Earl M. Bartley"JAMAICA'S post-independence history has been dominated by crisis and instability," is an interesting tidbit I picked in conversation with Professor Alvin Wint of the University of the West Indies (UWI) Department of Management Studies.
Different dimensions of this crisis are accentuated from time to time social, political or economic; and at times one or other of these aspects might be latent or actual, but there has been crisis nonetheless pregnant, disorienting and destabilising.
The words 'crisis' and
'instability' are used frequently in social sciences as designations or labels of what are termed "abnormal" events.
However, they are rarely systematically defined in any sphere or discipline. When people get out on the street and burn tyres and "lock down the city tighter than a sardine can" depending on its duration, we call this a disturbance, a riot or even a rebellion, and speak widely of a crisis situation.
But when the people retreat from the barricades leaving the tyres and their anger simmering, few of us often necessarily think of this as the end of the crisis, but like James Baldwin, wonder ominously about "the fire next time."
For the purpose of this article I am using a more economistic definition of crisis as not knowing what is going to happen from quarter to quarter the basic time span in economic planning combined with a worrisome foreboding that the upcoming quarter could be worse than the present.
As astounding as it seems, this had been the mood of a significant minority, and most times a majority of Jamaicans for the last 30 years.
THE ROOTS OF CRISIS
The root of economic crisis and instability in Jamaica is our long-standing tendency to consume more than we produce.
In the 1960s, this manifested itself in an excess of imports over exports and in a current account deficit on the balance of payments every year of the decade.
Because of the inflows of foreign investments in bauxite mining, tourism and manufacturing, however, this current account deficit was masked and the country recorded an overall balance of payments surplus in most years, as well as strong economic growth averaging 6 per cent annually.
Instability in the 1960s was latent, and simmering, driven by a burgeoning black consciousness on the streets, and what was then described as the tide of 'rising expectations' sparked by the demonstration effect of frequent factory openings and the images of American style consumerism among the expanding Jamaican middle-class.
There were occasional outbursts where this emergent and assertive black consciousness clashed with existing social rigidities, such as the Chinese riots of 1963 and the Rodney riots of 1968.
For the most part, however, Jamaicans were looking forward too eagerly for better to speak of the 1960s as unstable in any greatly negative sense.
THE SEVENTIES
Come 1972, tapping into this desire for better among the people, Michael Manley, rode into government on the promise of "better must come."
It is often said that Michael Manley was focused on redistributing income sharing out the pie more broadly rather than making it bigger. That is at the very least reductionist.
In a more fundamental sense, Manley attempted to redistribute opportunities and resources (means of production) to address the tide of rising expectations and the historical backlog of economic and social inequities arising from the incomplete transformation since the ending of slavery.
Like all true reformers Manley wanted to make the existing system work better that is more inclusive and equitable but his intentions and methods aroused suspicions sparking political, social and economic instability.
The initial driving force behind the instability was social the impatience of the masses especially the urban unemployed.
After years of waiting, and seeing the brown middle-class living large, they decided it was "fi we time now," and began invading and taking over work sites shouting "power to the people" the day after the elections.
Though done in the guise of tribal PNP politics, the broader social implications were clear. Within weeks Manley announced the "Crash Programme" to placate them.
Over the next two years as Manley offered up more and more programmes for the people and seemed to be aligning himself more definitely with the black masses, even marrying one of their daughters, the fragile multi-class nationalist consensus that had been the shared social ideology of both parties since 1955 came under increasing strain.
Pushing this "all a we one" nationalist ideology to breaking point was a group of young UWI intellectuals who had been imbibing Marxist ideology from the mid-1960s. They thought that forging a horizontal alliance of the black masses in opposition to the vertical alliances of the two main parties would be their ticket to power.
The combination of social upheaval and the insertion of radical pro-socialist and anti-capitalist ideologies into the mainstream of Jamaican politics not unexpectedly had adverse effects on investor confidence caused capital flight, a depletion of reserves, and the unmasking of the current account deficit on the balance of payments.
The efforts of the Manley Government to counter these adverse economic consequences with exchange controls and other limitations on the operations of the market, further weakened business confidence, and intensified economic instability.
Manley's resounding victory in December 1976 did nothing to restore business confidence. And the entry of the IMF after May 1977 as overseer in the economic management of the country, with its quarterly tests and ever present apprehensions about their failure mainly added to the instability in the country.
When the first Manley Government came to its fiery, bloody denouement in October 1980 the great majority of Jamaicans at home and broad breathed a sigh of relief.
THE EIGHTIES
The 1980s saw a cooling of social and political tensions, but after a very brief respite economic tumult continued.
In his electoral campaign of 1980 Mr. Seaga had promised "deliverance" and among the first things delivered were imports.
Some greater levels of imports were necessary to mitigate the shortages and hoarding which had become commonplace during the 1970s. But an immediate consequence of this was the trebling of the current account deficit from -US$148 million in 1980 to -US$427 million at the end of 1981.
Even the IMF were alarmed about the exploding current account deficit.
In April 1981, the Seaga Government had concluded an Extended Fund Facility with the IMF which provided the Government with Special Drawing Rights of $450 million reflecting the favourable way with which Washington had viewed the electoral outcome in Jamaica.
But now with the worsening current account deficit the IMF and the government reasoned implausibly that this was due, not to the influx of low interest multilateral loans, but that domestic credit was too readily available, which was spilling over into imports.
Thus the recommendation was to tighten domestic credit which began in 1982 with a hiking of deposit ratio from 25 per cent in 1980 to 44 per cent in 1984. Average lending rates jumped correspondingly from 13 per cent to 17 per cent in 1983, then to 20 per cent in 1984 before settling at unheard of levels of 25 per cent for the rest of the decade.
After the failure of the tests in March 1983, the IMF demanded and the Government introduced severe deflationary measures which included devaluation, tax increases, expenditure cuts, layoffs, and a tightening of monetary measures. This did not stop the failure of the September 1983 IMF tests and contributed to a cumulative contraction of six per cent in 1984 and 1985.
When the IMF insisted on further devaluations in 1985 beyond the 360 per cent devaluation that had occurred since 1981, Mr. Seaga balked.
At a IMF meting in Washington in mid-year, he vigorously attacked IMF prescriptions for Jamaica.
The country failed three other IMF tests in 1985 and Mr. Seaga demanded and obtained a "fresh look" mission comprised of representatives of the IMF, the World Bank, and the Inter-American Development Bank to review the appropriateness of IMF structural adjustment policies in Jamaica.
The "fresh look" missions offered few concessions and the country promptly failed the March 1986 performance test.
Towards the end of the decade 1986/88 a combination of favourable international circumstances manifested in a 50 per cent drop in oil prices and an influx of foreign investment in the garment manufacturing brought in some well-needed buoyancy into the economy slashing the current account deficit from US$315 million in 1986 to US$32 million in 1988 and improving the NIR from US$663 million to US$346 million over the same period.
Cummulatively 180,000 jobs were also created. Overall though the 1980s was quite a tumultuous decade on the economic front.
THE NINETIES
The Manley Government that came into office in February 1989 was greeted by instability.
The US$350 million that flowed into the island for reconstruction boosted inflationary pressures in the economy, but these were felt not in 1988 but carried over into 1989.
From 8.3 per cent in 1988 inflation jumped to 17.2 per cent in 1989. Then 1990 was the year of the first Gulf War during which oil prices doubled, pushing inflation for that year to 29.8 per cent.
In the midst of these inflationary pressures, the Government, prompted by players in the financial sector, made the huge tactical error of abolishing exchange and price controls, and all remaining subsidies on basic items.
With these measures inflation literally exploded reaching 80 per cent in 1992, with the rapid depreciation of the Jamaican dollar being the main contributor to this inflation and to instability in the economy.
With policy options limited by its neo-liberal framework the government's main tool for bringing the inflation under control was tight monetary policies.
From 20 per cent in 1989 it boosted deposit requirements to 32.5 per cent in 1990, then to 44 per cent in 1991 and kept it above that level for the next six years. There was a corresponding jump in interest rates from 28 per cent in 1989 to 34 per cent in 1991; to 48 per cent in 1992, reaching as high as 60 per cent in 1994.
Of course the main casualty of this sustained period of very high interest rates were a large section of domestic financial sector and several hundred small, medium size, and not a few large businesses.
The one unexpected gain of this high interest policy was a boost in the NIR, which after eighteen years of being negative turned positive in 1993 as investors moved in to take advantage of the high rates.
Adding to instability is the seeming methodical and systematic corruption of the Government as evidenced by the many scandals since 1997. If economic and political tumult destabilizes expectations, corruption destabilises values.
LESSONS FROM INSTABILITY
Instability leads to risk averse, quick-turnover, low-risk investments, not long term capital intensive endeavours.
Instability is anathema to sustained growth, a high productivity economy, fiscal and balance of payment surpluses, and exchange rate stability.
It breeds apathy and disconnection from social institutions as people place extreme reliance on their own inner strength or other- worldly spiritual connections.
High-interest rate policies, however steady, are inherently unstable since it breeds all of the above.
Despite the recent $100 million Canadian loan and the promise by the business sector to forgo some of the interest owing to them, it appears that instability will persist in the Jamaican economy unless interest rates can be reduced to single digits.
The larger question is: will interest reduction be a market determined or be a patriotic response, and what does it take for both to coincide?
Earl Bartley is an economist and businessman. You can email him at adapapa@cwjamaica.com
