Dennis Chung, ContributorCURRENTLY, THERE are three important events worthy of mention. These are the CARICOM Single Market and Economy (CSME), minimum wage increase and Seaga's exit from politics. These three have in the past converged and remind us of the excellent contribution Mr. Seaga has made to politics, love him or hate him.
One such was his 2004 budget presentation, which was hailed as 'scholarly' and which, in my view, had a lot of merit, particularly the section on the CSME and productivity. At that time I stated "Mr. Seaga is correct in saying that Jamaica is not ready for the CSME and the trade numbers he presented supports that inference conclusively. The way to deal with this, however, is not to back off the CSME but rather to address the underlying problems. If we were to enter the CSME today what we would find is that the trade deficit with CARICOM countries would widen because of the inherent inefficiencies in Jamaica." (Financial Gleaner, April 30, 2004).
It would do us well to remember that presentation made by Mr. Seaga because the arguments still hold true today, especially in light of the recent 20 per cent hike in the minimum wage. The presentation of the minimum wage here will focus on certain numbers as presented by Mr. Seaga and has nothing to do with any view I may have. At the end of it we can infer certain conclusions based on the arguments. I have heard the points being raised by both the Jamaica Employers' Federation and the trade unions and while both have their own value it would do us well to examine it from a numbers perspective rather than the interest of either organisation.
IMPORTANCE OF PRODUCTIVITY
All the talk about consideration of the minimum wage levels have not considered what I think is the most important factor, and which Seaga mentioned in his presentation, that is productivity. There have been many arguments for the 20 per cent increase and others against that level of increase. As far as I am concerned there can only be one argument (for or against) and that is whether or not productivity has increased to justify an increase in the minimum wage. I don't know what proportion of the labour force is at minimum wage, but based on the time we have spent on discussions it seems as if there is a significant number of persons at or near this level. If this is in fact so then this speaks to a more fundamental problem, which is the skill level and productivity of our labour force, and which will definitely be a problem when the CSME comes into play.
In 2004 Seaga stated "Productivity, though of great importance as an underlying factor, is not an index prominently in use in assessing economic performance." The current minimum wage affair seems to support this point forcefully. He also went on to refer to a study done by JAMPRO of the apparel industry of 10 countries, which states:
"Despite the rhetoric about productivity, the country has not captivated the concept through measurement and procedures. Official statistics and publications, private and public, do not feature it. Hence, there is no imbibing of it by the general community, no utilisation in policy pronouncements, no inclusion of it in training and education programmes and no reference to it in organisation and industry planning."
GDP PER CAPITA
Seaga also presented GDP per capita numbers on Caribbean countries, of which I have extrapolated the ones relating to the 15 member states of CARICOM. These numbers are of particular importance as it gives some indication of the productivity levels in the countries that will eventually be a part of the CSME. The table has been organised from the highest to the lowest and shows that in 2002 Jamaica was 11th out of 15 countries. On February 19, 2005, we will sign the CSME with Trinidad and Barbados, which were 2.6 and four times respectively of Jamaica's GDP per capita in 2002.
The implication of the above is that Jamaica's productivity, which speaks to relative prices and competitiveness, will be one of the lowest in the new trade bloc. The question, of course, is what will be the effect on our already struggling productive sector? The contrast is that although we have one of the lowest productivity levels we still have geographic and market size advantages over the rest of the region.
DECREASING PRODUCTIVITY
Seaga also referred to a study by Benthan Hussey, where he stated that one of the principal reasons for the negative movement of Jamaica's productivity "was that wages increased annually by 1.8 per cent and unit labour costs by 3.1 per cent while productivity was decreasing by 1.4 per cent. This movement is in the wrong direction. If wage increases exceed productivity, competitiveness in the price of goods will deteriorate and the purchasing power of consumers will erode."
Seaga also quoted one of my own articles stating that between 1998 and 2003 central government wages grew by 12.7 per cent per annum and tax revenues by 11.7 per cent, so we see that the loss of productivity relates not only to the private sector.
Added to the low productivity, however, are the high production costs. These include utilities, crime and bureaucracy. These can combine with low productivity to create even further disadvantages for us in the CSME. In fact, Seaga again pointed to a study by Trevor Hamilton showing that manufacturing fixed overhead costs in Jamaica are higher than regional partners at 58 per cent, while they are 38 per cent in Costa Rica and 37 per cent in Trinidad. Is it any wonder that in 2002 our trade with CARICOM showed imports less fuels of US$190.7 million and exports of US$48.7 million, where in 1979 it was at US$19.7 million and US$61.6 million, respectively.
These numbers show us, rather than the 'wickedness of employers', that the reason for the deteriorating purchasing power of the Jamaican labourer results from decreasing productivity. If Jamaica is serious about increasing wealth then we must address these fundamental problems and not get caught up in the vicious cycle of trying to get more from a shrinking pie.
The fact is that legislating minimum wages has never and will never increase the long run well-being of Jamaica or the workers and, on the contrary, will only cause greater future pain. What will result is that relative wages to prices will decrease as businesses increase prices to compensate for increased costs, with no increase in productivity. The result is greater inflation as price increases will over-compensate for the increase in inputs, which equals greater suffering. At the end of the day it is the relativity of prices that is more important than the absolute levels. We must decide as a country which path we want to choose, especially as we embark into the CSME.
To Mr. Seaga I have to say you have played a fantastic innings and I am sure that your contributions will do well for Jamaica. As commentators we always find it very easy to criticise the actions and policies of politicians but, certainly, I respect their willingness to give service to this country, as it involves a lot of personal sacrifice. This is not to say that I will stop any criticisms I feel are justified but to Mr. Seaga and others who have served, well done.
E-mail: dra_chung@hotmail.com
