Budgeting for balance

Robert Buddan, Politics of our time

In 1960-61, on the eve of Independence, 61 per cent of Jamaica's national income went to 20 per cent of the population. Jamaica was a very unequal society. It had been so long before. It became worse after Independence. At that time, too, 64 per cent of the land was owned by 10 per cent of the population. The land-distribution pattern of the old order was, and remains, evident since.

We approach our budgets with the idea of balancing spending against revenue. That is understandable. But we should also balance opportunities between the rich and the poor. Sometimes we have tried to do this. But this has not always been the dominant form of budgeting for national development.

In fact, some would argue that we have not tried hard enough to balance our budgets in the first place. But there are demands that really cannot be ignored when poverty is high. A Participatory Poverty Assessment done in Belize in 2010 found that people saw the politician as an important resource to supplement their incomes and to obtain food and other necessities. Too many of us coldly dismiss this as patronage - favours in exchange for votes. The study found that 30 per cent of poor households reported asking politicians for assistance as their main coping strategy.

Assistance programmes provided by the government were widely considered to be inadequate or failing. People, therefore, looked to the political representative for direct assistance to make up for lack of assistance from family, friends and community. The Caribbean does not have dynamic-enough private sectors either, and many businesses themselves depend on patronage. This, of course, causes political dependence. In fact, much of what we think of as budgeting might sometimes really be election budgets capitalising on this dependence.

Election Budgets

Democracy operates on election cycles. With an economy performing so poorly and growth seeming years away, budgets come under great suspicion when countries like Jamaica enter an election cycle. This is why we must be suspicious about budget items labelled as 'special projects'. Special projects have often been a cover for pork-barrel spending. That is why the public must take serious interest in strong concerns over the Jamaica Development Infrastructure Programme (JDIP) and the use of the Road Maintenance Fund.

Jamaica needs huge spending on roads. International Monetary Fund (IMF) money cannot be used for this. We are grateful for the Chinese loan. But we should hope that the funding agency, the China EXIM Bank, and the National Works Agency are satisfied that funding has been properly approved and accounted for, roads have been selected based on a democratic and transparent selection process, and contracts are, and will, be awarded in the approved way. The Budget must not just be a financial accounting process. It must be politically accountable, that is, by standards of democracy and good governance.

Inequality and high levels of poverty (Jamaica's poverty rate is rising), combined with a stagnant economy and an election cycle make it likely that a government will offer an election budget. Inequality and poverty mean that more people are dependent on politicians to cope. A stagnant economy means that business is dependent on government for bailouts and favours. Against this must be a vigilant parliamentary Opposition and a vigilant society. The institutions of Government must play their part. This includes the contractor general's office, the public accounts and the appropriations committees of Parliament, and the agencies of Government tasked with implementing projects. This is a big test of good governance because there is politics in budgeting.

The Politics of Budgeting

Budgets also can reflect the politics of and within an administration. The Budget is part of the strategy of the IMF and World Bank to 'stabilise' the Jamaican economy. There is, therefore, tension between having an election budget with pork-barrel spending and having a 'tight' budget that meets targets to limit spending. The IMF's structural adjustment policies are designed, in theory, to stabilise an economy, produce growth and indirectly to contribute to poverty alleviation. This is to be achieved in phases. But with elections looming, governments can become impatient for growth.

Poverty itself inhibits growth. Noted economist at the Caribbean Development Bank, Compton Bourne, wrote in 2008 that poverty has multiple effects on economic growth. These include producing levels and standards of consumption inadequate for "nutritional and physical health, for safe and healthy living, for accumulation of knowledge and skills, for child care and protection and for advancement of the welfare of future generations". Furthermore, he says, when poverty causes health problems and energy deficiency, it may "contribute to irregular work and limited capacity for extended periods of work. Deficiencies in levels of education and training directly constrain productivity. In these various ways, human poverty may cause underachievement of productivity and economic growth. There is thus a causal link running from poverty to economic growth".

There is also a causal connection from economic growth to poverty. Bourne explains that employment and incomes are lower during recessions than they are during growth periods. The poverty effects are also magnified because poor people have weaker and less-effective mechanisms for coping with loss of employment and income. The absence of personal coping mechanisms would not be so serious if safety nets were adequate. But this is not usually the case, and the capacity to finance what exists is often undermined by slow economic growth or recessions.

Economics scholars thought that the Latin American and Caribbean region could cut its poverty rate in half by 2015 with a 3.8 per cent annual growth rate. The Commonwealth Caribbean countries would have to double the 1.5 per cent to 2.0 per cent per capita growth rates achieved between 1990 and 2004. This would be true for Jamaica. However, Jamaica has had 14 consecutive quarters of no growth. We have heard about a growth-inducement strategy put together by the Government and the Planning Institute of Jamaica. It seeks to achieve these growth rates. But the same IMF does not seem to believe that we can achieve growth rates of three per cent to four per cent a year up to 2015. In its report of October 2010, it said Jamaica would achieve the seventh-lowest growth rate in the world up to 2015. We should not expect a reduction of poverty under such circumstances.

Word is that Mr Golding would want an election budget because he looks so bad coming out of the Manatt-Coke scandal that only an election budget could save him. Mr Shaw wants a tight IMF-type Budget to build his credibility as the JLP's alternative leader to Golding. The present Budget is, therefore, also about succession in the JLP. However, the evidence is that neither an election budget nor an IMF budget will produce growth and/or reduce poverty. The choice the administration is facing is a choice between Golding and Shaw. The choice the country is facing is between growth and poverty reduction, or their opposites. The Budget is at odds with the country's objectives.

The politics of the administration requires us to look carefully at JDIP and Mike Henry's power behind it. It is here it appears that Government's election spending is directed. It is the use of the Chinese loan that is driving JDIP and the Government's growth-inducement strategy.

Robert Buddan lectures in the Department of Government, UWI, Mona. Email feedback to Robert.Buddan@uwimona.edu.jm.