Political thought shaping the nation

Edward Seaga, Contributor

Below is the first of a three-part series from Edward Seaga's Prime Ministerial Reflections address, hosted recently by the Sir Arthur Lewis Institute of Social and Economic Studies.

Next year, Jamaica will commemorate its 50th anniversary of Independence. Anniversaries are important milestones which should be marked: some for review of the past, others for a look into the future. This particular occasion should feature both a review of the past and reflections on the future.

Jamaicans greeted Independence in 1962 with relief for more than one reason. The period marked a point of settlement of the political problem of whether the future of the country rested in the Federation of the West Indies or in seeking independence on its own.

The other area of relief was the end of a period through which the country had just passed with an unprecedented four national elections in four years, each of which aroused its own uneasiness and foreboding, a period of stress, strain and electoral fatigue.

This presentation of the post-Independence period of Jamaican development will be based on reviewing different belief systems adopted by the political leadership. Each of these belief systems was a new order expected to serve as an overarching umbrella framework to determine development policies. The shifting focus from one order to another, occurring from decade to decade, was designed to lift development prospects to higher levels. But, beginning with the federation, they did not.

The West Indies Federation was based on the expectation that the people of 10 Caribbean territories could become one nation inspired by a cross-border brotherhood of similar race and culture that would kindle a flame of solidarity and heighten prospects for the future. It failed because reality checks later showed that there were underlying contradictory political and economic priorities which made it impossible for leaders to agree with each other. In addition, the largest country, Jamaica, was equal in population to the nine others widely separated in an ocean of water. Hence, there was little possibility of consensus in a process which required consensus, resulting in halting steps being made towards the ultimate objective.

Federation collapse

As a consequence of the lack of effective integration, the definitive position taken in the Jamaican referendum on September 19, 1961 resulted in the withdrawal of the largest territory, Jamaica, and the collapse of the federation, which was, by then, inevitable anyway. But the federation did leave some valuable areas of integration: the University of the West Indies, the Caribbean Development Bank and the West Indies cricket team; but no nation.

Any reality check in the early years would have realised that the grand federal design would be politically unworkable because of the inevitable conflict of priorities among the member countries which, as poor countries, had to put self-interest first. Recognising that these conflicts would have created insoluble problems would have saved more than a wasted decade of dreams.

In the 1950s and 1960s, the dominant economic order was the need for foreign investment to establish manufacturing and industrial projects which could create jobs for the labour force. These investments were invited with offers of generous tax and non-tax incentives to encourage job creation. But the reality check, years later, showed that relatively few jobs were created by these capital-intensive industries and a substantial amount of revenue was forgone and foreign exchange expended to sustain their operations. The cost was greater than the return. Mostly, for more than a decade, it was a misdirected use of time.

New ideological order

In the 1970s, a new ideological order was adopted. Shifting from economic to social and political priorities, socialism, through its cornerstone policy distribution of wealth by pulling down the rich to create an egalitarian society. It did not take long to learn from bitter experience that the poor cannot be elevated by pulling down the rich, but by pulling up the poor. Nor could the worthy social programmes of socialism, or the policy of controlling ownership of the heights of the economy, be secured and sustained with little available cash. Another decade was lost because the reality checks were ignored by the overpowering euphoria of the message that 'socialism is love'. Again, this ideology proved that it was not the way forward. In fact, it virtually died along the way.

A dramatic about-turn in the 1980s raised the need for competitiveness to the level of a new economic order by minimising the public sector as an agent of production and maximising the private sector as the agent of growth, achievable in part, by divesting public assets. To achieve competitiveness, macroeconomic stability had to be created. This stability, in the dictum of the IMF, had to be anchored by leveraging the exchange rate, adjusting it regularly to be competitive. But the problem was that each adjustment of the exchange rate created a new cycle of price increases, which reduced competitiveness and growth.

This was a vicious circle which forced me to intervene with a demand in 1986-1987 that the IMF discontinue the self-defeating policy. After a tense period, the IMF finally agreed, and the resulting dramatic economic upturn after 15 years significantly helped to transform the struggling Jamaican economy to a restoration of growth, by 1987.

By the 1990s, a new generation of Caribbean leaders had emerged who had no experience with the federal failure. They reversed the process, rightfully so, creating a community of nations, CARICOM, rather than a single nation, with a single flag. They assembled the components from the bottom-up. But when the structure reached the level for specific programmes to be introduced, cracks began to open wide. It became apparent that CARICOM, as an integrated organisation, would fail to produce a coherent integrated foreign policy on many crucial issues. The CARICOM Single Market and Economy (CSME), the CARICOM standard-bearer, had no agreed single currency. It was evident that differing productivity levels of different countries would increase exports in a few member countries while showing decrease in most others. A reality check, in this case, where data were readily available, would have foretold that the CSME was a grand design of conflicting self-interests on which another decade would be wasted.

In the new century, the overarching order of globalisation which would open the markets of the world by levelling the playing field for trade and investment reached the stage of aggressively promoting participation in the Economic Partnership Agreement (EPA) between the European Union, comprising industrialised nations, and the former African, Caribbean and Pacific countries, all of which were at the development stage.

These negotiations between unequals based on duty-free entry of exports between the countries will lead to more futility, failing to push the poorer countries forward and, indeed, pulling them backward by a one-way flow of benefits. The European Union countries would be dominant as export earners and the partner countries as importers. This would widen the gap between rich and poor.

The Jamaican economy is a strong importer, but a weak, uncompetitive exporter. As such, it will not benefit from increased export earnings in the CSME or EPA schemes. It is a supermarket, not a factory. "The ruling principle between unequals is not reciprocity, but proportionality," Sir Shridath Ramphal, former Commonwealth secretary general, wisely reminded political leaders. For the Jamaican economy, this would not be a way forward.

The most calamitous plague of the failed systems and orders

In this 1958 Gleaner file photo, then Chief Minister Norman Manley discusses the quality of a shoe made by Wellco Shoe (Ja) Ltd at August Town, with two of the employees, during his tour of the factory shortly after it was declared open by the minister of trade and industry, Wills O. Isaacs.

which beset the Jamaican economy in post-Independence was the financial meltdown of the 1990s. The new government of the period with historic left-wing credentials allowed the IMF to guide it through the wilderness of the capitalist market economy. It was prompted to abandon the auction system which maintained the pegged exchange rate. This caused the rate of exchange to move perilously. Within 17 months into the new term, the exchange rate fell from J$1:US$0.18, to US$0.07.

Panic set in. Unfamiliar with the mechanisms of the market system, the administration allowed itself to be persuaded to remove the restrictions on foreign exchange moving freely in and out of the country. In September 1991, the authorities made a fateful decision which precipitated an economic cataclysm. Exchange-control regulations which prohibited the export of foreign exchange without approach were repealed, opening the door for capital flight without the Bank of Jamaica having reserves to weather the outflow. The expected compensating inflows of foreign exchange never really materialised.

With the door now open for capital flight, the exchange rate soared through the roof, interest rates and inflation zoomed through the window, and economic growth plunged through the floor. All but a small number of financial institutions collapsed. This was the beginning of an economic meltdown which eventually cost the Government $140 billion in compensation to failed institutions to enable them to protect depositors. This was 45 per cent of GDP, ranking Jamaica third on the list of countries experiencing economic cataclysms. Only Argentina (55 per cent) and Indonesia (50 per cent) were more severe.

The decade of the 1990s and early years of the new century were lost, as was the decade of the 1970s, because of inappropriate policies and easily misled leadership. Economic growth stagnated, the Budget was once again in deficit, average inflation and debt were intractably cemented at globally extreme levels. Ironically, in a climate of no growth or little growth, unemployment decreased. So did the Poverty Index, in part, because frantic relatives abroad rushed rescue packages of remittances and barrels of goodies to help families to weather the hardships. Government also introduced effective poverty-reduction measures. Whatever the reason for this mixture of good and ill fortune, the meltdown conditions calcified into economic stagnation for some two decades, indicating that this was not a way forward.

Edward Seaga, a former prime minister, is now chancellor of UTech and a distinguished fellow at the UWI. Email feedback to columns@gleanerjm.com and odf@uwimona.com.