IS THE JAMAICAN ECONOMY DEVELOPING

To set the stage for discussion of this topic it is worthwhile to reflect on whether or not Jamaica does in fact have an economy if we apply some meaningful criteria to the interpretation of that term. A rough and ready definition of a national economy could run somewhat as follows – the sum total of a group of economic units located within clearly defined geographical boundaries, among which the major activities of the overwhelming proportion of such units are substantially integrated with some activities of the other units, and where the activities of all such units can be influenced swiftly and effectively in the desired direction, and to the appropriate extent, by the actions of the national government through monetary, fiscal or direct measures or some combination of these approaches.

Even at a superficial glance Jamaica falls far short of the criteria listed above – partly because of size and partly because of the policies pursued. For example, some of the more productive enterprises are far more integrated with the economies of other countries than with other economic units within Jamaica. A good example of this is the bauxite-alumina complex, which for practical purposes could be treated as a part of the United States economy. Indeed, some of the top authorities on national accounting in the United States have actually advocated that it be treat· ed as such (along with other similar United States owned enclave industries in other countries) in the national accounts of the United States. The industry is entirely owned by Unites States and Canadian capital, and top management personnel is supplied from those countries. It uses Jamaican labour, internal transportation and (in some cases) construction services, but almost all other inputs for the industry come from abroad. It pays taxes on its profits, but the profit figure is arbitrary since the prices of the products have to be guessed at as they are not traded on the market, but simply transferred between subsidiary and parent of the same multinational corporation. As such, profits on the Jamaican end of the operation are believed to be understated.

The bauxite-alumina industry is the most extreme example of the lack of integration between sectors of the economy, but the general principle can be extended to many other activities. For example, many segments of the tourist industry are highly integrated into the United States economy. In that case of the newer manufacturing enterprises established under the incentive laws, many of the firms are subsidiaries of foreign corporations which provide the bulk of the capital, the know-how and the raw materials or components.

Similarly, the banking system has been, and, despite some steps towards Jamaicanization, still is integrated into the monetary system of the metropolitan countries. This is, of course, a reflection of the general state of the economy. It is impossible to pursue an independent monetary policy unless one has a reasonably independent economy. One can assume that as long as me structure of the economy remains the same the banking system will operate in essentially the same fashion regardless of whether or not the Boards of Directors are composed of nationals.

Mention must be made here of the high degree of foreign ownership and control of some key sectors, which ranges from 100 per cent in bauxite-alumina to 40 per cent is sugar and its by-products, 40 per cent of transport, communications, and public utilities combined, about 60 per cent of financial services and 55 per cent of hotel capacity in the tourist sector. Taking the economy as a whole, about 30 per cent of the capital stock is owned abroad, but there is heavy concentration in some key sectors. A very high proportion of this total is from the United States, since it is noteworthy that the movement to­ wards constitutional independence from the British was paralleled by a drastic shift in the source of direct investment from the United Kingdom to North America.

Another relevant factor in this context is m. ‘heavy dependence on preferential trading agreements especially those relating to sugar and bananas. In 1970 the entire agricultural export sector accounted for less than 5 per cent of Gross Domestic Product, and about 6 per cent of the country’s total wage bill. Nevertheless, such is the nature of the economy that the official view is that there is so much labour tied up in these industries that the whole social fabric would be torn asunder if the country lost the preferential treatment which the United Kingdom currently grants to those industries.

It seems fair to say that Jamaica can more properly be described as a locus of production than as a national economy. Originally devoted almost entirely to sugar production, a large measure of diversification has taken place with new activities · bananas, bauxite, tourism, manufacturing etc. being continually grafted on to the old plantation system. Our task is to see whether “development” is taking place, that is, whether the observable trends indicate a movement towards what could properly be regarded as an economy.

The first task is to define explicitly how the phenomenon of economic development is to be measured. A variety of criteria have been suggested by writers on the subject. For some, development is best measured by the growth of aggregate output. Other stress increases in the rate of real investment. Other suggested criteria include the growth of real income per capita and the rate of growth of industrial pro­ duction. These criteria tend to be inter-related but they are not identical, and an economy which satisfies any particular one may not satisfy the others.

Other writers stress qualitative considerations such as the widening of the1ange of alternatives open to people as consumers and producers, or the attainment of a proper balance between “wants” and “activities”. These Qualitative aspects of development are undoubtedly important, and cannot be ignored, but, for economists, they suffer from the defect that they are not amenable to quantitative treatment.

In the literature, the most commonly used criteria of economic development is the growth over time of real income per capita. like any single criterion, this definition has its limitations. The averaging of aggregate real income over the total population neglects the manner in which income is distributed throughout the economy. This consideration assumes a special relevance in the Jamaican context where the available evidence suggests that income is very unevenly distributed. Furthermore, Jamaica has been plagued since the 1930s by the problem of chronic unemployment of a relatively large part of the labour force. In such a situation, any meaningful discussion of economic development must involve an examination of the ex­ tent to which the expansion of the economy has been accompanied by the absorption into productive employment of the unemployed and of new recruits to the labour force.

Of the available definitions of economic development, the one which seems most appropriate for our purposes is that outlined by Demas who stresses three essential features. The first concerns a sustained increase in per capita income. The second has to do with the internal generation of sufficient domestic savings to maintain the growth rate. The third – and possibly most important relates to the transformation of the structure of production. In this connection, structural transformation involves changes such as the reduction of dualism in the economy, the forging of inter-sectoral linkages, a relative decline in the importance of trade, and the reallocation of factors of production in accordance with changes in the relative productivity of different sectors and in the composition of demand.

Let us look first at the growth of real income per capita, which, as indicated above, is important but not conclusive as an indicator of development. We are here concerned with national income and not with Gross Domestic Product, since we want to exclude those portions of production which are used to make good the depreciation of the capital stock or accrue to foreign owners of factors of production located in Jamaica. Second, we are concerned with measurement not in current prices – which includes the influence of inflation but in constant prices, since the aim is to estimate the growth of real production (or income). Third, we deal in per capita terms: since changes in population have to be taken into account as well as changes in production.

As far as the growth of real per capita income is concerned, Jamaica’s performance during the post­ war period has been noteworthy. Between 1950 and 1968 average real income grew at the rate of 4.3 per cent per annum. This has to be viewed against the background of a situation where average real income actually stagnated between 1938 and 1950. Starting from a fairly low base in 1950, average real income · grew at the rate of about 7 per cent between 1950 and 1955. Since then there has been a decline in the rate of growth for successive five year periods. For 1955 to 1960 it was 3.7 per cent, for 1960 it declined to 3.4 per cent, and for 1965 to 1968 it was 2.1 per cent.3 Final figures for 1969 and 1970 are not yet available but estimates derived from the data for national income at current prices and the rate of change of the consumer price index do not indicate any major reversal of the trend. In other words, the figures for the growth of average real income for the period as I whole am good but depend heavily on the spectacular success s of the earlier period. The momentum has not been maintained in the more recent years.

When we turn to discuss the distribution of the gains from the growth of real income we ere on less firm ground. It is impossible to get good comparative data for income distribution in Jamaica. The only published survey on income distribution was based on figures for the ·;ear 1958, and that survey showed that the top 5 per cent of households accounted for 30 per cent of the country’s total household income, and the top 10 per cent of households accounted for 43 per cent of income, while at the lower end of the scale 60 per cent of the households shared 19 per cent of the income, With regard to the inequality of income distribution, the country was said to fare badly by international comparisons.

We do not have any compan1ble figures for a later year, but we do have some indicators which can show whether there is likely to have been any drastic change in the overall pattern over the years. One such indicator is the breakdown between rural and urban incomes. It seems clear that one of the major reasons for the maldistribution of household income in Jamaica is the divergence between the proportion of the population who make their living from agriculture and the proportion of national income which accrues from that sector. It is instructive to observe the trend over the years. In 1943 about 45 per cent of the labour force was in agriculture and it provided about 30 per cent of the country’s Gross Domestic Product. In 1960 the ratios were 40 per cent and 12 per cent, respectively, and in 1968 they were about 35 per cent and

10 per cent. Even by this crude measure it seems obvious that there has been a severe widening of the gap between agricultural and non-agricultural incomes during the post-war period. Even if we allow for the fact that some persons working in agriculture supplement their incomes from public works etc. it is nonetheless true that average incomes in agriculture are only about one-quarter of the national average.

But even within the agricultural sector there is a markedly uneven distribution of income arising mainly from maldistribution of its basic resources, viz., land. In 1968, 78 per cent of the “farms” averaged 1.8 acres each and accounted for 15 per cent of the total farm acreage. At the other end of the scale one-sixth of 1 per cent of the farms averaged 2,293 acres each and occupied 45 per cent of the acreage. The following situation in the sugar industry is not atypical. In 1965, approximately 55 per cent of all cane produced by independent cane farmers was supplied by 235 farmers representing 0.8 per cent of the total. On the other hand, 16,640 farmers (59 per cent of the total) accounted for 15 per cent of farmers’ cane. Such data serve to highlight the vast differentials even within agriculture, the main problem sector.

There are, of course, other causes of the mal· distribution of income. First, there tends to be a heavy concentration of the major productive units outside agriculture in relatively few hands. A high proportion of the most important enterprises are totally or mainly foreign owned and lead to substantial leakages of income abroad. But if one focuses attention on the locally owned enterprises one also finds a heavy con­ centration of ownership. One has only to look at the directorate of the companies which are listed on the Jamaica Stock Exchange to get an indication of the extent to which a few individuals or families tend to control the major enterpri5es which are locally owned. Quite apart from the effects on income distribution, the interlocking directorates provide ample opportunity for price-fixing arrangements which have implications for the cost-of-living index. Of course, the stock market is a mechanism for making shares in companies available to all who are able and willing to purchase them. But the purchases of stock implies the ability to save, and this ability is positively correlated with income level. The stock market is therefore a poor device for redistributing income.

The functioning of the educational system to· gather with the internationalization of segments of the labour market are also important factors contributing to the uneven distribution of income. About 9 to 10 per cent of each age cohort currently enters secondary schools and only a fraction of 1 per cent goes to university. The wastage from the school system is so high that only about 3 per cent of the age cohort emerge with at least one O level pass. With technical education lagging behind the needs of the economy, skills are at a premium and those who command them operate in a seller’s market. The dis· parity in wage rates between skilled and unskilled is further aggravated by the immigration policies of the United States and Canada which have. within recent years, been absorbing relatively large numbers of skilled personnel.

This brings us to the business of employment. Nowadays a growing number of countries put a high premium on the provision of employment for their populations. In most of the industrialized countries, when unemployment rises to about 4 per cent it becomes a crisis situation. In Jamaica we seem to have learned to live with rates in the v1ci’nity of about 20 per cent. Even though there has been a relatively rapid rate of increase of production employment has not kept pace with a resultant tendency towards an increase m the rate of unemployment. Some indication of the nature of the problem can be gained by looking at the matter in historical perspective. The Census data of 1943showed an unemployment rate of 25 per cent. By 1960 this had fallen to about 13 per cent. Despite the rapid rate of growth of the economy after 1950, the decline in the rate of unemployment was due not so much to an increase in employment opportunities but to heavy migration of adults to the United Kingdom before that country started to close its doors in 1962.

Between 1950 and 1960 the country exported about 123,000 people – most of whom were m the labour force. The preliminary results of the 1970 Cen­ sus hc1s cast doubts on the earlier estimates of net emigration for the period since 1960. Estimates for the period 1961-1968 now range between 150,000 and 220,000. Whichever figure is accurate, it is clear that emigration has continued to run at a reasonably high rate despite the slowing down of the trek to the United Kingdom. This has resulted from more liberal immigration policies m the United States and Canada, aimed mainly at the skilled. The indications are that children have accounted for a higher proport ion of emigrants since 1962 than previously. Nevertheless, emigration of adults has been substantial. Despite this however, unemployment appears to have been growing. No official statistics have been published in Jamaica since 1960. But such guesstimates as are available suggest a rate of about 20 per cent in 1968. In other words, if this figure is correct – or even nearly so · unemployment has been rising since 1960, and after nearly 20 years of unbroken economic progress the level of unemployment seems to be heading back to the crisis levels of 1943.

The problem of measuring unemployment in countries such as Jamaica presents many problems because of factors such as the seasonal nature of many occupations. The method of simply counting heads at some given time of the year is almost certain to overstate the extent of employment in terms of some\ definition of “full-time equivalents”. Even ignoring the under-employed, i.e., those who are ostensibly fully employed, but at miserably low levels of productivity, the seasonality of unemployment might account for effective unemployment of another 20 per cent of the labour force. The waste of human re­ sources is enormous.

The reasons tor structural employment of the type being faced by Jamaica are well known and we need only mention them briefly here. In the first place, there 1s the capital intensity of the new industries which borrow from abroad technology designed to service the needs of economies such as the United States which are normally short of labour. Another reason has to do with our taste patterns which ar4l copied from abroad and which in most cases are in­ capable of being satisfied from presently known domestic resources. The major expert industries which provide the foreign exchange for satisfying these imported tastes have in most cases been shedding rather than absorbing more labour, and when we try to produce the imported goods at home the leakage is quite large, because the bulk of the raw materials and/ or components continue to come from abroad and only a small part of the gross value of this product accrues as income (and employment) to the domestic economy. Furthermore, the fragmentation of the labour market and the wide gap between remuneration for similar work in different industries leads to a demonstration effect which makes some persons disinclined to work for industries which, for whatever reason, pay the lowest levels of wages, especially · where, as in the case of cutting of sugar cane, the work is both strenuous and of low status.

Among the criteria for measuring economic development listed earlier was a decline in the importance of trade in the economy. This is, of course, problematic in the context of a small economy with a limited range of resources. It is instructive to look at the trend in Jamaica with regard to the propensity to import. If we go back as far as 1830, we find that imports of goods and services as a percentage of total supplies (i.e. Gross National Product plus Imports) was in the vicinity of 19 per cent. By 1930 it had risen to 23 per cent and in 1970 it was as high as 37 per cent. The country seems to be getting more dependent on imports all the time. This is not completely surprising since investment has been rising as a proportion of Gross National Product, and a very high proportion of capital goods are imported. Furthermore, given the taste patterns of the community, some of the consumer items with the highest income elasticities of demand, such as consumer durables, are imported. On the other hand, imports of food have expanded much faster than was necessary because of failure to get the agricultural sector properly organized.

The relatively rapid expansion of imports has been made possible, in part. by the growth of the new export sectors such as bauxite-alumina and tour­ ism which have expanded rapidly in the post-war period. Another crucial element in the expansion of imports has been the relatively heavy borrowing from abroad which has enabled the country not only to cover the growing deficit on the current account in the balance of payments, but even to add continuously to its foreign exchange reserves. By borrowing we do not here refer only to loans negotiated abroad at fixed interest by the public. and private sectors, but also to capital inflows in the form of direct investment in various sectors of the economy.

This leads naturally on to a discussion of another aspect of structural transformation, viz ., the generation of sufficient savings from internal sources to maintain a safisfat.1:0, y rate of growth of production. In this connection, hinterland economies such as that of Jamaica are on a sort of treadmill. At low levels of income, they need to draw on the savings of foreign countries. But the dynamics of the situation are such that the dependence on foreign investment tends to become chronic. For example, Jamaica and the rest of the Caribbean have been dependent on foreign capital for three hundred years, and we are now being told by most governments that our need for it is as great as ever.

The nature of the problem is as follows In most economies the bulk of savings comes not from the savings of households but from that of firms – whether they be publicly or privately owned. In Jamaica foreign firm5 tend, by and large, to go into some of the most profitable industries. As such, a large proportion of the surpluses generated within the economy accrue to such firms in the form of profits and depreciation allowances. To the extent that the surpluses earned by foreign firm, are remitted abroad they are lost to the economy. If they are reinvested in the economy, the foreign sector simply swallows up a larger share of the economy, paving the way for even larger exports of profits in the future, as well as placing a larger share of economic activity outside the control of the population.

Some analysts, while recognizing the dangers of growing dependence on foreign investment, urge that we save enough to be able to acquire these assets . It is true to say that there is too much ‘luxury consumption in Jamaica, and that domestic savings can be increased somewhat out of current income levels. But it is impossible for households and domestic firms to save enough to finance normal investment needs as well as to purchase anything more than a token share of the foreign-owned sector. The current programme of Jamaicanization which operates along such lines is unlikely to bring about any substantial change in the proportion of the country ‘s capital stock which is foreign owned. One possible solution to the problem, and which is increasingly being adopted by Third World countries, is the acquisition of a substantial share of the foreign owned sector on the basis of payment out of future profits, especially where the enterprise has already recouped 1ts initial investment many times over.

In Jamaica the outflow of investment income during the period since about 1950 has. not been far short of the inflow of capital. Reducing the outflow of profits lessens the need for capital inflows. Foreign capital will still be needed in some sectors, but in those cases direct investment should be avoid ed as far as possible (since repayment for this never ceases) and emphasis put on loan capital which will eventually be repaid. Even more important than the national accounting approach which focusses on the loss of income through profit outflows are the implications for control of the economy.

Another aspect of structural transformation has to do with the development of an increasing degree of interdependence among the different sectors of the economy. The forging of forward and backward link­ age within the structure of production is an essential ingredient of the process of economic development. In the Jamaican case progress in this direction has been very slow. This is due in some respects to the disparity between the taste patterns of the community, which are largely formed by external influences, and the production possibilities as given by the very skewed resource base and imported technology. In such circumstances, industrialization is based largely on import-substitution which, in most cases, means “finishing touch” industries where raw materials and components, which account for a high proportion of the value of the product, continue to be imported, since, in the given situation, they cannot be supplied from domestic resources.