Don Robotham, Contributor

Now that the People's National Party (PNP) and the Jamaica Labour Party (JLP) have published their manifestos and had their debates, we are in a better position to evaluate their economic policies. After some examination, I find the approach of both parties questionable.

Despite all the noise about changing versus not changing course, the policies of both parties are, in fact, similar. Similar but not identical. Both parties stress the importance of macroeconomic stability and both parties are seeking to increase economic growth rates and to reduce unemployment. The PNP is committed to pursuing macroeconomic stability as the absolute policy priority. The JLP combines a commitment to macroeconomic stability with a belief in a more interventionist state.

Shaw's position

A lot has been made by the PNP of the JLP's extravagant spending plans. The claim has been that this would increase the budget deficit, increase the debt burden and send up inflation and interest rates. In other words, the JLP's expansive social policies would in fact curtail investment, not increase it. Listening to Shaw in the debate, these charges certainly seemed justified. Mr. Shaw has been dragged kicking and screaming to accept the vital importance of deficit and debt reduction, low inflation and a market-determined exchange rate.

He is by nature a paternalistic economic statist of the 1960s and 1980s variety. He has a childlike faith in the 'mega agency' mantra and seems to harbour the illusion that the re-establishment of a huge investment promotion bureaucracy will somehow bring money flooding into Jamaica and lead to rapid GDP growth. The problem here is not the interventionist vision. The difficulty is the tendency to reduce the developmental state to a 'mega agency' doing investment promotion.

Golding different

Mr. Golding is different. Listening to him on Saturday night, there were subtle but striking differences in his approach. He was much more sober. He singled out only two of the JLP's spending plans - on health care and free tuition. He explained that these would be accomplished by reallocations on the budget and gains from interest-rate reductions. Then he made a most revealing point - almost by the way. Mr. Golding said that "obviously" delivering on the remainder of the JLP's expansive social programme was contingent on achieving substantial increases in GDP growth rates.

In other words, there really is no open-ended JLP blank check for vastly increased social expenditure. It all depends on the fiscal and overall economic possibilities. For all practical purposes, the JLP is 'not changing course' in this area. This brings the JLP very close indeed to the PNP position. After the election therefore, there will be little change in basic policy on macro stability, whichever party forms the government. However, there may be changes in other crucial areas.

Different strategies

For this consensus around macro stability does not mean that the position of the two parties is identical. As Ian Boyne and others have pointed out, there are sharp differences in overall economic strategy.

The PNP's line is that faster economic growth in Jamaica requires, above all, low interest rates which depend on low budget deficits and low inflation. In other words, the PNP position is that macro stability by itself will attract the necessary investment and produce rapid economic growth. It is not that the PNP does not believe in investment promotion. It is just not their top priority.

The JLP's position is that market forces are not enough. Their argument is that faster economic growth in Jamaica requires a developmental state which is active in the economy. In other words, the JLP seeks to combine macro stability with state activism along the lines of an East Asian model. But the problem here is that the JLP seems to have a narrow concept of a developmental state.

Problems with both

I have problems with both positions. Neither strategy really represents a 'change of course.' Is the reason for slow GDP growth in Jamaica the absence of a 'mega agency?' Is a developmental state simply a matter of aggressive investment promotion? Of course, investment promotion is always useful and open to improvement. But the idea that this is the key to unlocking our potential is mistaken, to put it mildly. Jamaica is already attracting substantial foreign and domestic investment without the creation of any such agency. There is little reason to believe that a 'mega agency' wil this situation significantly.

On the other hand, the notion that the presence of macroeconomic stability (low budget deficit, low inflation, low interest rates) will by itself spur rapid rates of economic growth is proving to be equally false. Our inflation rate is generally low, interest rates are trending downwards and we have had substantial new investment. The problem has been that this investment has not translated into high GDP growth rates in the formal economy.

The truth is that neither mega agency nor macro stability is sufficient for us to break out of our economic stagnation. This is because these are not by themselves what are slowing down GDP growth today. The obstacles lie elsewhere.

The single most important obstacle to more rapid economic growth in Jamaica is the high murder rate and general disorder in the society. From this viewpoint, crime and disorder are as much economic as they are social issues. A breakthrough in this area could really bring economic benefits.

The second most important obstacle to faster GDP growth is the low skill levels of the Jamaican labour force. No matter what investments low interest rates and mega agencies may bring, it will not translate into high GDP growth with our largely unskilled labour force.

The third most important issue is the size of the informal sector. This is already about 40 per cent of the total economy. If we could bring a larger part of thissector into the formal economy, we could substantially increase our real growth rates.

While maintaining the focus on macro stability, the economic thinking of both parties needs to bring the above problems more to centre stage, if we really are to 'change course.'

Not only growth

But there is a further point. This is the fact that growth alone is not enough. We had rapid GDP growth in the 1950s under Norman Manley and also under Hugh Shearer and Edward Seaga in the 1960s. Yet both periods ended in severe social crisis. The Norman Manley era came crashing down with the have-have-nots controversy which erupted in 1961. The Shearer regime likewise was brought down by the Rodney Riots of 1968. In both cases, the burning issue was that rapid GDP growth actually increased inequality and social instability.

Of course high GDP growth is vital - nothing can be achieved without this. It is necessary but it is not sufficient. The question is the quality of the growth and whether it succeeds in raising the standard of living of Jamaican working people. Nowhere in the manifestos or the debates has this problem been raised, much less addressed.

The final issue which neither party has touched on is the consequences of the global financial crisis for the Jamaican economy. If the present upheaval on world markets intensifies - which is very likely - then we are in serious trouble. It was, after all, the 1974 oil crisis which helped derail the PNP. And it was the 1981 recession which did in the JLP between 1981-85. It would, therefore, make good sense for us to pay more attention to global developments than we have been doing.

The sudden drying up of credit on global financial markets will mean even harsher macroeconomic challenges for us. We may soon face the tough choice of financing less overseas and cutting our deficit even more drastically, or of allowing the deficit to rise and accepting higher levels of inflation and, by implication, higher interest rates. This situation may also require more state intervention in a variety of areas, rather than less. We are living in difficult times in which economic formulas will not help us. We have to put on our thinking caps.

business@gleanerjm.com