Edward SeagaDISCUSSIONS ON the provisions for expenditure in the recently-concluded Budget Debate, express the fear that the priorities of the Portia Simpson Miller administration is heading in the direction of populism.
This has become the central issue of concern about the future of the economy.
Those who are old enough to have been around in the 1970s remember the programmes that were implemented by then Prime Minister Michael Manley to help the poor but which ended up costing the country millions of dollars without any tangible benefit.
Chief among these were:
The 'crash programme' to provide work which notoriously did no work;
Operation Grow which grew little or nothing;
The Pioneer Corp. for young farmers who did not farm.
Many thousands of men and women were employed on these programmes billed as socialist dream projects which are still remembered today wistfully by those who benefited and ruefully by those who are still paying for the squandering and waste of millions of dollars.
Those memories are provoking suspicions that the country is heading that way again and the economy, which still has not yet escaped from its crippling past, could be facing more calamities.
AVOIDING PAST DEBACLE
It is certainly much too early for any such fear to be credible. At the same time, it is not too early to think more deeply now as to what approach can be taken to avoid the past debacle.
The approach which would be most popular with that section of the society which is not in need is to avoid any programme of substantial additional expenditure on projects to benefit the poor for reasons of unaffordability and expectations of waste.
Ironically, those same people do not mind US$100 million (J$6.5 billion) being spent on two cricket stadiums for a few days of entertainment, although this would be almost three times as much as the budget allocation for early childhood education, a level of spending which would boost performance of children of the poor to levels never before attained.
To be fair, the intent of those who think in this manner is not one of callousness nor even benign neglect. They just don't believe that it is possible to really help the great mass of poor people in any significant way.
But they are wrong, particularly if the focus is on the poorest of the poor.
The issue is not that there is so little to give, but that so little is needed. The needs are too basic to be denied:
Liveable earnings;
Basic, sturdy housing;
Sound education;
Proper infrastructure.
Who among us would be satisfied with less? Yet, deprivation of these basics has been the rule, not the exception, in the experience of the poor.
ECONOMIC CONTRADICTIONS
Those who cite arguments that the lot of the poor has been improving significantly by quoting reduction in the poverty index and unemployment rate, must come to grips in their own minds with the astonishing contradictions of an economy, which, over the past 15 years:
Has produced no economic growth, yet poverty has significantly declined, according to the poverty index;
Has produced no economic growth, yet unemployment has substantially decreased, according to the labour force statistics.
This is incredible! What these confounding results mean is that the poor are better off without economic growth.
On this basis, Jamaica can claim to have successfully rewritten all the established economic theories which rest on the mantra that economic growth is needed to create jobs and decrease poverty.
The real situation is quite different. Simpson Miller was elected to lead her party and, hence, the Government, because over the years the number of poor has been increasing while the size of the economic cake has remained the same.
The inevitable result has been that the slices have become smaller and smaller by the year.
The poor believe that the Prime Minister will make their slices of the cake bigger and have mandated her to do so.
But the slices can be increased only if the size of the cake is increased. If this is not the case, the fears of a dwindling economy will be justifiable.
There are two problems then:
Increasing the size of the economic cake; and
Sourcing the type of funds needed to significantly improve the slices for the poor from the larger size economy.
FAILED ECONOMIC MODEL
Increasing economic growth is an issue on which I have written repeatedly in recent times out of frustration of watching a repeat of the same meaningless, stagnant performance year after year without any relief whatsoever.
The cause of the failure is an economic model, with a managed exchange rate, which is targeted each year to produce three per cent growth and has embarrassingly failed to do so in every year for 15 years.
The Minister of Finance, however, is convinced that this economic model is correct, although he cannot cite even one country in this region which has been successful in using this model to raise levels of income substantially as the fixed exchange rate model has done in 30 regional countries. Not one!
Belief in the correctness of this failed model has now been bolstered by the support of the Opposition Spokesman on Finance who is following the Finance Minister on his non-productive path leaving the strong impression that the Minister is now the computer and he is the print out !
The Minister obviously believes in the system because the International Monetary Fund (IMF) says it is the correct model although the IMF cannot identify a single country in this Caribbean region in which this model has created the higher level of incomes which other countries enjoy. I learned long ago that when the IMF tells you that you are doing well it is a kiss of death. I learned too, that it is not what the IMF tells you but what you tell the IMF that counts.
In 1986, I told the IMF that I was no longer going to follow their prescription for devaluation of the exchange rate because it was not producing any results. I challenged them to identify one developing country in which their prescription had worked. They could not. I followed up by withholding Jamaica's payments to the Fund unless they agreed that the Jamaican economy could have a fixed exchange rate and the introduction of an export drawback scheme instead of devaluation to ensure competitiveness. After many tense months of pressure by the IMF and refusal on my part, the IMF agreed in January, 1987 to allow the exchange rate to be pegged. The economy took off immediately recording 5 per cent average growth from 1987 to the end of the decade, including the low 2.5 per cent in 1988, the Gilbert year.
$12B PetroCaribe fund
Maybe it is hoped that the availability of $1billion of PetroCaribe funding monthly will boost economic performance to targetted growth levels. If this succeeds, then it is the PetroCaribe not the IMF model which would have succeeded. But there is more to gain by succeeding with both the use of PetroCaribe funds of $12 billion for the year and $16-18 billion savings from a fixed exchange rate regime. Then all the funds required to boost economic growth and to provide for the wishes of the new Prime Minister to substantially help the poorest of the poor will be available.
There would be no need then to dip into the National Housing Trust (NHT) and National Insurance Scheme (NIS) pools, although there is nothing wrong with the NHT funding houses for the very poor, as it is already doing, nor the NIS funding a limited amount of welfare for the poor and vulnerable as may be determined by actuarial study.
To that, I would add the possibility of blending regular loan funds of the National Development Bank of Jamaica using a predetermined amount of its profits to lower interest rates of the blended product to levels suitable for small and medium lending. Lending could be through the Self Start Fund, PC Banks, and Credit Unions. This would be like the $1.75 billion loan provided by the banks currently to the Student Loan Bureau for a concessionary lending rate of 12 per cent to students.
The right amount of funds and the right channels of funding can be found. But it all depends on whether the Jamaican economy can breakaway from its 15-year imprisonment to follow the proven success of earlier years, rather than the proven failure of the recent past. If this is successfully achieved, the Prime Minister will not have to let up on her mission to help the poor and needy, instead of the rich and greedy.
n Edward Seaga is a former Prime Minister. He is now a Distinguished Fellow at the UWI. E-mail: of@uwimona.edu.jm
