Damien and Audley's dilemma

It's an inconvenient time for Audley Shaw to come back as opposition spokesman on finance. The International Monetary Fund (IMF) and the rating agencies are heaping praises on Finance Minister Peter Phillips, prominent private-sector spokespersons are bullish, the economy is growing finally, and the minister is enjoying very good press.

Even the cynical (and excellent) journalist George Davis was led to concede in his column last Wednesday 'Dr Phillips not too shabby': "We must not be afraid to commend Dr Phillips for his handling of his portfolio to date." Audley has been straining to find something negative to say.

He issued a release last week after the supplementary estimates were announced, decrying the cuts. Audley said they only confirm "the validity of the concerns of the Opposition against overly contracting the economy". He said, "The Opposition is urging the Government to pursue a path of growth inducement in tandem with the programme of fiscal consolidation." He lamented (bad mind?): "While the finance minister is quick to gloat about the IMF tests that have been passed, he is paying no regard to the people's tests."

Now Audley fully well knows that the Government, to stick to its IMF targets rather than abandon the programme as he did, had to trim its budget. It had no choice. Except it was going to raise taxes. Audley knows that lenders are wary of us and that they are not prepared any longer to support our populist policies. Foreign investors are looking at how well we manage our IMF-mandated targets - that's the clue that will signal to them whether they should invest or lend us in the future. Audley knows this.

Bitter medicine

His own leader, Andrew Holness, was the one who spoke before the elections about the necessity of "bitter medicine". He has given many speeches extolling the virtues of macroeconomic stability and all the items on the neo-liberal agenda. Yes, he is also now talking about "a growth agenda" and providing a "stimulus", but he is bright enough to know that what he calls stimulus and what Audley calls "growth inducement" are not accommodated under this fiscal austerity programme. Audley, Andrew and Damien (King) stand at opposite poles, at least polemically.

Damien King's view is that there needs to be no separate growth agenda apart from our path of fiscal prudence. Seek ye first the kingdom of 'economic fundamentals' and 'all these things' shall be added to thee.

I agree with both Audley and Damien, but both face a dilemma. Both take an inadequate and unrealistic view of our economic challenges. Damien King is, in my view, the country's sharpest and most formidable neo-liberal economist. But his article in last Tuesday's Gleaner shows a fundamental misunderstanding of my position. I was not seeking in my column last week to "undermine" the importance of "economic fundamentals". I have always said they are necessary, but not sufficient. I agree with Audley Shaw that more than that is needed to assure economic growth. I am concerned that too many who discuss economic issues seem to believe that once we meet the IMF targets and set our house in order, development will come. Growth might come, but it won't necessarily be development or inclusive growth. It could be jobless growth, and uneven development.

Damien says in his article ('Barbados' lesson for Jamaica') last Tuesday: "So when Mr Boyne argues that 'those neo-liberal messiahs who believe that all we have to do is to set our economic house in order and we will have sustainable growth are leading us down the garden path', he is contradicted not only by the historical comparison between Jamaica and Barbados ... he is also contradicted by an enormous amount of international empirical evidence ... ." I challenge Damien to show me that empirical evidence. The indisputable evidence of economic development shows that neo-classical or neo-liberal economic features have never been enough to produce sustained economic growth. In fact, the historical economic development data show that it was precisely those non-neo-liberal strategies that have been responsible for economic take-offs.

Miracle economies

I have just finished reading Joe Studwell's book, How Asia Works: Success and Failure in the World's Most Dynamic Region (2013), which examines the miracle economies of Asia. Studwell, founding editor of The China Economic Quarterly, is unequivocal: "The shocking truth is that every economically successful society has been guilty in formative stages of protectionism. Outside of the anomalous offshore port havens of Hong Kong and Singapore, there are no economies in the world that developed to the first rank through policies of free trade." Not Britain, not America, not Japan, not continental Europe.

The well-known Harvard expert on East Asia, Dwight Perkins, has just published his East Asian Development: Foundations and Strategies (2013), which documents the non-neo-liberal strategies which are at the foundation of East Asia's spectacular rise. The truth is that the policies being foisted on us by the IMF and the World Bank have never historically worked for economic development. The work of leading economists like Dani Rodrik, Ha-Joon Chang and Erik Reinert have established that the early industrialisers, the Far East, China and India, have used state-directed, industrial-policy planning mechanisms to induce growth.

Says Ha-Joon Chang in his book, Bad Samaritans: "The history of the first globalisation in the 19th and early 20th centuries has been rewritten today in order to fit current neo-liberal orthodoxy."

The economic powerhouses of China and India have grown impressively over the last few decades guided by a strong state sector. Yes, Damien, I know what happened in 1978-79 and 1991, but these are no neo-liberal purists. Damien cannot point me to one country apart from the city-state of Hong Kong which has used purist neo-liberal strategies to grow. Not even Singapore, which has the world's most successful state-run airline and strong public housing. In the January 21-27 issue of the conservative Economist magazine, there was a 14-page feature on 'The Rise of State Capitalism: The Emerging World's New Model'.

The economic fundamentals are important to economic growth. I concur, Damien. But they are not sufficient. And, incidentally, countries can grow with high inflation. Brazil had an inflation rate above 40 per cent a year during its miracle years of the 1960s and 1970s. During Korea's miracle years, it had inflation rates above 17 per cent.

A major point I was making last week is that the global economy exerts a significant influence on the local economy, and these exogenous factors can derail growth. It's not an argument for not pursuing fiscal prudence. But it is to say fiscal prudence isn't all. Don't give people the impression that all we have to do is to follow IMF dictates and jobs, investments and development will naturally follow. That's a pipe dream. Economic development is far more complex than that.

Professor Mark Blyth points out in his book, Austerity: The History of a Dangerous Idea (2013), that Ireland was a neo-liberal poster child before the Great Recession. Foreign investors flocked, GDP grew significantly and yet Ireland crashed because of exogenous factors.

So Audley is right that there has to be more than just meeting IMF targets. But he is wrong if he feels there is an alternative to following that path now, while we pursue expansionary stimulus policies.

Ian Boyne is a veteran journalist. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.