Briefing | Jamaican economy on paper versus reality

Jamaica’s economic robustness is preparing to face its first real global test from the negative spillovers that may arise from the trade war between giants United States and China. Other external shocks, such as hurricanes, could pose a serious problem as well. Just take a look at the Bahamas in the wake of the battering it received from Dorian. Let’s do what we can to help them in their time of crisis. But the argument remains: Is the Jamaican economy robust enough to withstand these types of events that the county has no control over?

On paper, the Jamaican economy has improved significantly over the past eight years. Coming from an episode of poor economic management and insufficient international reserves, Jamaica now boasts about having its lowest unemployment rate in decades, the best stock market in the world, the lowest interest rates, and the lowest inflation rate for decades.

These are all positive signs on paper that should translate into a better business environment, better access to investment capital, economic growth, and a better way of life for Jamaica’s citizens, but this is not the case. In reality, some companies continue to struggle to access capital at a reasonable interest rate, and the nation’s poverty level has doubled over the last decade from little more than nine per cent to more than 20 per cent at present.

Data shows that labour productivity, defined as the value of output per worker, has been falling consistently. How can this be? The unemployment rate has been falling, which means that more and more people are working, but gross domestic product (GDP) is relatively the same. This means that it requires more and more people to produce the same amount of goods.

poverty rate

The additional employment is not adding any value to the nation’s total output. An unemployment rate of less than nine per cent means that more than 90 per cent of the labour force is working, but the poverty rate has climbed to more than 20 per cent. So as more people find jobs, more and more people become poor. There is no incentive to find a job. The country is becoming unproductive. The country employs more people to do the same amount of work, so that output per person is less.

In a normally functioning economy, whenever unemployment is low and the stock market is performing well and it means more people are employed businesses are doing great, and, as a result, the economy should be growing faster and the country’s poverty rate should be falling instead of increasing. Something seems wrong with our style of economic management. The low unemployment rate has not translated into meaningful growth. The best stock market has not translated into growth as the economy continues to grow at its usual one or two per cent.

The Jamaican economy has come a far way, but there is still a far way to go. Chaotic infrastructural expansion; a focus on low-skill, low paid, unnecessary jobs; suppression of micro and small businesses in volatile areas, and an inability to properly manage the level of crime and violence seem to be the ploy. Every year over the last two decades, agriculture, other economic activity, and people’s livelihoods have been negatively affected by drought conditions, as well as insufficient water distribution, and little or no attempts have been made to solve this crucial issue.

The Bank of Jamaica continues to be pre-emptive with its interest rate policy. If it continues on this same path, it might run out of options and reduce Jamaica’s flexibility to respond to stimulate aggregate demand and economic activity if crisis should occur. Nevertheless, there is an attempt to create a buyers’ market, and the economy is ripe for economic expansion, but innate handicaps still exists in how the country manages its economy in real life.

- Dr Andre Haughton is a university lecturer and opposition senator