Looking towards prosperity

Claude Clarke, Contributor

I proudly include myself among those who believe in the ability of the Jamaican people to be economically successful through industrialisation, with competent and confident leadership from our Government. This is the nationalistic conviction that drove countries like Singapore to the success they enjoy today; and Jamaica to the relative success we achieved in the 1950s and '60s.

However, there are too many Jamaicans of power and influence, including many highly placed politicians who, despite the example of other countries with no greater human and natural assets than we have, believe that competing in today's global environment is too much for Jamaica and Jamaicans to accomplish. In spite of the example of our own past successes, they make our progress toward that goal extremely difficult.

Their assumption is that because Jamaica does not have the lowest wages or the highest technology in the world, it is not possible for us to manufacture products at prices that will compete with countries that do. But the overwhelming majority of the countries that are competing successfully in the world's market for manufactured goods do not fit the description of either the lowest wage producer or highest technology manufacturer.China does not have the lowest wages in the world. There are at least 50 other countries more qualified for that dubious distinction. The countries using the highest technology are today concentrating on very high-end industrial products and services. Increasingly, the world's manufactured consumer goods are being produced in countries operating at the lower end of the technology scale - countries like The BRIC (Brazil, Russia, India and China) and the NIC's (the larger group of newly industrialising countries). However, these countries do not remain static at their relatively low level of technology but are gradually moving up the technology ladder to yield ever higher levels of added value for themselves, while they nip at the heels of the high-technology industrial powers.

At the same time that this rewarding and exhilarating competition has been taking place among developed and developing countries, Jamaica, through inept government leadership, was destroying over 50 per cent of our manufacturing capacity. Many of today's newly industrialising countries had lower per capita GDP and were relatively less industrially developed than Jamaica in 1960: among them, Singapore, Mexico, and Brazil. Today, all of them enjoy per capita incomes well above Jamaica's.

fallen behind

Jamaica has fallen behind because of the failure of our Government to design policies that favour production. Instead, what our governments have been successful at doing is scapegoating the Jamaican business community and absolving themselves of blame for the economy's poor performance. Their demonisation of the private sector reflects the bankruptcy of thought that informed the anti-production policies which resulted in the wiping out of a whole generation of productive Jamaican entrepreneurs and the exodus of several major foreign industrial enterprises from Jamaica, taking their capital, technologies and export opportunities with them, during the 1990s. Regrettably, many of those production-destroying policies continue to this day and it is, therefore, not surprising that Jamaica is about to conclude its third straight year of economic decline.

The twin strategy, used by countries like China, Singapore and Trinidad and Tobago, of containing domestic costs to maintain local purchasing power while keeping their currencies competitive, to create demand for local production, thereby increasing employment, is a tried, tested and proven development strategy. Where it has been employed, it has resulted in significant investments in production from both domestic investors and foreign interests, bringing new technologies and export markets with them.

The governments of these countries know something that continues to elude too many of our policymakers: in this modern age, no country but a micro state, can be prosperous without engaging in industrial production with its high value-added quotient and the high-value services which inevitably grow out of it. Everything else condemns them to poverty.

Despite China's phenomenal success, its over 1.3 billion population, representing almost 20 per cent of mankind, produces no more than 12 per cent of the world's industrial output. The other 88 per cent is now being produced by the remaining 80 per cent of the world's people. Nevertheless, there are many highly placed Jamaicans who seem to believe there is something inherently wrong with Jamaica and Jamaicans that retards our ability to participate in the production of that vast volume of industrial goods produced by countries other than China, and that we are uniquely disqualified to organise our economy to be able to compete for a share.

China relevance

But of what relevance is China to the challenge of Jamaica competing within CARICOM and Latin America, or against North America and Europe, for the manufactured goods not being supplied by China?

Are those who continue to fan the flames of China's success in trade, also aware that China's present super competitiveness will not last forever? Those of us who look beyond the immediate, recognise that China's strategy of wage suppression and currency undervaluation logically leads to its own cessation. The emerging, hitherto unheard of militancy among China's industrial workers who are demanding more for their improved productivity is one reason. The threat of punitive trade sanctions from its powerful trading partners is another. And China's own recognition that it must pull back from its export-led development strategy and encourage greater domestic consumption of imports so as to ensure the continued health and stability of the countries to which it exports its goods and with which it banks its vast capital reserves, is the strongest reason that China will either revalue the Yuan so that the Chinese people will be able to consume more imports or increase the incomes of Chinese workers to achieve the same result. The effect will be a reduction of China's present huge competitive advantage.

The majority of the wealth of the world is to be gained from the production of manufactured goods and high-value services. A government that surrenders the opportunity to participate in these areas of economic activity is condemning its people to poverty. Those who hold the view that industrial production is too complex for Jamaica to achieve, must tell us what we should do to provide our people with good jobs and rising incomes, economic opportunity and a satisfactory quality of life as are now being enjoyed by other countries no better endowed than we are. Or are they telling us that we are doomed to a future producing low-value, primary-level goods and services and a life of poverty?

Our tourism sector, which is estimated to contribute approximately six per cent of our GDP, lags in realising its full potential because, among other things, the economy is not sufficiently industrialised to provide it with enough of the products it consumes at competitive prices. Without industrialisation this will never happen.

Countries around the world including China, Brazil and Trinidad and Tobago have successfully managed the relationship between their inflation and those of their trading partners and their exchange rates in order to improve or maintain their competitiveness. For example, in the first 10 years of China's development surge, its internal costs rose by 123 per cent while costs in the US increased by 88 per cent. A currency depreciation of 16 per cent would have been sufficient to maintain China's competitiveness against the US. However, the yuan was allowed to depreciate by 53 per cent. The result was a 45 per cent improvement in China's competitiveness.

currency manipulation

The economic managers of the US and the EU have accused China of using currency manipulation to create its competitiveness and are demanding a substantial revaluation of the yuan to remedy the situation. The issue dominated discussions among the world's economic leaders attending the recent World Bank/IMF meetings in Washington and was the central focus of the just-concluded meeting of the G20 in Seoul. The world's leading economies including Japan, Brazil and South Africa are now frantically working to either depreciate their currencies, or prevent revaluation, to preserve and enhance the competitiveness of their economies. Recent manoeuvres by the US Federal Reserve including injecting a further $600 billion of printed money into the economy have led to a gradual depreciation of the dollar against the currencies of its main trading partners. This is clear evidence that the US itself is prepared to manipulate its currency to promote its competitiveness.

Jamaica seems to be the only country that does not recognise the important role that inflation control and intelligent exchange-rate management play in enhancing competitiveness and stimulating production and growth in an economy. While countries like China and Brazil, Trinidad and Tobago and Barbados were managing their inflation and their currencies to improve their international competitiveness, the Jamaican Government virtually put our economy in self-destruct mode in the 1990s. We created inflation 18 times that of the US. This, combined with the completely nonsensical exchange rate policy of the Government, resulted in a loss of Jamaica's competitiveness of almost 60 per cent against the US.

And, while Jamaica's uncompetitiveness was sending our economy into decline, our trading partners were growing rapidly because they improved and maintained their competitiveness against the US. For example, Brazil's competitiveness increased by almost 15 per cent between 1995 and 2005. Trinidad and Tobago's improved almost 40 per cent in the decade ending 1994. Even Barbados, using effective inflation management alone, was able to increase its competitiveness over the US by more than five per cent during the 1990s.

No economy will develop without being competitive. To achieve this, no single economic policy will be enough. What is required is a combination of monetary, fiscal, institutional and trade policies, organised and coordinated to create a strategically sequenced pathway leading to clearly defined economic goals - all to be done in the context of our position in the evolving world environment.

Will any of our political parties pursue such a plan, end our three-year-long economic decline and lead us toward prosperity?

Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to columns@gleanerjm.com.


A currency depreciation of 16 per cent would have been sufficient to maintain China's competitiveness against the US. However, the yuan was allowed to depreciate by 53 per cent. The result was a 45 per cent improvement in China's competitiveness.