Cedric Wilson, Guest Columnist

The reports on Jamaica's third-quarter economic performance are out and, thanks to providence, they are reassuring. Over the first nine months of the year, the economy grew by 2.5 per cent and based on the Planning Institute of Jamaica's projections growth of about 2.6 per cent is expected at the end of the year, the highest growth registered in 15 years. For the same nine-month period, the inflation rate was 5.5 per cent and, if all things remain equal, 2006 should see the lowest level of increase in the general price level since 2002. Interest rates continue to decline and the foreign exchange market has shown impressive stability.

The Bank of Jamaica now boasts a net international reserve of US$2.3 billion, an amount equivalent to approximately 19 weeks of import. The fiscal deficit for the quarter was also encouraging. Even with a shortfall in revenue, the deficit still came in $2.5 billion below the target. Yet, while all of this is good, it would be a wicked self-deception to believe that economy has taken off.

Rostow's Stages of Growth

One of the most influential ideas of economic growth in the 1960s was Rostow's Stages of Growth model. Walt Rostow, an American economic historian, took the view that if a country is to move from a backward state to a modern society, it must pass through five stages. The initial stage he referred to as a traditional state, where the society exists at a subsistence level.

Next, it would have to move into "the precondition for takeoff," which involves changes in the nature of the economy to facilitate industrialisation. Thirdly, a decisive industrial expansionary period was critical. This he dubbed the "takeoff" stage. Fourthly, the economy would have to go into "a drive for maturity," where the labour force becomes less individualistic, highly skilled and increasingly urban. And finally, the economy must assume the character of a "high mass consumption society." At this stage, it exhibits the feature of an elevated standard of living expressed by increasing expenditure of consumer durables and hi-tech gadgets. For Rostow, the "high mass consumption society" displays economic growth that is self-sustaining and virtually automatic.

This model may be best visualised as an aeroplane sitting motionless on the ground at the traditional stage. Then, as a "precondition for takeoff," it starts to move on the runway. Next, the nose of the craft is pointed towards the sky and it "takes off" from the tarmac. "The drive to maturity" is the steep ascent into the clouds. The economy attains the level of "high mass consumption" when the craft cruises far above the clouds and passengers are allowed to unfasten their seat belts. Rostow's idea was developed against the backdrop of the cold war and United States paranoia of the spread of communism in developing countries.

Rostow's model has many flaws. One critic contended that "probably no theory has been so widely circulated from so slight a base of organised fact and careful analysis." The fact is the model is Anglo-centric in its focus because it a prescription for developing economies based on a sweeping survey of the history of a number of European countries and the U.S.A.

For instance, many developing countries, Jamaica included, have economic structures that are dualistic. In other words, within a single economy you will find a backward sector struggling to survive and a modern sector with all the trappings of a high-income economy. This of course, presents an impossible problem for Rostow: how can half of an aeroplane be cruising comfortably at high altitude while the other half is motionless on the ground? There are other weaknesses such as the model's vagueness and the failure properly to define the cause and effects associated with connecting stages.

Necessary elements

However, despite the shortcomings of the model, there are aspects to it that are worth attention. According to Rostow, if an economy is to be placed in a position to take off, three things are necessary. First, there must be a substantial increase in investment in the domestic economy. Second, at least one manufacturing sector must experience significant growth. Thirdly, the political, social and institutional framework must be quickly engineered and established to accommodate the emergence of a modern sector.

In this respect, it is important that more Jamaicans invest in the real sector of the economy. With falling interest rates in the economy, the opportunity for making high returns from paper are dwindling and, therefore, the question of whether or not the vision and the courage exist to carve out new territories is crucial at this time.

It is significant to note that during the July-September quarter, the service sector grew by 3.7 per cent while the goods-producing sector expanded by a mere 0.4 per cent. The fact is more focus is needed on the goods-producing sector. There is much scope for agro-production and this is not a novel idea. Countless Jamaicans are out there like John the Baptist in a metaphorical wilderness crying "prepare ye the way." Why is this so critical? Agriculture still has an important place in the country's development. Additionally, agro-processing has the capacity for creating backward and forward linkages in the economy which will accelerate the development of the service sector and reduce unemployment.

Finally, a framework must be put in place to encourage growth and entrepreneurship. This is not to suggest that nothing has been done in the past. However, more is required - whether it is development of special tax incentives, a plan for lower energy rates to the manufacturing sector, better road network into farming communities - this is a must. Development is not an easy task. It is above all a supremely creative exercise.

For the moment, forget Rostow. And for want of a more appropriate metaphor, let us assume that the economy is indeed an aeroplane motionless on the ground. Surely, in this context it is tempting to ask, "Where is the flight plan and what is the destination?"

Cedric Wilson is an economics consultant who specialises in market regulations. Send your comments to: conoswil@hotmail.com.