Earl M. Bartley
THE PATTERSON administration seems to be tending towards accepting the trade unions' proposal of wage restraints in exchange for minimal job cuts to deal with the fiscal crunch. This, instead of the package of expenditure cuts, including job cuts, for $4 billion in interest savings offered by the business sector. The Government seems to believe it can achieve more in expenditure reductions from the trade unions proposals than from the business sector proposal.
Ideally, the administration would like to have the best of both worlds. It would like the interest savings offered by the business sector plus the wage restraints offered by the unions while avoiding the politically unpalatable move of substantial job cuts. Since both of these concessions will likely only come on stream for fiscal year 2004/05 beginning in April, the Government is probably intending to borrow the $5 billion it needs to bring the fiscal deficit to 5-6 per cent of GDP that it had targeted for 2003/04. Hoping to prevent the erosion of business confidence that might lead to a spiking of interest rates it has being talking up the 'bright spots' in the economy, to allay business suspicions that it is business as usual.
Nonetheless, depending on what the Patterson administration offers in turn or is willing to accept, it might indeed come out a winner in the political brinkmanship. At the very minimum I think the business sector should insist that the Government establish a Bank of Jamaica open market committee to help set interest rates with a stronger representation of academics, trade unions and manufacturers rather than financial types since the latter are at the very least ambivalent about high interest rates. They should also insist that the Government maintain the hiring freeze and also pursue a policy of selective attrition through non-renewal of contracts in certain non-performing and irrelevant Government departments to amount to at least 2,000 redundancies by the end of fiscal 2004/05. The trade unions for their part would agree to a wage freeze, not simply restraint, for the next year and also accept the selective attrition.
The Government is certainly not out of the woods as agreements have not being finalised with the business sector or the trade unions. But assuming that the Government obtains the required agreements, where does it leave the medium-term fiscal programme, and even more concretely, what prospects does the economy hold for the many unemployed persons looking for jobs?
FISCAL PROGRAMME
Assuming that interest rates remain level, or even continue their slow downward movement, and the economy continues to grow, there is a good chance that the fiscal target for this year (5-6 per cent of GDP) and for next year (2-3 per cent of GDP) could be achieved. What is going to be critical in maintaining worker commitment to restraint is that the Government keeps inflation in check. To maintain business confidence, it needs to ensure that public sector borrowing for 2004/05 does not exceed levels in 2003/04. If the budget to be tabled in March includes borrowing greatly in excess of 2003/04 then no amount of political manoeuvrings by the Government will save it from a collapse of domestic creditor confidence on a worse scale than what it is now experiencing overseas.
As for those looking for jobs in 2004/05, they are likely to find very few in this economy. The Government has been talking-up the growth that has being occurring in tourism, bauxite mining, transportation and a few other sectors as 'rays of hope'. In many respects, however, they manifest a deepening underdevelopment of the economy rather than signs of vitality.
DEVELOPMENT OR
UNDERDEVELOPMENT
Underdevelopment is a concept that was popular in the development discussion of the 1960s and 1970s. It describes a process whereby over time an economy becomes dependent on one or two primary activities for the bulk of its foreign exchange, employment or output. Development by contrast, is characterised by a broad-based and diversified economy, especially in manufacturing and processing, and increasing skill levels of the population. Over the past 14 years the mismanagement of the structural adjustment policies, globalisation and high interest rates, have decimated and bankrupted the country's manufacturing industries and agriculture, leaving a thin, flat and superficial economy in its wake.
Over 215,000 people now work in distribution and retail. Another 262,000 work as maids, hairdressers and barbers, gardeners and in other forms of personal and community services. Some 195,000 persons are still employed in our primitive agriculture, and 100,000 work in the low productivity public sector. Thus, approximately three-quarters of our employed labour force work in low income or low productivity activities. The workforce in manufacturing, on the other-hand, has declined from 109,000 at the beginning of the 1990s to about 67,000 at present, as the sector has declined from 15 per cent to less than 9 per cent of GDP.
Further illustrating the deepening underdevelopment of the economy the country is losing some 80 per cent of the graduates of tertiary institutions to migration according to a recent World Bank publication, while becoming more dependent on remittances (handouts) to finance up to 40 per cent of its import needs.
Even as the economy has been losing skills and the workforce becomes spread out in low productivity activities the country's dependence on a single industry, tourism, has become mono-cultural to an extent not seen since the heyday of 'King Sugar'. From 53 per cent of foreign exchange earnings in 1990 tourism now provides 60 per cent of foreign exchange earnings and is estimated to account for one-fifth of the employed labour force, directly and indirectly. The constant bickering between the thousand of craft vendors, in-bond merchants, taxi-operators and assorted touts and pimps are embarrassing manifestations that there are too many persons with few other options desperately groping for a 'piece o' the food.'
In addition to being over-burdened with our expectations and desperation, there are other features of our tourism industry which limit its capacity to serve as an 'engine of growth', as Minister Aloun Assamba hopes. For one, in the same way in which an automobile industry creates a demand for certain skills such as engineers, upholsterers, mechanics, and auto-body repairmen, a hospitality industry also creates certain biases in the economy, but for lower level skills, like house-keeping, food-servers, drivers and retail sales clerks.
INCENTIVES
At best, these are entry level skills in an economy and of a somewhat lesser level of sophistication than garment manufacturing skills. They can serve as a foundation, but for economic development and transformation to occur, at or near full-employment, a Lew Kwan Yew type change of policy that provides incentives to localise higher skilled activities will need to be implemented. The danger is that we seem to be becoming specialised in the provision of these low-skilled services while our higher skilled people are migrating for lack of opportunity in the economy and the authorities do not even seem to recognise the pitfalls.
Added to the emerging one-dimensionality of the economy, the private owners of the more profitable hotels have shown little tendency to invest in other areas of the economy, but have so far preferred to invest within their industry in other countries of the region. Then, the distribution of the tourism surplus is still quite inequitable with the median wage being only $4,000, which tends to limit the development impact from subsequent rounds of re-spending of income. Thus, despite its noted contribution to foreign exchange earnings, direct and indirect employment, and the linkages it creates, given its structural bias for low skilled activities, it is hard to see tourism playing a vital transformative role in the economy.
Bauxite mining for its part, given its capital intensity, generates few employment opportunities, and given our limited degree of processing, has limited development impact. The growth in transportation and communication largely reflects the increasing numbers of laid-off workers turned taxi operators; and the expansion in the sale of cell phones and phone cards which, considering that the system owners are foreigners, will generate capital repatriation later adding to our balance of payment woes. The growth in the financial sector in recent times largely reflects many of these institutions transferring savings from the private sector to the State at extremely high interest rates.
DRAWBACKS
There are generally drawbacks to any type of development. But the anaemic economic growth we have been showing, driven by a plethora of low productivity, low wages, low skilled activities greatly funded by remittances on the expenditure side, is more a manifestation of the development of underdevelopment than economic vitality.
The problem is, like many others, I have no faith that the amateurish and compromised members of the Patterson administration can revitalise the economy. They have shown more adeptness at political management and crises management than in strategic economic management. The Jamaican people have shown a great deal of forbearance with the administration, but I sense that 2004/05 will be a crucial test of performance for the administration and the people's patience with it. The Government needs to take heed or it could face a Georgian or Bolivian solution to the problem it poses.
Earl M. Bartley is an economist and businessman. You can send your comments to
adapapa@cwjamaica.com.
