I began this week determined to write about the Jamaican dollar. Instead, I was shocked and jolted out of my concern for the exchange rate by news that Jamaicans were being thrust into the dark ages by an American lady with striking blond hair.
JPS did not throw in the towel in its fight to deal with electricity theft, instead it threw out the baby with the bath water, soaking everyone when it pulled the plug on a well-known and too-much tolerated practice. “Mummy!” cried a lot of paying customers. In came the caring parent to see what was wrong, and she calmed the crying child, and tried to shoo away the boogie (wo)man: “Oh, Kelly!” West Beverly’s lyrics seem so apt:
A little bit wrong means mostly right
I didn’t mean to p*** you off
I’ve found that you can be too honest,
Bright-eyed butterfly just took off
Clearly, Beverly was talking about Jamaica, because the song has other apt references:
I know I cut us short, but that’s
Just because I knew that I wasn’t fair
I’ve found that you can be too diligent,
I’m sorry and thanks a lot
I can’t believe you stood me for so long
You helped me find some balance in this world
I know I pulled the plug
That’s eerie. So, thanks Kelly for diverting my attention from the sliding dollar.
But, like all real problems that go unsolved, the dollar’s slide is still there. Over the weekend, one of the Sunday columnists, businessman Claude Clarke, went to look at the ailing patient and wrote about many of the points that I had in my head, in his piece entitled ‘The devaluation dilemma‘. He made two telling points:
- The question is not whether we should have a fixed or floating exchange rate. The real question is whether there are policies to maintain competitiveness once it is achieved. And because competitiveness cannot be achieved without reducing domestic costs, devaluation is a legitimate strategy to achieve it.
- The question our leaders must address is whether they are prepared to leave the country trapped in its pattern of pointless devaluations, delivering pain without competitive gain. And if they aren’t, will they be bold enough to devalue sufficiently and swiftly and combine the devaluation with effective cost-containing policies that will make the benefits stick.
Now, I appreciate what Kelly did. She focused our eyes on a part of the problem with the exchange rate. Jamaica is a highly uncompetitive economy. JPS shows that clearly by charging US$0.42 per kWh for electricity. That is an industry-killer in the modern world. If that were halved, we’d be where many industrial countries are. We link the exchange rate back to the story of the preceding week–Energy World International and its licence–and the prospect of life-giving electricity at just over US$0.12 per kWh. High costs are part of the uncompetitiveness equation; its other main part is low productivity.
The exchange rate has been trying to bridge the gap between us and the rest of the world in terms of lack of competitiveness. But, as Mr. Clarke pointed out, the numerical value of the exchange rate cannot do it alone. Its fall should make the cost of what we offer the rest of the world less. It should also encourage us to consume less from abroad, because imported goods and services become more expensive. This is the standard economics argument. But, Jamaica has once again messed up the thinking. We seem to not respond in that standard way, or at least not as fast as expected or needed. So, we live with higher costs but seem reluctant to change behaviour fast or long enough for the exchange rate to be able to take a breather and stabilise.
Kelly also focused our eyes on the productivity part of the problem. It’s an open secret that a significant part of Jamaica’s population have been given a diet of welfare which we cannot afford. They have been led to believe that they are entitled to a range of services free-of-charge. The cost of that was borne by the rest of the country through the government’s budget deficit, and on the balance sheets of public utilities–both electricity and water providers are close to insolvency. That entitlement culture was created and sustained by politicians. We have all been made poorer by it. So, the scrabbling around for foreign loans is the backwash that comes from that sort of ‘living beyond your means’.
I get sick and tired of people wanting to blame the IMF for something that Jamaican governments and politicians did wilfully over decades. It’s a crock. Own your problem! Then, you can address it. The IMF never took loans and grants and put that money to bad use. The IMF did not offer people freeness for which it could not pay. The IMF did not hamstring enterprises from collecting on obligations. That was the work of Jamaican public officials.
Malfeasance is a word whose sound I really like. But, it has some wonderful synonyms. Here’s just a selection of common-or-garden words that get to the same point (I highlight some of my favourites). Crime, malefaction, misdeed, misdemeanor; sin, transgression, trespass, wrong; malpractice; goings-on, hanky-panky; familiarity, gaffe, impropriety, indiscretion;blunder, error, fault, flub, fumble, goof, lapse, miscue, misstep, mistake, slip, slipup, stumble. Pick the ones you like.
A sad reality about economics as we understand it, is that it all has to add up. If there is a gap somewhere, it has to be filled. The system has to balance and the whole set of numbers closed. Put simply, if all the economic agents in a country are in deficit, the rest of the world has to provide some surplus to help us get in balance. Often, we find that within a country, some part (e.g., government) is in deficit and other parts (private enterprises or private persons) have surpluses that can help get the country in balance. That’s what all the fancy talk of ‘budget deficit financing’ and ‘balance of payments deficit and financing’ is really talking about.
It’s also sad that few things are really free (besides the air we breathe, usually): a price is there, somewhere, and the questions are who will bear it and when. Cynics say that governments love to pay late(r). So, we often see that government is pushing costs off into the future. At best, they can be dealt with by successor governments; at worst, the same government will pass on the costs into the future again. But, the bills have to be faced sometimes. That’s what Jamaica is now having to do in a punishing way: the debt burden at around 140 percent of GDP (in other words, our debt is way above what we earn) needs to come down sharply, and that can only happen if we create budget surpluses to help pay it down. But, we are in a trap. The exchange rate needs to decline to help us be more competitive, as part of the move to be able to earn more to pay down the debt. But, much of the debt is denominated in foreign currency, so the falling exchange rate means the debt in J$ terms keeps rising. We are a like Sisyphus: ‘punished for chronic deceitfulness by being compelled to roll an immense boulder up a hill, only to watch it roll back down, and to repeat this action forever‘.
Much of this is not easy to explain to people, which is a great pity, because they need to understand.
Many social problems persist because the people mired in them do not have a good understanding of how they contribute to the problems. I understand what poverty means and how hard it is to get by with no income. It is a panic-inducing state to have to pay for things with money you do not have. You want to hang on as long as possible without paying, if you understand that you are supposed to do that. Some people do not understand that–it’s learned behaviour, not burned into our DNA. So, using guilt or moral suasion is not the way to go. People need to be sat down, and walked through what their actions mean. Then, comes the harder part, getting them to act the way we want. Encouraging non-payers to pay is the way to go. Getting them to pay consistently is what we want to achieve–without their falling into debt or their lives going into a shambles because they cannot budget and pay bills but do not cut down on other spending.
That’s where people start to shed tears. Poverty is a hard state to be in. Having gotten out of it, even with unreal freeness, people dread its return. How to convince people to do without is going to be a big challenge. We can be all-intellectual and talk about the need to get rid of big freezers, flat-screen TVs, and other appliances that are not essentials, but people have seen these as part of normal life and depend on them. Yes, they should be hauled away, but at what price? I cannot believe that relative social calm has existed in Jamaica through so many years of economic stagnation except through the sugar-coating of it through this ‘welfare’. Take it away, and those standing ‘naked and afraid’ are likely to make the rumbling noise of a volcano that is about to erupt. That’s a frightening sound. But, the damage the eruption leaves behind is worse–much worse.