Robert Buddan, Contributor
WE KNOW that economic conditions influence people's feelings towards politics. People might vote out a government or lose faith in democracy itself if they feel that it has failed to improve living conditions.
Neither of these things has happened in Jamaica despite the official figures that have shown weak and negligible growth over a long period. Might it be that economic conditions have really not been what we have thought?
Some recent issues require that we think more carefully about the relationship between economics and politics. One is how we measure economic performance in the first place. Dennis Morrison has continuously pointed out that our measures of the Jamaican economy are inadequate. This has been more recently confirmed by a World Bank report that says we have been underestimating economic growth for many years because we have not been able to measure the size of the informal economy. Now we believe the informal economy is as large as 40 per cent of GDP.
The World Bank believes that the Jamaican economy might have grown every year during the 1990s except for 1997, and that growth has been stronger than official figures have said. The main point would be that the larger the informal economy of a country the less reliable traditional measurements of economic growth would be. Since Jamaica has had a large informal economy for some time that point is especially relevant to us.
MEASURING ECONOMIC PERFORMANCE
An article in The Economist (November 2003) raises the issue of measurement as well. It found that reports of levels of growth in the world economy and particular economies might be overestimated when something called a deflator is factored in. The deflator measures relative inflation between economies. The IMF apparently uses a different measurement (which includes the deflator) than national agencies do which would lead to different growth figures.
International credit agencies have their own ways of assessing economies. They don't measure economic growth per se but try to use indicators they feel investors are interested in. Standard and Poor's recent downgrade of Jamaica ignores many things happening in the Jamaican economy.
Interest rates have gone down nine times since March 2003. A business survey shows that consumer and investor confidence have improved significantly over this time last year. The high levels of consumer spending and the good business over the Christmas and New Year periods surprised many.
Tourism is having a very good season. The President of the Montego Bay Chamber of Commerce says the MoBay economy is booming. The NIR is growing and the foreign exchange market has stabilised. Many companies are declaring profits and are expanding.
It is not just Omar Davies and P. J. Patterson who are talking positively. These reports are all in the newspapers and they come from many sources outside of Government. Indeed, it is a major contradiction that the country obtained US$200 million on the European market at the same time that credit rating agencies have downgraded Jamaica. Dennis Morrison does not believe these agencies have based their assessments on what is happening in the real economy. As a matter of fact, Minister Davies is more cautious in his public statements about the economy than reports of his private views indicate.
Minister Davies expressed surprise at the recent downgrade. But as I pointed out last year, when credit agencies rate Botswana higher than Japan something is clearly wrong with their system. Investors continue to invest more heavily in Japan than in Botswana.
Similarly, people are investing in Jamaica despite the credit agencies. Spanish investors are putting huge amounts into tourism. European investors and Scotia Bank are investing in government bonds. International companies are holding a summit in Jamaica because they believe the island has great potential as a near-shore call centre destination. This means that the IT sector is poised to possibly become the most vibrant in the Caribbean. Digicel has learnt that investment in Jamaica pays despite the doomsayers who told them not to invest in the first place.
The World Bank says that Jamaican offers are not experiencing the kind of resistance in the bond market that other emerging economies are encountering.
ECONOMICS AND POLITICS
There is obviously some mystery about the economy. The measurement of economies is of great importance to political scientists as well. It has puzzled scholars who study democracy as to why some democracies have been able to sustain themselves despite low growth. Trevor Munroe has wondered how it is that Jamaica has been able to sustain its democracy despite 25 years of negligible growth (according to traditional measurements). When economic growth is weak or absent over a prolonged period, political scientists suggest that other forces like a democratic political culture and the vibrancy of civil society might be the important factors that keep democracy strong.
But the World Bank's revised thinking forces us to reconsider this point. It might be that democracy has been sustained because there has been more growth than we had believed. This should either mean that political culture and civil society have merely reinforced the impact of economic growth, or that they have been less important than presumed. All of this means that we need to know much more about our economy, political culture and civil society before we can understand our democracy.
THE INFORMAL SOCIETY
What we can do is get to know more about our informal economy. Indeed, we also need to know more about the informal political structures that exist in communities and behave as Mark Figueroa says, like 'states within states'. Economists, sociologists and anthropologists are ahead of political scientists in their studies of informal societies.
The informal economy has been attracting attention for more than 30 years. Claremont Kirton and Michael Witter at UWI point out that the very words used to describe this economy show how elusive it is and how difficult it is to measure. Terms like, 'unreported', 'unrecorded', 'illegal', 'subterranean', 'clandestine', 'irregular', 'underground', 'black' indicate this difficulty.
Kirton and Witter say that ignorance or unwillingness to report make the usual income and financial measurements of economic transactions inadequate.
Approximate measures like the currency in circulation per capita and share of large bills in the total supply of currency are used. But these are only approximate measures. For many years the estimate of the Jamaican informal economy has varied so widely that it has been clear that we simply did not know enough about it.
We only know that it has been growing and now there seems agreement that it is a large as 40 per cent of GDP.
The spread of the more violent forms of informal economic activity through extortion means that there is a growing shadow economy supported by a shadow polity that political and social scientists need to study seriously.
We will find that some forms of economic activity are good for democracy while others threaten the democratic order. The violence and extortion rackets in Spanish Town and other parts of the country show how urgent such studies are.
It is not just economic growth that is important to democracy, but the quality of economic relations and of economic life. Economies of extortion supported by polities of coercion are undemocratic.
We can actually have growth while democratic life decays. We must not only find out more about the informal economy but make it more democratic.
Robert Buddan lectures in the Department of Government, Mona, UWI. E-Mail: Robert.Buddan@uwimona.edu.jm
