Edward Seaga
Every new government, since Independence, except one, has had a calamitous beginning. The post-Independent Jamaica Labour Party (JLP) Government of 1962 had an enthusiastic start that lasted a full 10 years. It was the exception. Not so with the others, each of which had to face an early calamity.
In 1972 the change-over from a JLP to PNP Government met with an early calamity in 1974 when oil prices increased drastically from US$3.50 to US$12 per barrel overnight. This threw the whole world into turmoil, creating economic upheavals, everywhere, in some areas worse than in others.
Fortunately for the PNP administration which was then beginning its period of government, Prime Minister Michael Manley had negotiated a bitterly contested agreement with the bauxite companies in Jamaica a year earlier, in 1973, imposing a levy of 7.5 per cent on the market price of aluminium, the product derived from bauxite. This replaced the system of corporate taxation which had been set up by Norman Manley, previously.
The 7.5-per- cent levy increased the revenue from bauxite considerably. In the first year, this increase was US$160 million which nearly covered the increase in the price of oil in that year. The 7.5-per-cent levy, however, made Jamaican bauxite the most expensive in the world overnight, a cost which caused the bauxite companies to shift their production elsewhere.
Real calamity
The real calamity here was not only the drastic increase in the price of oil, but the extent to which this dramatic movement wiped out the huge bauxite surplus which Manley was counting on to finance the new social programmes he planned to introduce. But despite the wipe-out of the revenues he expected to use, Manley went ahead with the costly social programmes anyway. With little money, this created an impossible situation. By 1976 the budget was wrecked when expenditure ballooned to twice the amount of revenue. One project, free education, which he introduced against the wish of the Ministry of Education, caused the education budget to jump from $47.75 million to $209 million in one year! This project, as did most of the other projects in the social programmes, proved unsustainable.
Although this was bad enough damage to the economy, it was exacerbated by the introduction of democratic socialism as a new ideology. This new ideology was promoted by fervent rhetoric promising many extreme and radical changes to come. A serious financial scare followed, precipitating capital flight which kept growing with the increase in rhetoric, eventually plunging the economy into greater despair year by year. When the end came, the JLP was returned as the government in 1980.
Worst recession
Bauxite Pier in Discovery Bay, St Ann. Increase in the bauxite levy in 1973 helped to cushion the impact of rising oil prices on the Jamaican economy during the 1970s. - File
Another dream of high expectations emerged under the new JLP administration of Prime Minister Edward Seaga. Both the public and government had visions on an early turn-around from the painful years of the previous decade. This expectation was fulfilled. In 1981, there was economic growth for the first time in eight years and all the main economic indicators were reversed from negative to positive. But this period of forward movement did not last.
By 1982, Jamaica was hit by the ravages of the worst global recession since the Great Depression of the early 1930s which devastated economies worldwide. The calamity in the Jamaican case was the sudden collapse in demand for bauxite which plummeted from a production level of 12 million tonnes in 1980 to half that level by 1986. Bauxite and its derivate alumina were responsible in 1980, for 76 per cent of the foreign exchange earned by Jamaica and 30 per cent of the revenue. Bauxite/alumina were the mainstay of the Jamaican economy at that time. Some US$2500 million were lost in earnings foregone during the 1980s, twice the US$1230 million loss caused by the increase in oil prices in the previous decade.
As a consequence of this global recession, the economy was on a track to be crippled; but we decided to fight back. With the assistance of the International Monertay Fund (IMF) and World Bank, the most severe adjustments ever imposed on the Jamaican economy were introduced to bring the domestic and external accounts back into balance. These included a painful reduction of the 130,000 public sector staffing by 27,300 and one of the worst years of economic performance in which the gross domestic product fell substantially by 4.7 per cent, in 1985.
When the adjustments were completed in 1986, the slide of the economy was halted. In 1987, the exchange rate was pegged at J$5.50 to US$1.00 after a prolonged battle with the IMF. Then the price of oil fell sharply, to as little as US$10 per barrel, for a while. These developments allowed growth to occur on the base of a stabilising economy.
Except for the ravages of the worst hurricane of the century, Gilbert, in 1988, another calamity of the period, significant economic buoyancy followed for the rest of the decade producing the second best record of economic growth of the post-Independence years. This laid the foundation for an assault on the social problems which had to be endured during the period of re-building the economy.
Economic plunge
But the severity of the adjustments of the 1980s left political damage which could not be overcome, even by the economic recovery that had taken place. Yet the country would be doomed if the politically damaging adjustments were not made. It was a question of saving the future at the expense of the present.
When the new PNP government took over in 1989, it had a glorious chance to build on a recovered economy and to complete the remainder of the recovery programme by following a comprehensive plan (The Social Well-Being Plan of 1988) which had received commitments of being fully financed by domestic funds and international pledges to enable all the social damage to be repaired.
That was not the case. By 1991, calamity had set in. The economy went into spiraling plunge over the first half of the decade of the 1990s. This produced the most negative performance in the post-Independence period: little or no growth, lack of new jobs, coupled with historically high inflation and interest rates both peaking at over 100 per cent. This reduced the economy to a state of melt-down by 1995. The damage was the result, primarily, of a free-fall in the exchange rate from $5.50 in 1988 to $37 in 1996, while the national debt zoomed from $35 billion to $193 billion over the same first half of the decade of the 1990s. Robust economic growth gave way to stagnation and a ballooning crime rate.
During this period there was no massive increase in the price of oil or any sudden collapse of any of the growth sectors, particularly mining. Nor was there any epidemic or scourge of catastrophic weather. The world was at ease in the aftermath of the end of the cold war and world trade was at its most robust for decades. Yet, calamity struck, this time not for reasons of bad luck, but bad management by government and the private sector.
New JLP Government
The final political change of government occurred on September 3, when the JLP was elected to form the Government once more. The new Prime Minister, Bruce Golding, is now complaining about the onset of sharp price increases which have greeted the new government, a calamity in the making. Once again, external forces are at work. The massive increases in the market price of oil which is heading for a frightening US$100 per barrel, has activated exceptionally high use of corn and soya to produce ethanol as a fuel to oil. This is so especially in the United States which supplies these and other cereals to Jamaica. The shift in the use of these cereals to produce fuel instead of animal feed and food for human consumption has caused great shortages and, as a consequence, much higher prices.
Many people fantasise about what Jamaica would have been like if there were no calamitous increases in the price of oil, or decrease in the production of bauxite. A study done by Paul Chen Young and Associates on the Macro effects in the fall-out in the Bauxite/Alumina sector, 1981-1985, concluded that the average growth between 1982 and 1985 would have been 6.57 per cent annually instead of a failed minus .5 per cent per annum. What an enormous difference this would have made!
Others have a simpler approach. They feel that these repeated calamities of international origin which have stunted the Jamaican economy over the past 45 years must be a result of obeah. But still for others, this is not so. The calamities are worse, because "bad luck worse than obeah".
Edward Seaga is a former Prime Minister. He is now a Distinguished Fellow at the UWI. E-mail: odf@uwimona.edu.jm
