Global markets are seeing a liquidity problem that has already started to affect Jamaica. We have seen where (1) the interest rate on July’s variable rate instrument was 20 basis points more than the June instrument; (2) recent pressure on the Jamaican dollar by the major currencies; and (3) declines in tourism over last year. This should of course come as no surprise for anyone who has been following the global markets, and in fact both Ralston Hyman and I have been saying for months that we would encounter this problem.
At the same time the elections will take place on Monday and there has not been much debate on how the parties will address the global challenge we face. No doubt this will call for fiscal prudence, not from the point of view of limiting expenditure, but ensuring the efficient allocation of capital. There can be no question that this is something that we have fallen down on, as is evidenced by the huge mountain of debt accumulated with no real benefit in our growth or GDP per capita numbers. And when I am looking at this I am not going to speak, as we always do, in isolation from the rest of the world. We must at some point in time confront the fact that we live in a global environment and improvements cannot be looked at in isolation from the rest of the world.
As an example the table shows average GDP per capita growth for Caricom states between 1990 and 2001. Isolating Jamaica one may think that we really have not been doing so badly, and certainly this may be confirmed by our experience of improved access to telecommunications, motor vehicles, and reduction in poverty. No doubt there has been development in Jamaica. But when we compare it to the other Caricom member states, we see that the only state that has fared worse than us is Haiti. And I am positive that there is not much to boast about it that. When we look at the other countries, however, we see that relatively Jamaicans are worse off. In fact, apart from Haiti, Jamaica is the only country that has seen an average real reduction in per capita GDP over the period, implying that over those eleven years the average Jamaican income level has been in effect declining. Between the period 1975 and 2001 the average growth for Jamaica was 0.10%,.
When we are therefore looking at the progress that Jamaica has made we cannot look at Jamaica in isolation but must compare us to the rest of the world, and especially the Caricom states. That is unless of course we do not consider ourselves world citizens and want to live in isolation from the rest of the world. And it is for this reason why I continuously say that 2 percent growth within the context of the global growth levels being experienced is far from satisfactory. Especially as Jamaica has so much potential.
Important micro level
At the micro level a significant reason why Jamaica’s growth is less than adequate is because of the performance of companies. Anyone who understands basic economics will know that economies are made up of firm (companies) and individual activities. So if we want to grow economies then certainly an effective way of doing so is increasing and influencing economic activity amongst firms and individuals. And this is why it is so important to create a business climate where investments are encouraged, bureaucracy is reduced, and taxation is used to encourage export of goods and services. The truth is that this is at the heart of the problems we have been experiencing. It is because we have not laid the appropriate environment why we have not seen the growth we need.
The result is that most of our companies are not geared towards efficiency and competition. Most of our companies aim their activities at the Jamaican market and do not look to develop overseas markets. This is primarily because we have developed into a trading economy. A far cry from the industrialization path we were on in the 1960s. If we are going to compete in the global environment it is important that we play by the rules for global competition. At the government level it is important to put in place policies that are going to encourage economic activity to move in that direction. Acting as if we are isolated from the rest of the world will only see us falling farther behind other countries.
An example of how much we do not recognize the changing rules is the fact that we do not realize that the inputs of production are changing. In today’s world, as opposed to 20 years ago, the reliance on things such as telecommunications, a reliable electricity supply, and internet connectivity was not as important. In Jamaica today where 70 percent of our economy is service based, more people are working from home, and access to real time information is necessary, one can see how important these inputs are. But even so we still have a looming crisis with electricity generation capacity come next year, and even when we do not have a hurricane regular power cuts plague us. It is not enough to say that the commercial districts have electricity as many businesses now operate from private offices at home. While the telecommunications industry is satisfactory (including internet access), the rates are still too high for a majority of our population. Additionally, because telecommunications is so essential for a competitive environment any forward thinking tax policy would ensure that GCT is not added to these services, just as GCT is removed on computer hardware. It makes no sense having the hardware and not being able to afford the services. Not all internet service providers are equal though, as I have found out having to move from one of the largest, because of the unreliability and long response time.
If we are going to compete globally then, we must realize that the rules of production have changed. The economy cannot be driven by government activity but must have private sector at the forefront. In order for this to happen though we need a private sector that is properly equipped to deal with the global environment, and need to see more companies like Sandals. We have to realize that the production inputs have changed and government policy needs to make these inputs reliable, affordable and available through tax policy and the regulatory environment. Unless we act like we are a part of a global environment then we will always celebrate small achievements while the rest of the world leaves us behind.