Economic outlook - Part II, the JLP

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Following the national election debates The Gleaner asked both main parties to provide documents expounding upon their economic policies. Part I saw the People’s National Party (PNP) respond to our request. What follows in Part II is the response of the Jamaica Labour Party (JLP) …

Wealth creation versus poverty alleviation

The JLP believes that wealth creation as measured by an increase in GDP per capita is the primary means by which to judge economic development in Jamaica. This view does not trivialize other important benchmarks such as poverty, literacy, income inequality, life expectancy, etc. but rather is based on the principle that these metrics can only be addressed sustainably through economic growth. Dr. Davies is on record as saying that poverty is the primary benchmark through which he judges development. Under such a regime, poverty alleviation achieved by the expansion of remittances or social welfare systems is acceptable. While the JLP believes any instance of poverty reduction is cause for celebration, it strongly believes that the long-term increase in standard of living of the Jamaican people can only be achieved by an obsessive focus on growth.

Macro stability is necessary but not sufficient

Both parties have committed themselves to maintain fiscal restraint and macroeconomic stability. The PNP’s economic model however reflects a “market fundamentalist” ideology. Despite the PNP’s false assertion that the JLP wishes to return Jamaica to the policies of the IMF, it is their total faith in the market that is ironically in total agreement with the Washington Consensus. With the exception of a pure floating exchange rate, Dr. Davies has in fact mirrored exactly the policies the IMF would suggest: high primary surpluses, massive cuts in real social spending and high taxes. The only thing he hasn’t done is accept the cheap money that usually comes with these onerous polices. Dr. Davies policy seems to be “the worst of both worlds.” In addition, it is also reflective of a now outdated paradigm in the international economic community that existed in the 1990s. This view has since fallen out of favour, particularly regarding the development of middle-income nations.

The JLP’s model on the other hand is based on the belief that macro stability is necessary but not sufficient for economic growth. In addition to macro economic stability, a responsible and aggressive industrial policy is required to increase total factor productivity and ultimately generate growth. This view is not an endorsement of a “statist” economic model or an attempt to revive the ISI (Import Substitution Industrialisation) or the “picking winners” polices of the past. Rather it is based on a new notion in the international economic community that the government must play an active role in setting industrial policy. For example, the Governments role in helping to overcome specific coordination failures that prevent new industries from starting and which cannot, by definition, be solved by private actors. These industries are those that are export oriented and in which Jamaica is globally competitive. The JLP manifesto not only identifies these industries, but also lays out a less bureaucratic and more pro-active approach to investment promotion in keeping with this ideology.

Are high primary surpluses the only way to reduce the debt burden?

Dr. Davies has said that the only way to reduce debt is to continue to incur onerous primary surpluses. While the JLP agrees that primary surpluses are the main means to reduce debt in the short term, it believes that legal and alternative approaches exist to quicken the pace of debt reduction. The JLP has placed a creative debt management strategy at the heart of its economic model. This strategy consists principally of capping the debt and deficit, using the proceeds of Petrocaribe and securitizations as debt fighting tools, using multilateral financing for specific projects and attempting to forge an agreement with the private sector to lower interest rates. Both parties concede that reducing the debt burden will be difficult, but the JLP has stated definitively that it is the biggest challenge facing the economy and refuses to take any options off the table.

Good governance is an economic issue

The JLP has placed good governance at the heart of its Manifesto. It believes that good governance is not solely a legal issue but is an integral part of economic policy in three clear ways. First, it frees up resources by reducing waste and corruption in the public sector. Second, it insulates monetary policy from politics through the creation of an independent central bank. Third, it reduces Jamaica ’s political risk premium in the international capital markets and therefore lowers interest rates on its external debt. The PNP has a less focused good governance agenda and approaches the issues through a purely legal lens.

Education and healthcare are investments not expenses

The JLP believes that education and health are not merely social expenditure items but are investments in human capital. It believes that the cost of waiting to make these investments at some point in the future is significantly more expensive than the budgetary costs of making these investments in the short term. Since the return on these investments exceeds our cost of financing they should be pursued. This point is especially true if they are financed by multilateral and long dated financing sources. This principle governs financial theory and private capital budgeting decisions and should govern public policy as well. As a result, education and health are viewed as investments designed to generate revenue to the central government and not as social charges. The PNP believes that social spending is an expense to be spent when and if the government can afford to distribute resources.

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