Robert Buddan, Contributor
ONE CAN look at government budgeting in three parts: social budgeting, public sector budgeting and economic budgeting for the private sector.
Each of these sectors can claim to have the potential for being the engine of growth and development. Conventional (western) economic theory has presumed that private sector markets are the best markets for growth and state deficits are the biggest threats to growth.
The private sector reflects this view when it says that debt and deficits arise because Governments spend more than they earn.
A new kind of human (developmental) economics has emerged in the past 12 years. It argues that a state's social investment in human capital is important for human development and human development is the cornerstone of national development. In fact, many development agencies say that human beings must be placed at the centre of the development process.
THE STATE HAS A RESPONSIBILITY
The state has a responsibility to support public investment in human capital. It must create the enabling environment for human development.
There must be an important role for the state. The public sector lies at the heart of state governance. The World Bank itself has said that it is not the size of government that is important but its effectiveness. Government must spend efficiently on education, health, security, sanitation, etcetera, and on the efficient central and local administration of these services.
The trick is to achieve growth and avoid debt and deficits. There is a correlation between growth and debt. The world average of GDP growth was higher (1951-1976) than it has been since and in fact has been about half that between 1977 and 2000. Over this latter period, the rise of public debt to GDP (world average) has climbed from about 25 per cent to 55 per cent. The lesson is that countries should not borrow a lot when their growth is going down.
In the conventional model, the private sector is responsible for growth but the public sector is faulted for incurring debts. This perspective comes from convention financial budgeting and in this tradition, budgets are drafted by financial specialists.
The perspective on social budgeting is different. Here, the social sector must bring its weight to the budgeting process. Social budgeting recognises that public investment in human development is necessary for growth (and sustainable development) and market failure along with low public investments will lead to a social deficit. Countries want to avoid unsustainable budget deficits but they must also avoid dangerous social deficits. Social deficits lead to an increase in poverty and inequality. This in turn, threatens democracy, economic stability and the development process.
The landmark Millennium Summit (of the UN), held in September 2000, committed itself to peace, security, development, poverty eradication and human rights. It took the view that good governance is hindered by the failure to meet basic needs and to accelerate economic growth; to end discrimination against women, to protect the environment, to remove obstacles to political and civil liberties, and by the absence of an equitable global order. There is an implication that governments can spur growth and private sectors can incur social deficits.
In today's neo-liberal era, the private sector, private sector economists, international financial institutions and credit agencies combine to bring strong pressure to bear on governments to construct pro-private sector budgets. There is no parallel voice to defend the social and state sectors. The private sector maxim is that Government deficits arise because Government spends more than it earns and people live above their means and so Government must cut back on spending on itself and the social sector. The voice of the social sector is often ignored or representatives of that sector vacate the arena of budget debates thinking that budgets are about financial balances alone.
SOCIAL BUDGETING
Since about 1990, new emphasis has been placed on social budgeting. Economic growth remains important and there is consensus that private sectors have a leading role to play in achieving this. However, development agencies also agree that human development and environmental protection are critical. While economic capital is important for growth, human capital (talent, skills, initiative, knowledge) is especially important for sustainable development. One could not justify investments in machinery and ignore investments in people.
Organisations such as the United Nations Development Programme (UNDP), its Human Development Report, and specifically world summits such as the Social Summit, the Women's Summit, and the World Summit on Sustainable Development, do speak for social budgeting.
For example, the UNDP wants at least 20 per cent of a country's budget to be spent on education, basic health, nutrition and sanitation. It also calls on developed countries to devote at least 20 per cent of their aid to developing countries for these areas.
Social budgeting is aimed primarily at providing basic needs, particularly for children. There is a report that, in Jamaica, the leading cause of infant mortality (death among children up to the age of five) is unsanitary drinking water. At the same time, Jamaica's infant mortality rate is better than 13 other Caribbean states out of 24, a sign that social budgeting for children has helped. In fact, Jamaica has a lower death rate than 18 of those 24 countries, another sign that programmes like Drugs for the Elderly are important and that they work.
GENDER BUDGETING
Another new concept that has emerged recently is gender budgeting. This concept came out of the UN Conference on Women (1995). It involves making budgetary allocations in ways that reduce the inequalities between men and women. Studies show, for example, that better educated women are more likely to get their children immunised.
Education empowers women and reduces infant mortality rates at the same time. Already, some 40 countries are taking measures to practise gender budgeting. Where some services are used by more women than men those services can be given more allocations.
Women everywhere are poorer and more vulnerable than men. The Minister of Finance reminded us that women's unemployment in Jamaica continues to be twice as high as men's unemployment. Women therefore obviously make up a larger proportion of those living below the poverty line. It was interesting to hear the Minister say that public investments in St. Mary has brought the poverty level for that parish down from twice the national average to just below that average. This shows how important public spending is in directly bringing poverty down. We must be careful therefore when we make a blanket call for government to cut back spending.
INTERNATIONAL STANDING
Jamaica's international standing is not just measured by economic indicators and it is not just credit agencies that have an interest in our budgets. Human development agencies use social indicators to place Jamaica at medium rank among countries of the world in human development. This is a rank shared by many of our Caribbean counterparts. Over the years, Jamaica has been able to hold its place among nine (of 13) Caribbean countries ranked at the medium level of human development.
A recent comparison of the share of benefits accruing to the poorest 40 per cent of the population was done among five countries Jamaica, Chile, Costa Rica, Peru, and Bolivia. It found that Jamaica spent the highest on primary health (twice as much as Peru); the third highest on primary education; and the second highest on targeted social programmes.
It actually becomes more important for the state to protect the social sector under globalization. In fact, a new concern with budgeting around the world is with protecting the most vulnerable from the ill-effects of globalization. This is all the more important in a small, open economy such as ours. The IMF has just admitted that there is no evidence that its policies have helped the poor. The IMF ravaged the Jamaican social sector in the late 1970s and 1980s. In fact, the private sector's advice on the Jamaican budget has the same implications that an IMF programme of those days had under the infamous structural adjustment.
We cannot lament our country's social condition while at the same time call for severe cut-backs in social expenditure. We have to find a model for balanced development. That balance has to be reflected in budgeting. As the sectoral debates proceed we should know more about the social budget. Through these budgets we must build a society that can strengthen our economy and an economy that can secure sustainable development.
Robert Buddan lectures in the Department of Government, UWI, Mona: E-mail: rbuddan@uwimona.edu.jm
