Don Robotham, Contributor
Omar Davies speaking last week in Parliament. - Rudolph Brown/Chief Photographer
JAMAICA IS in real danger of being engulfed in a tidal wave of populism. This is an approach to public policy which dismisses the vital importance of macroeconomic stability. Those, like Finance Minister Omar Davies, who stress inflation-targeting and deficit reduction, are brushed aside as favouring 'top-down' development.
The populists advocate, instead, concepts such as 'bottom-up' development, or 'community-based development' or 'putting people first.' Let me say as bluntly as possible: if we follow this populist rhetoric we shall plunge ourselves into disaster.
BOTH PARTIES RESPONSIBLE
Inflation-targeting via high interest rates and deficit reduction has been the cornerstone of economic policy for the past 15 years. This policy arose out of the absolute necessity of combating the horrendous 80 per cent inflation of 1991. Both governments JLP as well as PNP share responsibility for the 1991 inflation. It did not suddenly spring from nowhere in 1989.
On the contrary, it was the climax of the inflationary policies pursued in the 1980s, especially between 1984-86 and again in the second half of 1988. This, in turn, had been fuelled by the money printing of the 1970s. Expansion of credit after the 1988 hurricane and the inflow of re-insurance funds were the immediate culprits in the late 1988. The fact that a general election was around the corner prompted this profligacy.
Some of us will recall that it was this fiscal abandon which precipitated the 'Fresh Look Mission' crisis of 1985 and the parting of the ways with David Rockefeller and US interests. In 1988, broad money supply grew by 39.7 per cent or $2.5 billion. This was our original 'run wid it' moment. It failed and Manley won the election. But Manley continued with the same irresponsible expansionary policies which he had inherited and which he had pursued in the seventies. In 1989, commercial bank credit expanded by $1.7 billion, compared to the expansion of $870 million in 1988.
The result was that, in 1989, with the first deregulation of the economy (the removal of subsidies from basic food), inflation shot up to 17.2 per cent about twice the rate of 1988 which was 8.5 per cent. The September IMF tests were failed and by November the dollar inevitably depreciated to $6.50 to US$1. After that we were on the slippery slope to the 1991 hell. We have been trying to dig ourselves out of this deep hole ever since.
OMAR THE SCAPEGOAT
Omar Davies was chosen to be the digger. For this he has been made into a scapegoat, pilloried right, left and centre. But when the history of this period is written, he is the one who will emerge as the real hero of the times. A prophet without honour and, unlike others, without the slyness and low cunning to deflect responsibility for his actions unto the shoulders of others. A politician who alienated nearly every single one of his cabinet colleagues by his fiscal firmness. Our own home-grown Dr. No.
Yes, his policies have been harsh. They certainly helped to increase poverty and to feed crime and violence. Yes, they helped to trigger the banking crisis and transferred enormous resources to the rich. All this is indisputable. But was there an alternative? Yes, there was one: it was the imposition of even harsher policies with even more drastic social consequences.
The alternative to the sustained high interest rate regime was a more drastic cut of the budget earlier, and a more drastic devaluation of the currency up front from 1991. In polite society this is described tactfully as 'rationalisation of the public sector.' This, too, would have deflated the economy. But the social costs would have been catastrophic. Tens of thousands would have had to be laid off from both public and private sectors. Crime and violence would have soared to even higher levels. Our political system, not to mention our social order, would have probably collapsed.
There was no easy exit from the situation that we had brought ourselves into by 1991. One way or another the Jamaican economy had to be deflated. It was not Omar Davies who got us into the mess but two of our 'greatest' leaders, long may they remain popular! Omar Davies, in fact, chose the lesser, more gradual of the two evils. For this he is paying an immense and completely unjustified price.
BOTTOM-UP DEVELOPMENT
Now there is talk of replacing him as Finance Minister. Or of keeping him as a kind of ornament to dupe the credulous while 'neutralising' him and his policies. He is lambasted as the embodiment of 'top down' development and the constant bearer of bad budgetary news. Shoot the messenger! Replace him with some snake-oil salesman. If you are a fatalist you will say, what had to come, is coming.
Terms like 'bottom-up' or 'top-down' describe only a process of decision-making. By all means consult far and wide across the length and breadth of Jamaica. Hold meetings in every nook and cranny and street and lane. But understand that in so doing you will be raising popular expectations already very high to unprecedented levels.
Further, such terms do not describe the content of a policy direction, only the means by which it has been arrived at, and is pursued. The purpose of such terms is to soothe and to evade harsh truths. Amid all the rhetoric, whose budget will be cut, who will be laid off, whose income will go up or down, what will happen to prices, who will be taxed, what will happen to the dollar, who will get what contract, who will get richer and who will get poorer in a word, which hard choices have to be made all of this gets lost in a fog of emotion. Such terms serve the same purpose that a soother serves when given to a baby.
COMMUNITY-BASED DEVELOPMENT
Much the same goes for the vague concept of 'community-based' development. What does it really mean? That a community will self-sufficiently produce and consume its own production? A small, poor low income community with low levels of education and productivity? And does this mean that Jamaicans as a whole will only 'eat what we grow' and that we shall 'tun we han mek fashion'? How then will the poor politicians manage without their SUVs? Too ridiculous for words.
Or does it mean that factories will be built in particular communities to 'create jobs' for all comers? And who will finance these factories? And what will they produce? And where and how will this output be sold, to whom and for what price? I set aside the minor detail of who will manage these community factories. How some of us seem to ache for the good old days of the Ministry of National Mobilisation, the Emergency Production Plan and Community Enterprise Organisations! These were absurd and unworkable in the 1970s. I said so then and I say so again now. In the globalized 21st century the idea is so silly that it takes your breath away.
Or does it mean that factories will be built on existing industrial estates and the jobs reserved for members of particular political communities? If this is the idea, then get ready for a carnival of scarce benefits and spoils which will make previous corruption scandals look like a picnic.
The way to develop communities is to develop Jamaica as a whole. For this to happen we have to raise our real levels of productivity. This is not a community problem with a community solution. It is bigger than that. It is a national problem requiring a national, indeed international, policy. It means, just to take one point, that we have to find a way to get more young people, especially young men, to pass CXC English and math. We are a very, very long way from achieving this in Jamaica. No 'bottom-up' or 'community-based' consultation process can help us to evade these harsh realities. You can run from national macroeconomic necessities but you cannot hide.
ECONOMICS DEFEATS POLITICS
One of the persistent problems in Jamaica from at least the 1960s if not before, at both the base of the society and at the top, on the Right as much as on the Left, has been the idea that economics does not have its own logic and its own rules. We share a widespread illusion that we can direct the economy by force of political will: by the brains of a financial wizard or by 'unleashing the creative energies of the Jamaican people,' or by planning or by 'bottom-up' development, because 'we little but we tallawah' and so on and so forth. The problem is that the political direction is being applied 'top down' when it should be applied 'bottom-up.'
But economics always defeats politics, not the other way around. The market has its own merciless ways of punishing those who neglect economic realities: capital flight is one, devaluation another, inflation a third, collapse of our credit ratings a fourth and there are many others. If, in the heat of the populist moment, we abandon economic logic and throw away the hard-won macroeconomic stability that we have achieved, Jamaica will pay a heavy price.
