence, the two manifestos, while highly presentable and informative of new and old proposals, are moreso glossy jigsaw puzzles than blueprints. With the level of uncertainty on growth, the blueprints should be fairly well determined before pronouncements on projections will have credibility.
Edward Seaga is a former Prime Minister. He is now a Distinguished Fellow at the UWI. Email: odf@uwimona.edu.jm
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