Ian Boyne, Contributor

Political parties largely jostle over who is better able to deliver the economic goods, but very little of the scholarly research actually makes its way into the propaganda war. It is here that the media have a critical role.

What really are the economic strategies which work? What strategies have been used by those economies which have been most successful? What can we learn from them, and are they reproducible?

The Jamaican Economy Project which was officially launched last week should provide the point of departure for us to engage in a serious dialogue about economic options.

Sometimes one is not quite sure how much of the local economic dialogue is borne of a deliberate effort to deceive and blindside, or how much is borne of genuine ignorance of the nuances of the debate. I reckon that there is a combination of the two, with a greater weighting on the latter.

For those who have a genuine interest in the dialogue on development and the controversies in economics, I will continue in these columns to point to some sources as guides to the developing conversation.

IPD launch

In 2000, a group of economists and other social scientists met in Washington D.C. to launch the Initiative for Policy Dialogue (IPD), which was set up specifically to broaden the policy dialogue on developing countries away from the orthodox Washington Consensus, neoliberal model. The project is now coordinated out of Columbia University where two of the most prominent voices in development studies are based, Joseph Stiglitz and Jeffrey Sachs.

Stiglitz, former chief economist at the World Bank who won the Nobel Prize for Economics in 2001, and who is one of the harshest critics of the World Bank and the International Monetary Fund, is president of the IDP.

I recommend three books by Stiglitz for those who want a primer on the issues of globalisation and development: Globalisation and Its Discontents, Fair Trade for All, and the one just published a couple of weeks ago, Stability With Growth: Macroeconomics, Liberalization and Development. They are good starting points for the demolition of certain economic myths.

In the latest work, for example, Stiglitz and his colleagues on the Initiative for Policy Dialogue take on the popular, established notion that pursuing the lowest rates of inflation is necessarily the best policy. This is a cardinal dogma in the neoliberal catechism. It is one to which Finance Minister Dr. Omar Davies pays homage. What has happened, Stiglitz et al point out, is that there is such an excessive focus on inflation targeting and inflation control that other variables, such as economic expansion and the reduction of unemployment, are neglected.

Says the just-released Stability With Growth: "Conservative policies pushed in the 1990s emphasised price stability, liberalisation and privitisation. Critics have argued that these policies were misguided and have pointed out that, in the long run, these policies have impeded growth. Instead of focusing exclusively upon fighting inflation, they argue that policymakers should focus on real economic stability and long-term sustainable equitable growth with a balanced emphasis on growth, employment and inflation."

Economists now worry

Stiglitz and his co-authors point out that "some economists now worry that too low a rate of inflation can be problematic." They say that while hyperinflation or "uncertain inflation" is definitely a problem, moderate inflation levels in emerging economies, such as 15-30 per cent, is not necessarily a problem - a most counter-intuitive suggestion (some would say it is downright crazy.) But Stiglitz is not a man known for being contemptuous of the empirical data. He and his colleagues give a table which tracks the high inflation rate of a number of countries since 1965 and which shows that it did not impede strong economic growth. Among the countries listed are Argentina, Brazil, Chile, Israel, Poland and Turkey. They have had inflation of up to 69 per cent and yet they have grown during the period. Oh, the value of the empirical over the anecdotal or intuitive!

"Moderate rates of inflation (of the order of 20 to 30 per cent a year) have been accompanied by rapid economic growth quite often ... The view that low inflation facilitates economic growth is not valid as a general proposition. For several of these countries the periods of low inflation have been among those with the slowest rates of economic growth, such as Argentina in 1994-2001, Brazil 1996-2003 and Israel in recent years."

The authors go on to say that "standard statistical techniques are, in theory, able to show whether inflation across countries has been associated with lower growth or more inequality, while controlling for all the variables. These cross-country regressions, although imperfect, suggest that inflation is not closely related to growth so long as inflation is not too high." Of course, an open, heavily import-dependent country like Jamaica with its structural weaknesses is different from Argentina, Brazil and Turkey. One has to be very careful, therefore, about comparisons.

This is why dealing with the structural imbalances in our economy is very critical, and neither the JLP nor the PNP has been successful in making the kinds of structural transformation really needed in Jamaica. This is why manufacturing, for example, has not generally done well under either administration, though it has tended to do better under the JLP.

Stability With Growth makes an important point: "The benefits of maintaining low inflation have to be offset against the costs. The costs depend, of course, on how inflation is fought. But whatever the specific tools employed, one casualty is almost always jobs.

The fight against inflation leads to higher unemployment, at least in the short run, and the risk of lower growth in the medium term. The well-off may be more likely to bear the costs of inflation, but the less well-off, especially unskilled workers, bear more of the costs of fighting inflation". This is why making economic decisions is not simply a matter of following blind science. It is an intensely ideological, philosophically value-laden process. Economic policymaking is not philosophically-neutral.

Shall we maintain low inflation and interest rates at the expense of employment creation, or shall we increase inflation rates and deficit spending because of a commitment to the poor and vulnerable? But neoliberal economic thinking has so demonised and 'dumbed down' Keynesianism and any pro-poor economic strategies that the elites have accepted as common sense that government spending and welfarist policies are wasteful, fiscally irresponsible and anti-growth.

But what is interesting is that even the conservative Bretton Woods institutions like the World Bank and the IMF have been changing their tune and giving legitimacy to issues of equity and human welfare. In other words, the intellectual hegemony of the neoliberals is being broken and this is very significant strategically. Last year's World Development Report was very important.

Titled 'Equity and Development', it reads like any of the economic treatises written by progressive development specialists. Says the report: "Equity is complementary in some fundamental respects to the pursuit of long-term prosperity ... Evidence (is) that the inequality of opportunity that arises is wasteful and inimical to sustainable development and poverty reduction. Extreme inequality is not just bad for poverty reduction. It is also bad for growth." When the World Bank can provide hard economic justification for pursuing equity policies rather than narrow macro-economic stability, then progressive development specialists can take heart in the struggle.

Intellectually, the neoliberals are on the run and the Bhagwatis, Kruegers, Kraays, Dollars and people like Thomas Friedman are just not able to withstand the intellectual onslaught.

Shattered assumptions

The work of people like Nancy Birdsall, president of the Center for Global Development in Washington and Harvard's Dani Rodrik, have set the neoliberals on the defensive and have shattered their cherished assumptions (See Birdsal's devastating reply to Friedman's popular book delivered in the Distinguished Annual Lecture Series of the World Institute for Development Economics Research last year and titled, The World is not Flat: Inequality and Injustice in our Global Economy). The year before it was Rodrik's turn with his lecture Rethinking Growth Strategies.

Rodrik has now demolished the popular myth that it was neoliberal trade regimes which resulted in the phenomenal growth of China and India. Rodrik has demonstrated that liberalisation followed and did not initiate the growth in those countries, and that they used heterodox, rather than orthodox, economic policies in transforming their economies.

And as Stiglitz says in his 2005 book Fair Trade for All: "There can be no doubt that the policies pursued by these (east Asian) countries were broader than (and in some cases clearly violated) the strict free-market prescriptions of the Washington Consensus. There can be no doubt that the successful cases of development over the last fifty years have pursued inventive and idiosyncratic economic policies. To date, not one successful developing country has pursued a purely free market approach to development."

The statist label has been used to discredit Edward Seaga, but history will absolve him.

Ian Boyne is a veteran journalist who may contacted at ianboyne1@yahoo.com.