Once in my working life at the Bank of England I had responsibility for a team that looked at economic development in English-speaking Caribbean countries. I got into a professional bind by arguing, against the official policy line that devaluation was to be supported as a way of easing Jamaica out of its economic woes. I argued, based on my understanding of how Jamaica had worked for decades, that while one side of the devaluation equation worked, the economy was titled in a way that meant the gains would go out on the other side: we imported more than we exported and the balance of that meant higher net costs but without the needed gains that could come from a more competitive exchange rate; we also had lots of tied contracts in bauxite that were not sensitive to exchange rate changes. My other reasons were based on ‘cultural senses’ that Jamaicans were not going to change habits fast enough to make exchange rate shifts work quickly; that was part of the truth but also reflected that fact that jinnalship meant Jamaicans were as likely to find ways around the change, eg by making use of remittances more (which, being in foreign exchange, meant full protection). I did not win the internal debate at the Bank, and my career did not tailspin. Fast forward.
Jamaica has done what many economists would see as the ‘right thing’ in recent years in dealing with the long-standing issue of a bloated fiscal deficit and its debt burden. Now, that improvement can be an important necessary condition, but is not sufficient, to use economics jargon. It’s also allowed the exchange rate to be ‘flexible’, or depreciate in visible terms.
What economic policies are supposed to do is to change the way that ‘economic agents’ operate, based on certain assumptions about behaviour. What has so often been the problem with Jamaica (and many other countries) is understanding how people react and if they react in unexpected ways, how to taper policies so that the desired effects are still achieved.
One thing certain about curbing fiscal excesses is that less money will slosh around between political powers and private people: that’s simple maths. That squeeze may have some negative economic effect, but it may be less if the previous beneficiaries find other ways to operate and make money.
Similarly, with the exchange rate depreciation, significant numbers of people and businessmen are not totally exposed and can draw on foreign exchange buffers or substitute domestic items for imports enough to get by.
The problem with all of this is that some of the things needed to change economic behaviour are not in the hands of economic policy makers.
A simple example. Interest rates are meant to offer incentives to save (and by extension, to spend). Now, if people are fearful of banks (for whatever reasons) changing interest rates in the banking system does not affect behaviour much because people stay away from the system where interest rates matter. So, one of the first steps in this instance is to get over people’s fears and dislike of banks and other financial institutions. That is a matter of education and life experiences; the life experiences may have deeper roots than education can uproot, so it’s a hard battle to just ‘teach’ people about the benefits of banks. No sooner have the lessons been learned than a ‘disaster’ occurs when many people (and friends) lose money deposited in banks. The old suspicions resurface and new fears arise. So, the battle is nearly or totally lost. However, economic policy makers have few tools, of which interest rates are one. Stuck.
When I look closely at Jamaica, I’m as perplexed as I ever was why somethings don’t change or change at the pace at which a snail sprints. I have to wonder if it’s something engrained, like ‘in the water’ or ‘in our food’, which are sort of intangibles. So, in that vein, is it ‘in the people’?
All the macroeconomics are undone easily by a microeconomic set-up that does not correspond well to many standard ways of thinking about economics. Part of me sees this as a curse, but it has also been a boon.
The curse is that all the pulling of the macroeconomic levers don’t give the expected results. We know this, for sure, in Jamaica! The good part is that Jamaicans have found ways to overcome economic ‘problems’ and found many different ways to ‘survive’. Now, a key part of that survival is about not staying within all the legal lines that exist. That is one of the binds that stop me clapping every time I think about how Jamaica has not imploded. If the world were full of ‘wild West’ countries and anarchy was the mark of success, then Jamaica would be hailed, I’m sure.
What is more puzzling to me over recent times, as I’ve had more chance to see life lived in Jamaica, is how many of the microeconomic quirks are not restricted to any social class. We’ve carved out a way of life that makes the most wealthy and best educated less different from those at the other end of the scale than wide wealth and education differences usually mean.
Monetary gains and losses do drive how Jamaican people act but in some odd ways:
- Businesses do not strive to be the best as a way of ensuring their financial success; many are content to just do what they do; customers like it or lump it. This is not abnormal in many economies, but usually means the demise of enterprises. That is not the case in Jamaica, which means that businesses must be surviving WITHOUT business.
- Time is (near) meaningless: if time is money in most people’s minds, it doesn’t have that connotation for many Jamaicans. (It’s one way of rationalizing why Jamaicans don’t see timeliness as important, because they have somehow given time zero value. As a fellow blogger pointed out to me today, saying ‘7.05’ means ‘sometime before 8’ to a Jamaican 🙂 ) But, economically, if money doesn’t matter (in the normal flow of events) then value must have ways of being preserved that are not apparent.
- Attention spans are short, but ‘memories’ are long. Many Jamaicans will have ‘ready reactions’ to any phenomenon, but barely want to analyse what is really going on. (This is reflected in the way that ‘news’ and ‘events’ are reported–much of the ‘What’ and little of the ‘Why’.)Many Jamaicans live with the illusion of things being better in the past–despite lots of evidence to the contrary or no means of really comparing. What’s funny about that is that people will talk about the ‘good old days’ but do nothing (much) to recreate those times. I’ve yet to see a Jamaican ready to give up the motor vehicle, access to running water and (near) constant electricity, or the telephones, as part of the step back in time that is needed 🙂
- Distortion is the norm. At its worst, this is all about corruption. Transparency International defines this as: ‘Corruption is the abuse of entrusted power for private gain. It can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs.’ The Merriam-Webster Dictionary puts it more simply: ‘dishonest or illegal behavior especially by powerful people (such as government officials or police officers): the act of corrupting someone or something.’ My take is that ‘powerful’ has to be scaled down to include anyone who has influence over others, which means that many more are actually in the position to be corrupt and do corrupt things. The fact that the deeds are common or long-standing doesn’t change their nature. This is something that the integrity of Jamaicans often does not understand or accept.
The first three bullets point to the impact of ‘hidden economic activity’ that may be a principal or not trivial part of many people’s lives. I hope the economic logic of that is clear. The last bullet is different, as it points squarely to what ‘government’ does, more than other parts of the economy. It bothers me more than other things, because we have a country where many monetary flows are opaque, at the level of government, where transparency and accountability are supposedly built-in to protect ‘the people’. Without dredging through Archives we find too many stories such as reported last week about hay: Millions Down The Drain In Hay Project. The extracts say enough:
- ‘…financial mismanagement and lax oversight uncovered…
- ‘In reference to the proposed revenue that was forecast, the project revenue is at a deficit of -$17,492,750,’ the auditors wrote…’At Bodles, they reported that no records were being maintained for the production of hay between April 2014 and December 2015. For the first six months of 2016, the audit found that 1,329 bales of hay were produced at both facilities, compared to a projected 54,000 bales.’
The average Jamaican lives with the sense that government is full of corruption and reacts with feigned or little surprise at stories such as these. The real surprise is really that such ‘malfeasance’ goes on undetected in many realms and for extended periods. But, as I’ve said before, corruption is so entrenched that its total beneficiaries are far more numerous than those who are not. If you don’t believe in ‘trickle down’ economics, then you wont understand how the ‘feeding tree’ of Jamaica misappropriation of public funds works. Everyone gets to eat because of someone taking money that is not truly theirs to distribute. To break that system is to break the society.
In that sense, our pervasive corruption is worse, in my eyes, than the corruption often seen elsewhere, where a very limited pool of ‘elites’ benefit. In Jamaica, almost everyone’s life depends on it.
Institutions like the IMF know that it’s not just the economic policy levers that need to be turned to fix the economy. However, the Fund cannot enforce changes in areas outside its mandate. Its structural policies must still stay within its ambit, so it tries to go to the limits but cannot go further. To get the whole of a country change economically requires a government to be committed to putting in place a wide swathe of policy changes that go in the same direction as the desired economic policy. In other words, it must have complentatry meaures to support the economic ones. Government must also fix itself by weaning itself away from some or all of its bad habits, such as evidenced by the ‘hay project’ fiasco. That is much harder than may appear in countries like Jamaica, where (as I have said, repeatedly) have built themselves on ‘rent-seeking’ behaviour. That has to stop and maybe unwound. Like taking out a thorn, it cannot be done without pain (real, imagined, or both).
Government ‘fixing’ itself is both direct and exemplary: how many countries can progress if government is seen to practice things it says it is against? Also, government must change first and fast.
Jamaica is not alone is struggling to get its economic act together. Jamaica is also not alone in terms of countries that have struggled economically then made a major forward turn. However, it takes time, consensus, and coherence in policies.
Getting the macroeconomy right is only a step on this journey, rather than the journey, itself. I’m not sure Jamaicans understand that.