Jamaica’s growth retarded by lack of economic consensus – Golding
The absence of agreement on a settled economic model for Jamaica’s development since the 1970s is being cited as a major cause of slow economic growth and underdevelopment in Jamaica. Former Prime Minister Bruce Golding shared the view while delivering the third G. Arthur Brown memorial lecture at the Bank of Jamaica on Thursday.
The late G. Arthur Brown was a former central bank governor and financial secretary, and who, in the 1950s, headed the Central Planning Agency, the forerunner to the Planning Institute of Jamaica.
According to Golding, general agreement by governments and the parliamentary opposition on the “industrialisation by invitation” model advanced by Caribbean economist Sir Arthur Lewis In the 1950s was a major factor that accounted for the country’s high levels of economic growth in that decade and in the period of the 1960s. A semblance of sustained economic stabilisation did not return to the economy, in his view, until the return by the government and opposition to broad agreement on the debt reduction and structural reforms pursued after the 2008 economic recession.
Noting that the economy grew by an average of 1.4 per cent a year over the 60 years since the country achieved Independence, Golding said that while per capita income is higher today than it was in 1962, gross domestic product per capital is lower. The period 1962 to 1972, he argued, accounted for about three quarters of the country’s cumulative 60-year growth.
“Critical to our success in that first 10 years of Independence was the fact that there was broad consensus between the two political parties on the development strategy to be pursued – the Arthur Lewis model,” Golding asserted.
The model he said, was designed to achieve economic development in the context of an abundant supply of labour and advocated a tightly protected market, import substitution and considerable incentives and concessions to attract investors and capital to Jamaica. The pursuit of this model, according to Golding, made Jamaica an international study case in successful development approaches.
DEVELOPMENT STRATEGIES
“our economic development strategy transcended partisan politics and it was all systems go. This policy consensus, the Jamaica consensus, was vital to our success then and history would show how vital it would always be and the negative consequences that would ensue when it was ruptured. Development strategies need years and even decades without interruption to achieve their objectives,” he said.
In free and competitive democracies continuity needs consensus, continued stressed.
He contended that the country’s positive economic trajectory was broken by the socialist experiment of the 1970s pursued by the government of Former Prime Minister Michael Manley.
“Jamaica’s growth moment went into reverse during our second decade of Independence, during which the economy declined by 22 per cent. This coincided with the abandonment of the Arthur Lewis model and its replacement by a social model of development that involved a dominant state in control of the commanding heights of the economy, with the state being principally responsible for the creation and distribution of wealth. The consensus and continuity that had guided and undergirded our efforts for the previous 20 years had been completely dismantled,” Golding charged.
ECONOMIC SETBACK
He noted that while Manley meant well and introduced far-reaching positive social legislation on behalf of people who suffered from poverty and low standards of living, the period of the 1970s was a period of major economic setback for Jamaica.
Golding’s assessment of the 1980s under the leadership of Former Prime Minister Edward Seaga was that it involved a “strenuous” programme of structural adjustment and privatisation, elimination of price and import controls, fiscal compression, wage restraint, and employment retrenchment, driven by the edicts of multilateral lending agencies. Golding opined that as painful as that experience was, it had started to have achieve positive results by 1988, with economic growth reaching six per cent by late 1988.
He is of the view that the country’s leadership “fumbled the ball” in the fourth decade of Independence “aided and abetted by the international Monetary Fund”.
“Premature and untimely foreign exchange liberalisation without the fundamentals and regulatory framework required to defend it; and untimely loose monetary policy in the month preceding it, had created a perfect storm for financial instability. Inflation soared to 80 per cent in 1991: The kind of inflation that Sri Lanka is now experiencing,” Golding remarked.
“The measures that were employed to mop up liquidity and rein in inflation, shook the very foundations of our financial system at the same time that we had declared a free-for-all in the chase of US dollars. We created a mess in trying to clean up a mess. Cash reserves and liquidity asset ratios for commercial banks were hiked to 25 per cent and 50 per cent respectively. Treasury bill rates peaked at 51 per cent in 1992. Commercial bank rates climbed. Businesses went bankrupt, banks and insurances collapsed as these explosive charges were detonated at their foundations,” Golding said.
He concluded that the past 10 years there have been important steps in fixing the economy with encouraging results.
“The institutionalisation of a fiscal responsibility and debt management framework has already had a significant impact towards achieving the macroeconomic stability that has eluded us for so long. The independence of the Bank of Jamaica and establishment of an independent fiscal commission, are among the critical tools that have been employed in ensuring sustainability of that achievement,” Golding asserted.
He notes however, that some of these gains have been eroded by the COVID-19 pandemic with further erosion possible from a likely recession to come.