Reclaiming Development : independent thought and Caribbean Community 9766371431, 9789766371432, 9781459322783, 1459322789

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RECLAIMING DEVELOPMENT

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RECLAIMING

DEVELOPMENT Independent Thought and Caribbean Community

Kari Levitt

Ian Randle Publishers K

m m

Published in Jamaica 2005, by Ian Randle Publishers 11 Cunningham Avenue Box 686 Kingston 6 www.ianrandlepublishers.com © Kari Levitt National Library of Jamaica Cataloguing in Publication Data Levitt, Kari Reclaiming Development : independent thought and Caribbean Community / Kari Levitt p. ;

cm.

ISBN 976-637-143-1 (pbk) 1. Caribbean Area - Economic Conditions 2. Caribbean Area Politics and Government 3. Caribbean Community countries 4. Globalization 5. Jamaica - Economic Conditions 6. Jamaica Politics and government I. Title All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, photocopying, recording or otherwise, without the prior permission of the publisher and author.

Cover and book design by Shelly-Gail Folkes Printed in the United States of America

Contents List of Tables / vi Abbreviations and Acronyms / vii Introduction / ix Part I - 500 Years of 'Globalisation': The Old and the New 1. 'Capitalism and Slavery': Institutional Foundations of Caribbean Economy / 3 2. The Plantation Economy Models: My Collaboration with Lloyd Best / 35 3. In Search of Model IV / 60 4. The Persistence of the Plantation Legacy in Contemporary Jamaica / 69 Part II - Post-Mortem on Debt and Adjustment 5. Facing Up to the IMF in Trinidad and Tobago / 93 6. The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990/109 7. Debt, Adjustment and Development: A Perspective on the 1990s / 183 8. The 'Lost Decade' of the 1980s / 212 Part III - The Michael Manley Legacy 9. Democratic Socialism in Jamaica: Manley's Defeat — Whose Responsibility? / 239 10. From Socialism to Neo-Liberalism: The Michael Manley-Kari Levitt Letters / 257 11. Lessons of the Seventies for the Next Generation/7311 Part IV - The Right to Development 12. 13. 14. 15.

The Right to Development: The W.A. Lewis Legacy / 327 William Demas: Primus Inter Pares / 349 Reclaiming Economics for Development / 355 Building Bridges Across the Caribbean / 369

Appendix/7381 Notes / 386 Index / 401

List of Tables

Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table Table Table Table

9 10: 11: 12:

Table 13: Table 14:

Table 15: Table 16:

Jamaica: External Debts and Debt Service / 111 Medium and Long-Term External Public Debt of Jamaica by Borrower Category / 112 Debt Transactions with Official Creditors 1981-1988 / 114 Debt Transactions with All Creditors 1980-1988 / 116 Facing the External Resource Gap by Five-Year Periods 1970-1989 / 119 Debt and Adjustment in the 1980s / 126 Food Costs and Minimum Wage 1979-1989 / 157 Nutritional Status of Children Attending Public Health Clinics 1980-1987 / 159 Unemployment Rates by Sex / 163 Unemployment Rates by Head of Household / 164 Unemployment Rates by Selected Age Groups / 165 Real Per Capita Outlay on Health and Education, 1979-1987 / 167 Percentage of Public Expenditure on Health and Education / 168 Admissions of Children 0-59 Months with Malnutrition and Malnutrition-Gastroenteritis at Bustamante Children's Hospital, 1978-1985 / 171 Poverty-Related Illnesses 1980-1987 / 171 The Fiscal Burden of Debt Service, 1990 / 179

Appendix Table 1: Table 2: Table 3:

Jamaica: Balance of Payments in the 1970s and 1980s / 383 Debt Transactions with Official and Private Creditors / 384 Medium and Long-Term External Public Debt of Jamaica by Creditor Category / 385

Abbreviations and Acronyms

ACE ACP ACS ALCAN BBC BIS CARICOM CARIFTA CBI CD CDAS CEO GET CFF CIA CIDA COMECON EAI ECLA ECLAC EFF ESAF ESOP FDI FINSAC FTAA GATS GATT GCT GDP GFS GNP HDI IADB IBA IBRD IDB

Association of Caribbean Economists African, Caribbean and Pacific Association of Caribbean States Aluminium Company of Canada British Broadcasting Corporation Bank for International Settlements Caribbean Community Caribbean Free Trade Association Caribbean Basin Initiative Certificate of Deposit Centre for Developing Area Studies Community Enterprise Organisation Common External Tariff Compensatory Fund Facility Central Intelligence Agency Canadian International Development Agency Council for Mutual Economic Cooperation Enterprise of the Americas Initiative Economic Commission for Latin America Economic Commission for Latin America and the Caribbean Extended Fund Facility Enhanced Structural Adjustment Facility Employee Share Ownership Plan Foreign Direct Investment Financial Sector Adjustment Company Free Trade Area of the Americas General Agreement on Trade in Services General Agreement on Tariffs and Trade General Consumption Tax Gross Domestic Product Generalised Food Subsidy Gross National Product Human Development Indicator Inter-American Development Bank International Bauxite Association International Bank for Reconstruction and Development Industrial Development Bank

IFI IMF ISI ITO JCTC LDC LSE MDC MIDA NAFTA NHT NIC ME NIEO ODA OECD OECS OPEC PRGF PRIDE PSOJ RADA SAL SAM SAP SDR SECAL SNA TFP TNC TOJ TSNA UNDP UNICEF USAID UWI WDR WIR WTO

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International Financial Institution International Monetary Fund Import Substitution International Trade Organisation Jamaica Commodity Trading Corporation Least Developed Country London School of Economics More Developed Country Micro Investment Development Agency North American Free Trade Area National Housing Trust Newly Industrialising Country Newly Industrialised Economy New International Economic Order Official Development Assistance Organisation for Economic Cooperation and Development Organisation of Eastern Caribbean States Organisation for Petroleum Exporting Countries Poverty Reduction and Growth Facility Programme for Resettlement and Integration Development Enterprise Private Sector Organisation of Jamaica Rural Agricultural Development Agency Structural Adjustment Loan Social Accounting Matrix Structural Adjustment Programme Special Drawing Right Sector Adjustment Loan System of National Accounts Total Factor Productivity Transnational Corporation Telecommunications of Jamaica Trinidad and Tobago System of National Accounts United Nations Development Programme United Nations International Children's Emergency Fund United States Agency for International Development University of the West Indies World Development Report World Investment Report World Trade Organisation

Reclaiming Development

Introduction

Most of the papers presented in this volume were written on the Jamaica campus of the University of the West Indies where I was teaching at the Consortium Graduate School and the Department of Economics from 1989 to 1997. Others were written in Montreal and Trinidad, where I have lived and worked since that time. The papers were mainly delivered at workshops and seminars in Trinidad, where the intellectual climate was more conducive to debate and the Economics Department less dominated by neo-classical doctrine. My approach to Caribbean economic problems has been historical and institutional. I have attempted to view them in the larger perspective of international political economy. Since my first encounter with the West Indies in 1961, I have been in constant contact with colleagues and students in the region. In 1974, I was visiting professor at the Institute of International Relations in Trinidad and in 1978 I was visiting professor of economics in Jamaica. Extensive experience in statistical requirements of development planning in Canada contributed to my collaboration with Lloyd Best in conceptualising Caribbean economy on its own terms. From 1969 to 1973 I designed a new system of National Economic Accounts for Trinidad and Tobago, as a database for economic planning. A constant theme has informed my work for the past 30 years although the context has undergone dramatic change. It is my unwavering conviction that development, whether of individuals or nations, must be rooted in time and place, and cannot be imposed by external prescription. For the past 20 years the developing world has been adjusting to the agendas of the IMF and the World Bank. In the 1990s Structural Adjustment Programmes were repackaged and marketed as the coming of a golden age of globalisation, promising benefits to countries that adopted neo-liberal policies. Whether by conviction or the apparent absence of viable alternatives, Caribbean governments have implemented policies of deregulation, liberalisation and privatisation. However, it is my considered opinion — expressed on several occasions throughout the region — that Caribbean intellectuals were too quick to embrace globalisation and

too ready to concede the end of national sovereignty. Globalisation is nothing new to the Caribbean; the islands and the littoral of the Caribbean Basin were places where British, French, Dutch and other European adventurers, planters and merchants cultivated an export crop with slave-labour transplanted from Africa and indentured Indian workers seeking escape from the poorest regions of the sub-continent. Enormous wealth was extracted from the soil and the toil of generations of Caribbean peoples. In a paper presented at a conference marking the 50th Anniversary of Dr Williams's Capitalism and Slavery, we review globalisation in historical perspective. 'Capitalism and Slavery: Institutional Foundations of Caribbean Economy' traces the legacy of the incorporation of the Caribbean into the world economy as a colony of exploitation, since plantation slavery. In the early 1990s the engines of world growth stalled. Developing countries were pressed to open their economies to goods, services and investment. Trade openness became a new dogma and success in adjustment to globalisation was measured by an increase in the ratio of trade to GDP. These export-oriented development strategies have resulted in impoverishing competition, as excess supply has produced declining prices in primary commodities and cheap labour manufactures. There is no evidence that trade openness, in and of itself, has generated economic growth. The East Asian countries were successful in the export of manufactures and able to move up the value chain to develop more sophisticated products because they had a coordinated strategy of industrial and agricultural development, including directed credit and controlled access to foreign exchange. Liberalisation conditionalities are extinguishing these options. It is time to reclaim the right to development and the right of nations to engage in the international economy on their own terms. This implies an international rule-based order, which permits space for member countries to follow different and divergent paths to development, according to their own philosophies, institutions, cultures and societal priorities. When I was invited by the Central Bank of the Eastern Caribbean to deliver the Sir Arthur Lewis Memorial Lecture in St Lucia in 2000, I recalled Lewis's doubts regarding negotiations to create a New International Economic Order (NIEO). His reflections on his extensive research on the evolution of the International Economic Order and the role of tropical commodity exporting countries led him to conclude x

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that the developing world had all the resources for its own development, and that only self-reliant policies could, in time, produce a more equitable international economic order. In his Nobel Lecture 'Slowing Down the Engines of Growth' he warned that countries dependent on trade are doomed to failure. The key to self-reliant development, he maintained, was the increase in the productivity in domestic food production and investment in technological progress. My Sir Arthur Lewis Memorial Lecture (2000) 'The Right to Development: The W.A. Lewis Legacy' cites empirical research by Dani Rodrick to show that there is no relationship between growth and openness and that export success of Asian countries was based on high rates of domestic savings and investment rather than Foreign Direct Investment. In concluding passages I suggested a short list of reforms of international economic institutions to create a rule-based system, which permits countries to chart their own way. Governments cannot achieve this alone. It requires the participation of civil society locally, nationally and globally to subordinate 'economies' driven by the special interests of investors and creditors, to a 'polities' of democratic participation of people in decisions affecting their livelihoods and well-being. The problems are particularly acute for small, fragile economies in the era of globalisation. Trade liberalisation is sweeping away preferential access to traditional markets for commodities like sugar and bananas. And Caribbean Basin Iniative (CBI) preferences for non-traditional commodities may, similarly, disappear with the coming on stream of the Free Trade Area of the Americas (FTAA). From Political to Economic Decolonisation The advent of independence in Jamaica and Trinidad and Tobago in 1962 and Guyana and Barbados in 1966 gave rise to an intellectual ferment to move from political to economic decolonisation. National development planning, to moderate external vulnerabilities and support capacity to serve domestic and regional markets with food and simple manufactured goods, encouraged a longer vision than the annual budget. In the early years of political decolonisation, economic transformation by national development planning attracted the best and brightest economists to public service. These men and women were of exceptional quality, training and national vision. They set their sights on structural transformation to reduce dependency on the metropole Introduction

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and increase spaces of economic self-reliance. Although national plans were sometimes no more than shopping lists for overseas development assistance, important progress in industrial development was achieved. William Demas, the architect of the Treaty of Chaguaramas which formally established the Caribbean Community (CARICOM), served his country and the region in many capacities but, above all, as a public intellectual and a mentor to a generation of younger economists and public administrators. His constant encouragement and support of my work since our first encounter in 1961 is acknowledged in 'William Demas: Primus Inter Pares'. When I first set foot in the region in 1961, the Federation of the West Indies was a brave project destined to fail because it was, in large measure, designed in London as a convenient way to dispose of colonial obligations to a region which had brought great wealth to Britain, but which was no longer politically and economically profitable. A contributing factor to the failure of the Federation was the widely held belief in Jamaica that that country, as the wealthiest member, would be burdened by poorer and smaller territories — a timely reminder to Trinidad and Tobago, which now enjoys the strongest and wealthiest economy in the region. But the regional vision did not die with the Federation. The establishment of the Caribbean Free Trade Area (CARIFTA) in 1967 and the formation of CARICOM by the Treaty of Chaguaramas in 1973 provided the institutional framework within which the project of regional integration evolved. The CARICOM project was the creation of a common market with associated common institutions in areas of health, education, justice, transportation, disaster preparedness and other areas of functional cooperation. When the Caribbean Community was founded in 1973 Jamaica (GDP per capita US$1,218) was the world's largest exporter of bauxitealumina. Trinidad (GDP per capita US$1,681) had the largest petroleum refinery in the overseas Commonwealth and Guyana (GDP per capita US$662) with its extensive land, forest and mineral resources was the El Dorado of the Caribbean.1 We recall that the GDP per capita of Jamaica and Trinidad exceeded that of Singapore and plantation-type economies such as Mauritius. Together with Barbados, (GDP per capita US$867) these four so-called More Developed Countries (MDCs) within the Caribbean Community were the engines of growth expected to lift the so-called Less Developed Countries (LDCs) — smaller Windward and xii

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Leeward islands — out of poverty. The strategy was well conceived but did not anticipate the economic collapse of Guyana and Jamaica in the mid 1970s. University of the West Indies (UWI) economists undertook an important set of studies on regional economic integration. The most memorable of these was Dynamics of West Indian Integration by Havelock Brewster and Clive Thomas (1967). On the campuses of the University of the West Indies, the New World Groups and the New World Quarterly brought a breeze of fresh critical thought. Persistent Poverty (1970) by the agricultural economist George Beckford became a widely acclaimed, internationally circulated work. Caribbean governments extended incentives to foreign companies to establish industrial facilities to serve domestic, regional and metropolitan markets on the model of Puerto Rico, which had transformed a derelict sugar economy into a modern industrial one. These polices, ascribed to W.A. Lewis and dubbed 'Industrialisation by Invitation' by Lloyd Best, were the target of criticism by a generation of young West Indian economists impatient with the slow pace of economic and social transformation. A decade of high growth in Jamaica had failed to increase employment. The country experienced escalating inequality, deepening social discontent and a massive emigration of labour to Britain and North America. Jamaica became a classic case of growth without employment and growth without development. In 1995 the Department of Economics at UWI St Augustine marked the 25th anniversary of the Best-Levitt models of plantation economy with a seminar. Perhaps it was time to revive the structuralist and institutionalist approach to economics? 'The Plantation Economy Models: My collaboration with Lloyd Best' related the different skills we brought to our joint work. The Plantation Economy Models were an innovative intellectual initiative designed to specify the mechanism of this particular type of economy. The methodology was historical and institutional. The intention was to produce a stylised model of a typical (generic) Caribbean economy, as an instrument of national economic planning. The Plantation Economy Models emphasised historical continuities, from the slave plantation (Model I), to modification following emancipation (Model II), to further modification in the era of postcolonial industrialization (Model III). The Accounting Framework, which accompanied Model III, suggested the database for a multi-sectoral economic planning model. The break with dependency Introduction

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— the 'anti-model' — was to be model IV. My reflections on the significance of our work, 'In Search of Model IV, were presented at a conference honouring the life and work of Lloyd Best (2002). A generation of West Indian economists were exposed to this work, together with the writings of Beckford, Girvan and others who shared the approach. Our work emphasised the economic, social and political commonalities within the region. 'Externally Propelled Growth and Industrialisation in the Caribbean' (1969) was reproduced in mimeograph form by the Centre for Developing Area Studies, McGill University, and the authors are now arranging for its publication. At that time, the economies of the Commonwealth Caribbean were remarkably similar-dominated by foreign-owned extractive industries (sugar, petroleum, bauxite), foreign banks and tourist facilities. All of the territories, large and small, were primarily agricultural, and the legacy of the sugar plantation defined social and political as well as economic structures. GDP per capita for Trinidad and Tobago (US$1,191.9) and Jamaica (US$937.3) were similar. Although lower in Barbados (US$531) and Guyana (US$651.3), the difference was modest compared with subsequent divergence. The next 30 years witnessed dramatic divergence in growth and other aspects of development in the Caribbean. Nevertheless, we believe that the plantation economy models continue to offer insight into common structures of peripheral export economies in general and Caribbean economies in particular.

The 1970s: The Rise and Decline of Third World Radicalism The late 1960s and 1970s were years of resistance, revolt and militancy worldwide. In the Caribbean, it was evident that industrialisation and economic growth had failed to provide employment or capture economic rents from foreign-owned extractive industries. A groundswell of protests was directed against foreign businesses and national governments. Some observers believed that only the election of Michael Manley in 1972 and the sweeping social legislation introduced by the PNP prevented revolutionary upheaval in Jamaica. In Trinidad and Tobago, the Black-Power Revolution and Army Mutiny of 1970 prompted the government to undertake a programme of nationalisation in sugar, petroleum and petrochemicals and facilitated the establishment of locally owned financial institutions. xiv

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Jamaica responded to the oil shocks of 1973 by the imposition of the bauxite levy and joined with Guyana and Suriname in launching an international bauxite-producer cartel. In 1975 Portugal withdrew from colonial occupation in Africa. Cuba sent troops to defend Angola from South African backed mercenaries with moral support from the governments of Guyana, Barbados and Jamaica. Henry Kissinger descended on Jamaica with carrot and stick to warn Manley that his stance was unacceptable to the United States. Jamaica was overcome by violence bordering on civil war, with charges and counter-charges of external intervention. The collapse of tourism, capital flight and the exodus of professional Jamaicans brought the country to near bankruptcy. In 1977 the government entered into its first Standby Arrangement with the International Monetary Fund, a relationship which continued for 20 years. When Manley was defeated by Seaga in 1980 Jamaica's GDP per capita had declined by a third from its peak in 1974 and external debt had increased to US$1.6 B. My reflections on Manley's defeat, formed during the last two years of his term when I was visiting Professor of Economics on the Mona campus, were presented in Toronto as 'Democratic Socialism in Jamaica: Manley's Defeat — Whose Responsibility?' Almost 20 years later, 'Lessons of the Seventies for the Next Generation' was presenetd at a symposium on Jamaica in the 1970s on the Mona campus, UWI. In Guyana, the Burnham Administration undertook sweeping nationalisation including the bauxite operations of North American companies Alcan and Reynolds and the sugar giant Booker McConnell of Britain. The country aimed to be self-sufficient in food and the government assumed control of all foreign trade in 1974. Guyana established diplomatic relations with China and several other Communist nations. However, electoral fraud, systemic racial clientelism and the increasing use of state-sponsored repression of labour and citizen protest triggered a disastrous exodus of skilled and professional Guyanese. By the end of the decade the economy had collapsed and the GDP was a third of what it was in 1970. The country was locked into economic stagnation and overtly racial politics. The OPEC price hikes of 1973 and the Amoco discovery of large offshore oil reserves lifted the Trinidad economy into almost a decade of uninterrupted expansion. Dr Eric Williams, certainly no socialist, but a pragmatic nationalist, used the proceeds of the oil boom to establish energy-based state enterprises in heavy industry, which remain the major Introduction

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driving sector of the economy. By 1982 Trinidad's GDP per capita had reached US$7,132 compared with Jamaica's of US$1,618. Barbados and most of the Organisation of Eastern Caribbean States (OECS) countries absorbed the oil shocks and achieved persistent high growth throughout the 1970s.

The 1980s: Debt and Structural Adjustment The year 1979 was a watershed one. American power was challenged worldwide. In the region, the Sandinista revolution in Nicaragua and the bloodless coup in Grenada which brought the New Jewel Movement to power appeared to extend the influence of Cuba and shifted the region into the geo-political sights of strategic planners in Washington. Preferential market access to North America in the form of the CBI and military and economic assistance to friendly states were instruments of control of the region. The accession to office of Margaret Thatcher in 1979 — with an agenda to smash the trade unions and privatise public assets — and the election of Ronald Reagan in 1980 signalled an economic regime change targeting inflation by hard-line monetarism. Interest rates soared up to 20 per cent and the US fell into serious recession — the worst since World War II. Debt service on commercial bank loans, contracted at floating rates of interest with favourable export market conditions, became 'unpayable' when interest rates soared, commodity prices fell and the US dollar strengthened against Latin American currencies. When Mexico declared its inability to service external debt in 1982, the Bretton-Woods institutions assumed a new role of debt collectors on behalf of commercial banks. The policy leverage, which accrued to the creditors, was used to introduce measures of trade and financial liberalisation. A young generation of North American-trained Latin American economists bought into these policies. With the exception of Trinidad, the countries of the Caribbean Community did not attract commercial bank loans because they were too small and too poor to be of interest. External debt was and continues to be, principally, official debt to multilateral and bilateral lending agencies. It was no coincidence that Edward Seaga was the first foreign leader to be received by Ronald Reagan in 1980. He was set up as America's principal ally in combating communism in the Caribbean. The White House leaned on the World Bank to disburse an unprecedented loan of xvi

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US$2 billion to Jamaica, with minimal conditionalities. The money was intended for private and public consumption and was so used. Jamaica was proclaimed the 'flagship' of the Caribbean and a model of successful capitalist development. In 1983 Jamaica, Barbados and Dominica lent a measure of Caribbean legitimacy to the American invasion of Grenada. However, by the mid 1980s it was payback time for Mr Seaga. The full force of IMF stabilization was unleashed on Jamaica. Although Seaga resisted pressures to devalue the currency and Jamaica did achieve modest economic growth, his popularity plummeted and Manley was returned to office in 1989 as a reconstructed convert to Adam Smith and the magic of the market. Jamaica's external debt now stood at US$4.2 billion and by 1992 amounted to more than 90 per cent of GDP. The large drain of servicing the debt has played a significant role in economic stagnation and deteriotating social conditions in the country. In 'The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990' we detail the increasing burden of external debt resulting from the interplay of domestic politics with external geo-political pressures including successive IMF Structural Adjustment Programs (SAPs) since 1977. The study was commissioned by the North-South Institute of Ottawa. In Trinidad the oil-boom weakened in 1982 and by 1986 oil prices had collapsed. Adjustment to such external shocks is unavoidable and entails temporary demand compression. External borrowing may ease the pain but it is the management of adjustment in a manner which protects, strengthens and extends economic capacity and infrastructure which counts. In 1987, a large repayment in debt service to commercial creditors became due. My opinion was sought as I was, at that time, in the country investigating a charge of statistical irregularites by the IMF. The choice was either acceptance of IMF assistance with liberalisation conditionalities or a severe compression of employment of public servants. In full knowledge of the implications of accepting IMF assistance, I lent my support to that option; a position explained and defended in 'Facing up to the IMF in Trinidad and Tobago (1990)'. My Eric Williams Memorial Lecture (1990) on 'Debt, Adjustment and Development: A Perspective on the 1990s', delivered at the Central Bank of Trinidad and Tobago, at the invitation of the then governor, William Demas, addressed a question he had posed in earlier conversations. The question was 'What are we forever adjusting to?' The simple answer might have been that we were adjusting to a decline Introduction

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in oil prices. The more fundamental answer was that we were being 'adjusted' to the demise of the Bretton-Woods monetary order and that the principal instruments had been the structural adjustment lending of the IMF and the World Bank. Although the Caribbean did not suffer the severe compressions of Latin America in the 1980s, average growth for the region as a whole in the first half of the 1980s, and average growth in the second half, were less than impressive at 2.4 per cent. In a keynote address at a conference in Trinidad on regional public policy 'The 'Lost Decade' of the 1980s' (1992), we surveyed the regional experience with SAPs. As an observer of the Jamaican experience in 1991, I warned against the adoption of premature financial and exchange rate liberalisation. In the 1980s, the economics of survival, advancement and accumulation characterised behaviour at the personal and the institutional levels, including business, university and politics. The selfdestruction of the Grenada Revolution in 1983 demoralised the left. Ideological initiative passed to the political centre right. A new generation of West Indian economists returned from American graduate schools as converts to monetarism and market fundamentalism. The older tradition of structural economics was marginalised, and the Caribbean Community seemed, to many people, to be a symbolic institution without the capacity to implement the annual ritual of ministerial resolutions and declarations. Although economic issues were — and continue to be — at the forefront of popular concerns, economics as an academic discipline has become excessively mathematical and disengaged from reality. The West Indies also had its Chicago Boys. The counter-revolution in economics, which banished Keynes and elevated Milton Friedman's monetarist doctrines as the new wisdom, spawned a generation of young converts employed in Economics departments of UWI and in the public service. A conference on the demand for economists in the twenty-first century addressed concerns that the discipline was increasingly irrelevant to the problems facing the Caribbean. 'Reclaiming Economics for Development' with reference to work by Arrow, Bowles and Sen, and an agenda for Development From Within edited by Sunkel and Ramos called for renewal, review and revival of the rich tradition of Caribbean independent thought.

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Barbados, Trinidad and Jamaica in the 1990s Economic growth in the larger countries of the Commonwealth Caribbean continued to diverge in the 1990s. Financial and exchange rate liberalisation made it difficult, although not impossible, to stabilise the currency without monetary compression, which drives up interest rates, or fiscal compression which impacts most severely on the general population. Following a foreign exchange crisis of the early 1990s, Barbados achieved growth for eight successive years at an average of three per cent. The country refused to accede to IMF demands for a devaluation of the currency and opted for a combination of wage and fiscal restraint, stable external value of the Barbados dollar at US$0.50 and a cautious approach to the implementation of liberalised trade and finance. The unemployment rate which had stood at 24 per cent in 1990 had declined to 14 per cent by 2000. However, the slow down of the Organisation for Economic Cooperation and Development (OECD) growth and the events of September 11 2001, have precipitated a 2.5 per cent decline of GDP. Barbados instituted counter cyclical measures to reflate the economy including the re-imposition of import restrictions on agricultural and manufactured products. The government resisted IMF pressure for the termination of these emergency measures and a freeze on wages and on hiring, and agreed to a second round of public sector wage increases in the following year. Among other measures demanded by the IMF but resisted by the Government of Barbados were floating prices for gasoline, privatisation of hotel interests and the further pursuit of trade and capital accounts liberalisation. It would appear that Barbados has placed a high priority on social stability. Bearing in mind the central role of tourism in sustainable economic growth and the special vulnerability of that industry to social unrest, the policy responses of Barbados to recent adverse economic developments have been both appropriate and responsible. However, Barbados is dangerously dependent on tourism as the driving force of the economy. Trinidad society exhibited a remarkable resilience during a decade of economic decline and several political regime changes. Since the mid 1990s the economy has done well but most people have not. There is a general perception that the quality of life in the country is deteriorating, manifested by a rise in serious crime. Trinidad has been blessed with the discovery of large reserves of natural gas, which are expected to yield a

Introduction

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substantial flow of rents to foreign companies and revenues to the government for the next ten years. The challenge is to engage the local private sector in investment in downstream energy-based industry while training the labour force in all the modern industrial skills required to take full advantage of this opportunity. This lends urgency to constitutional reform to assure transparency and accountability and safeguard the society against the deeper entrenchment of political clientelism of rival political parties dangerously divided by appeals to racial solidarities. Experience with the oil boom of 1973-82 points to the critical importance of policy in securing social equity and ensuring sustainable development in the light of the inevitable eventual depletion of the petroleum resource. In Jamaica in 1991, pressures from the private sector and the US embassy — but not apparently from the IMF — persuaded the Prime Minister to undertake a precipitous financial and exchange rate liberalisation, which sent the currency into a tailspin and the economy into a sharp curtailment of growth. Inflation skyrocketed; the government was faced with demands for wage increases, which were financed by domestic credit creation. The country experienced a speculative stock market and real estate boom, including shopping centres for the distribution of imported goods. Mindful of the dangers of the devaluation-inflation wage spiral, the government undertook to stabilise the exchange rate by restrictive monetary measures. This launched Jamaica into a regime of high interest rates exceeding, at times, inflation-adjusted levels of 30 per cent. The effects on the productive sector have been devastating. Overdraft rates reached 50 and 60 per cent, forcing manufacturers to revert to the import of finished goods to maintain cash flow and prevent bankruptcy. High interest rates attracted large inflows of portfolio capital and the commitment to a stable exchange rate protected investors from exchangerate losses. Bad loans in the portfolios of banks and near-banks was reaching dangerous levels as banks were borrowing short and lending long — principally in real estate and hotels, based on a rising market. In 1995 the impending failure of a major financial institution and the fear of the consequences of a run on the banks moved the government to announce a bailout of depositors, policyholders and a significant number

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of non-financial businesses. The agency set up to oversee this bailout, the Financial Sector Adjustment Company (FINSAC) purchased the nonperforming loans at full face value by the issue of government securities. The scale of this operation was high by international standards, amounting to 40 per cent of GDP. Domestic debt service increased to approximately 60 per cent of government revenue, one third of this held by financial institutions. This apparently unsustainable situation has been maintained through the symbiotic relationship between the political and financial elites. The state finances the national budget via huge domestic borrowings while the holders of these government securities benefit from high returns at minimal risk. At prevailing high rates of interest this is a mechanism of redistributing income from the general public to banks and other holders of domestic debt. When the burden of servicing domestic debt became intolerable the government floated an international bond for US$300 million (2000). In the following year another $300 million was borrowed externally which raised Jamaica's external public debt to US$4.6 billion or 57 per cent of GDP. In the 1990s Jamaica lost 30 per cent of the jobs in agriculture, forestry and fishing, altogether 62,200 since 1988. From 1990 to 2000 the whole goods-producing sector of Jamaica — agriculture, forestry, fishing, mining, manufacturing and construction — lost 128,000 jobs, 133,500 since 1988. Mining jobs declined from 6,400 to 4,600. Manufacturing jobs declined from 133,800 to 69,600 — a loss of 64,200 jobs or 48 per cent. Poor people continue to seek solutions in legal and illegal informal activities and emigration. In the last five years of the 1990s migrant remittances totalled US$3.2 billion or 10 per cent of GDP. As the crisis deepened, it would appear that remittances increased. By 2000 remittances amounted to 12 per cent of GDP, a source of foreign exchange earnings second only to tourism (17 per cent of GDP). There is no way that adverse external circumstances can account for the dismal record of Jamaica's economic performance in the 1990s. Natural disasters of hurricanes and floods and the impact of the events of September 11, 2001, on tourist arrivals are not unique to Jamaica. Nor can it be ascribed to political instability, because the PNP has been in office continuously since 1989, Prime Minister Patterson has led the government since 1993 and has been re-elected several times in free and

Introduction

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fair elections. The decade of the 1990s, which registered essentially no growth in GDP per capita, began with 4.7 per cent growth. While the Fund is more concerned with the health of monetary, fiscal and financial indicators than the health or well being of the population, and many of their recommendations are biased to protect investors and exert constant pressure to deregulate, liberalise and privatise, governments are not obliged to accept IMF advice and indeed frequently do not do so. How is it that Barbados, with a small and vulnerable economy, and no natural endowments other then beaches and a favourable tropical marine climate, has sustained economic growth with stability for the past 30 years and now has achieved per capita GDP of US$10,000 and a ranking in the United Nations Development Programme (UNDP) Human Development Index, first among developing countries and second only to Hong Kong? In 2004, Barbados and Antigua graduated from the category of medium to that of high income countries, with approximately US$16,000 per capita income. We suggest that the answer is to be found in the social compact and the explicit and implicit negotiation between government, labour and the ruling elites, which have defended the national interest from external destabilisation. Although the rhetoric of social compact has gained currency in Jamaica, the real social contract is between the political and economic elites and excludes the labouring classes, illustrated by mutually beneficial debt financing at the expense of the general population, cited above. The crisis in Jamaica is essentially domestic, and deeply rooted in the historical legacy of the slave plantation. My George Beckford Memorial Lecture of 1995 reproduced in this collection as 'The Persistence of the Plantation Legacy in Contemporary Jamaica', traced Jamaica's attempts at economic and social transformation from political independence in 1962 to the present. We maintained that neither the social reforms of democratic socialism of the 1970s nor the accession of educated black Jamaicans to positions of influence in the 1980s eradicated the debilitating plantation legacy of class and race. Nowhere else in the Caribbean, with the exception of Haiti, did we find disparity of wealth so grossly inequitable. In Jamaica, for example, in textile manufacturing the median reported salary of a CEO was 40 times that of the lowest paid worker. In Trinidad, by contrast, the difference although great was only 23; but the labourer was earning three times as much as his Jamaican counterpart, while

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remuneration at management level was roughly equal. Similar results were found in other industries and in the public sector. The suggestion that the reforms of the 1970s had ultimately failed to raise the social and economic status of the majority class elicited a defensive response from Michael Manley. This gave rise to an important exchange of letters with the author, introduced by Rex Nettleford and published in Small Axe. My contention that financial liberalisation of the early 1990s had been a disaster and that Michael Manley had been too quick to buy into the neo-liberal doctrines of market fundamentalism and the demise of national sovereignty presented him the opportunity to explain his philosophy and defend his policies. The correspondence was, perhaps, Mr Manley's last dialogue regarding his public record. He died March 6, 1997, at 72. In the 30 years since the establishment of the Caribbean Community the constituent territories have experienced very divergent development. Guyana, once the most promising territory of the Commonwealth Caribbean, has now joined nations of sub-Saharan Africa in qualifying for Highly Indebted Poor Countries (HIPIC) debt relief on account of its low GDP per capita and unserviceable debt. Moreover, with the exception of Trinidad's energy resources, the region as a whole has declined in relative economic significance and now accounts for a mere 0.3 per cent in hemispheric trade. Contrary to popular opinion in the region, however, the achievements of CARICOM are not insignificant. The creation of the Regional Negotiating Machinery; the project of the CARICOM Single Market and Economy (CSME); the accession of Suriname and Haiti to full CARICOM membership and the establishment of the Association of Caribbean States, were critical steps in the deepening and widening of Caribbean regional integration. The Caribbean Community has been steadfast in extending friendship and cooperation to Cuba and upholding the principle of sovereignty. Notwithstanding the slow pace of implementation of the CSME, particularly with respect to the free movement of people, CARICOM has sustained and advanced the larger vision of the entire Caribbean as a region with a distinct geographical, historical, and cultural shared identity. An address accepting the George Beckford Award on the occasion of the fifth conference of the Association of Caribbean Economists held in Havana, entitled 'Building Bridges Across the Caribbean', offered a vision of a

Introduction

xxiii

Caribbean Society embracing countries of differing languages and political systems. Caribbean governments have been firm in their adherence to the rule of international law and respect for the United Nations, where small countries with weak economic bargaining power are respected as full members of the international community. In recent rounds of trade negotiations for FTAA, CARICOM's position has hardened. Priority has been put on the need to protect the project of the Single Market and Economy from premature hemispheric liberalisation. Without detracting from the economic issues in complex trade negotiations, what is ultimately at stake here is the will and the capacity to sustain Caribbean societies. A decade or more of liberalisation has widened disparities and degraded the social environment. Domestic industries have collapsed, small farmers are threatened by the import of cheap and subsidised foods, migration continues to deprive the region of skilled labour, and crime is on the increase throughout the region. None of these problems are addressed by trade negotiations. The ultimate support of a vibrant economy is rooted in the social relations, which must sustain it. Nothing is now more urgent than a re-thinking of the priorities of Caribbean societies. William Demas, who conceived, nurtured and guided the Caribbean Community, once observed that the case for regional integration does not ultimately rest on any economic prepositions concerning benefits of scale, but on the sense of West Indian nationhood. The task now facing the Caribbean at the national and regional level is a comprehensive stocktaking of the natural and human wealth of the societies — the agricultural land, forests, marine resources and above all the diverse creative skills of the population with the relativaly high rates of literacy and the high levels of professional competence. There is a need to nurture and protect the social environment, which permits citizens to develop the full range of their skills in dignity, security, mutual respect and support. Governments alone cannot achieve this. As I wrote in concluding remarks to an address (Eric Williams Memorial Lecture, 1990) on meaningful economic development, Development cannot be imposed from without. It is a creative social process and its central nervous system, the matrix which nourishes it, is located in the cultural sphere. Development is ultimately not a

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matter of money or physical capital, or foreign exchange, but of the capacity of a society to tap the root of popular creativity, to free up and empower people to exercise their intelligence and collective wisdom. It is the responsibility of those who aspire to exercise leadership, whether in government, in business or working in educational, cultural, trade union, religious or other nongovernmental institutions or associations, to protect the cultural, social and political institutions of society from the disintegrating forces of 'winner takes all' market criteria.

Introduction

XXV

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Part One 500 Years of 'Globalisation*;

The Old and the New

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D

'Capitalism and Slavery': Institutional Foundations of Caribbean Economy1

'Globalisation': Reality Or Ideology? I never met Eric Williams in person. Our only encounter was an exchange of communication in 1970, when a colleague suggested I send him a copy of my book, Silent Surrender: The Multinational Corporation in Canada (1970).2 I attached a brief note expressing reservations that its subject matter was perhaps marginal to his interests. Carelessly, I forgot to date my note. Within a short space of time, I received a copy of From Columbus To Castro: The History of the Caribbean 1492-1969,3 with a hand-written letter in which Dr Williams said he had enjoyed the book, and could lay to rest my reservations. Certainly, he wrote, the 'new mercantilism' of the modern transnational corporations has similarities with the earlier 'old mercantilism', which was the subject of his work in Capitalism and Slavery.4 Dr Williams was a meticulously careful reader. He drew to my attention an error in a footnote where I had misspelled a name, and another error where three Os were missing from a figure. Interestingly, his communication was also undated. In 1990,1 was invited to present a lecture in memory of Dr Williams at the Central Bank of Trinidad and Tobago. The subject was 'Debt, Adjustment and Development: A Perspective on the 1990s'. The central question addressed was, 'What exactly are we adjusting to?' I concluded that we were being programmed to conform to new 'rules of the game' of a 'new world order' of transnationalised corporate capitalism which has diminishing need for poor people as producers or consumers. I noted that development assistance was being phased out, and the countries most severely affected by the debt crisis of the 1980s were the 'old' peripheries of Latin America, the Caribbean and Africa, traditionally dependent on commodity exports, whose prices had declined since the mid 1970s — and would continue to decline.5 The declining share of manufacturing in rich countries implies a relative decline over time in

their demand for the imports of industrial raw materials from developing countries. Additionally, technological change is 'de-materialising' industrial production.6 The peripheries are losing their traditional role as suppliers of raw materials. Latin America and the Caribbean missed out on opportunities to switch to manufactured exports in the 1960s and 1970s when trade was buoyant and large volumes of cheap credit were available. Mineral and agricultural primary commodities, including some 'non traditionals' like fresh fruits, flowers (and cocaine), still constitute over half of Latin American exports, and African countries have increased 'exotic' agricultural exports at the expense of domestic food production. Resource-rich countries have failed to develop the human resources which have been the basis of the success of resource-poor countries of Asia. Prebisch was right. The Club of Rome was wrong. With some exceptions, resource rents from commodity exports can no longer sustain economic growth. Nor can the export of root-less low-technology cheap labour manufactures provide a stable foundation for economic growth and development. In the 1990s a new vocabulary of globalisation, liberalisation and privatisation assumed a virtual monopoly of the development discourse. The questions I wish to explore in this paper are: 'What is new about "globalisation"?' What is driving the thrust to break down barriers to trade and capital movements? Why has the neo-liberal agenda replaced 'development' as the hegemonic doctrine guiding economic policy in third world countries? Why is it presented as the only game in the 'global village'? Globalisation is a historical process of the transformation of the international economic and financial order. Can a historic process happen in the space of a few years? 'Globalisation' first appeared in the two volume New Shorter Oxford Dictionary in 1993. It was not included in the Concise Oxford Dictionary until 1995 JIt was first mentioned in the flagship publication of the World Bank in 1995, 'Globalisation is unavoidable'.8 All of a sudden, 'globalisation' is everywhere, announcing the arrival of an inevitable and inescapable 'new world order' of global markets, global finance, and global competition. What is it about international trade and capital movements that has assumed such immediacy? Is 'globalisation' merely a description of the increased transnationalisation of production and capital flows since the mid 1970s, or is it a proactive agenda supported by a hegemonic

4

500 Years of 'Globalisation': The Old and The New

ideology of the inevitability — and the desirability — of the liberalisation of private capital from all forms of constraint? How much is reality and how much is the marketing of an ideology of unrestrained and unregulated private enterprise? A reading of recent publications of the World Bank suggests an agenda of stripping governments of control over external trade and capital flows. Are we confronted by a 'neoclassical imperialism' in which the sovereignty of states is deliberately and systematically subjected to the discipline of global markets by 'policy reforms' designed in the Washington offices of the international financial institutions (IFIs)? The effect of these 'institutional reforms' is the subordination of nationally determined social and economic priorities to the supra-national sovereignty of global capital. Once these 'reforms' are in place, the discipline of the capital market acts as an autonomous enforcer of continued compliance. In scores of countries in Latin America, Africa and the Caribbean, structural adjustment programmes (SAPs) of liberalisation and privatisation have been implemented in compliance with conditionalities of IMF/World Bank programmes. In the former communist countries of Russia, Central Asia, East Europe and the Baltic states, western policy planners had a 'clean slate' to manage the transition to 'capitalism'. Here cruder versions of similar programmes, variously known as 'shock therapy', 'Big Bang', 'radical economic reform' or the 'three "isations"' (stabilisation, liberalisation and privatisation) were introduced as a condition for access to western markets and western finance. The policy mix of de-regulation, privatisation, trade liberalisation, 'flexible' labour markets, and the dismantling of social welfare measures has also been called the 'Washington Consensus'.9 The term is appropriate because the United States is the epicentre of the diffusion of the 'globalisation' agenda. What is driving this agenda? The revolution in information technology? Finance with no commitments beyond the search for short term profit and capital gains? Transnational corporations which have exhausted saturated markets in the slower growing economies of Europe and North America, and aggressively seek new markets in the rest of the world? The retreat of 'socialism' in all its forms, including the redistributive welfare state? The United States suffering from triumphalist illusions? The staffs of the international financial agencies concerned to preserve their role as the high priests of 'development' in a world which has substituted 'competitiveness' for development? A new generation of 'transnationalised' elites of stockbrokers, investment bankers, cyber-

'Capitalism and Slavery'

5

specialists, academics and overpaid managers who have turned their educational advantage to personal gain in a 'globalised' world where service to country, nation or community is (conveniently) out of style? And what are the likely results of intensified competition in this 'world without borders'? Can lower wages, increasing unemployment and rising poverty in the industrial countries sustain consumer purchasing power and economic growth? Can developing countries be forced to comply to the economic straight jackets which are being constructed by the architects of the World Trade Order? Can these polices succeed, or will they result in the escalation of political, ethnic and 'religious' conflicts such as we have witnessed in the former Yugoslavia and Rwanda? Can transnational capital successfully penetrate and re-fashion the social fabric of the globe — or are we poised on the brink of social implosions and global conflicts which may spell the end of 500 years of Eurocentric hegemony? The signals are mixed, if we take into account the shift of the growing points of the world economy from Europe and the Atlantic to Asia, including China. The regions of the world which have been most closely programmed by international financial agencies have achieved neither stability nor sustained economic growth. This is the case in low-income sub-Saharan Africa, and in the 'middle income' countries of Latin America where financial and social instability has increased rather than diminished, even where inflation has abated and growth has resumed. In the 1980s, when the 'old' peripheries fell into a 'black hole' of debt and costly structural adjustment, the East and South East Asian countries sustained extraordinarily strong economic growth precisely because they were not dependent on the organisation for Economic Cooperation and Development (OECD) markets — or World Bank advice — for their development.10 The current surge of foreign direct investment into that region in the 1990s has been attracted by their large and growing domestic markets for goods and services. Foreign investment does not generate growth; it follows growth.11 It is now more 'marketseeking' than was the case when peripheral countries attracted 'resourceseeking' investment. Import growth in the developing world is now expected to sustain economic activity in the slow-growth OECD countries, in what has been called 'reverse linkage'.12 We conclude that there is nothing new about the global reach of capitalism, starting from Atlantic Europe 500 years ago. What is new is the attempt to reconstruct a system of global 'self-regulating' markets on the model of the 'golden age' of the late nineteenth century. It is 6

500 Years of 'Globalisation': The Old and The New

most explicit in programmes of privatisation of state assets of indebted Third World and defeated former socialist countries. The transfer of social property to private ownership under pressure of the fiscal burden of debt service is a form of 'primitive accumulation of capital'. The role of international financial agencies in this aspect of 'policy reform' has less to do with 'efficiency' than with expediency and ideology. This is particularly so in the case of the privatisation of public utilities with essential public service functions. Developing countries are urged to compete in 'global' markets where 'winners' may succeed if they comply with the 'market-friendly' policies of the World Bank, and 'losers' are guaranteed failure, if they cannot, or will not comply. The prospect is one of escalating inequalities as increasing numbers of 'losers' are excluded from production and consumption in a fiercely competitive global economy, dominated by 40,000 transnational corporations and their 250,000 foreign affiliates. These now account for two-thirds of world trade in goods and services, leaving only one-third of trade to 'free-market-free trade' arms length transactions.13 Twenty-five years ago, I called the emerging international economy of transnational corporations, a 'new mercantilism'.14 As in the old mercantilist era of pre-industrial capitalism, finance and trading are 'global'. Capital is mobile. It can enter — and exit — at will. As in the 'old mercantilism' described by Eric Williams, the metropolitan powers make and enforce the 'rules of the game'. As in earlier times, there are economic blocs and spheres of influence, and powerful states have not abandoned the use of force — as in the Gulf War, or the economic blockade of Cuba. We are here concerned with the prospects and the options for the countries of the 'Third World' — a term (significantly) discarded from the new vocabulary. The generation of Nehru, Nasser and Nkrumah had a mission and a vision of leading their respective nations out of colonialism to political and economic independence. Eric Williams was of that generation. In my Eric Williams Memorial Lecture of 1990, I speculated on what he would have thought about a state of affairs where the budgets of scores of developing countries are effectively written in Washington, and expatriate 'experts' programme the details of institutional 'reforms' covering every aspect of a country's economic, social and administrative affairs? I think he would have called it 'recolonisation'.

'Capitalism and Slavery'

7

Capitalism and Slavery It is no coincidence that the 'global' dimension of early capitalism was the theme of a book written by a historian/politician from the West Indies. Eric Williams's Capitalism and Slavery was a path-breaking work and remains so, regardless of critics who have pointed out that the contribution of the Atlantic slave trade and the West Indian plantations to the financing of the English industrial revolution was not perhaps as direct as Williams believed it to be.15 As Williams showed in Capitalism and Slavery', the triangular trade between Europe and the European settler colonies in North America, Africa and the New World plantations was based on trade in human merchandise and in the high value products of slave labour. In the eighteenth century, the exports of the West Indian plantations accounted for one quarter of the total imports of Britain and of France. 'The West Indian islands became the hub of the British Empire, of immense importance to the grandeur and prosperity of England. It was the Negro slaves who made these sugar colonies the most precious colonies ever recorded in the whole annals of imperialism'.16 The foundations of imperialism were laid in the three centuries which preceded the industrial revolution by traders, bankers, adventurers, and planters who organised long-distance trade in exotic goods, based on the exploitation of unfree labour in regions of the world later known as the 'Third World'. Mercantilist pre-industrial capitalism was backed by naval and military support from European city and nation states. Eric Williams's reference to the Papal Bull of 1493 marked the first division of the 'world' between Portugal and Spain, and the Navigation Acts delineated economic spaces of rival metropoles. Lloyd Best (1968) posited a schema of a 'general institutional framework' governing the incorporation of hinterlands into the 'overseas' economy of metropoles. His five 'rules of the game' were derived from Eric Williams's Capitalism and Slavery^ 'Inter-Caetera' (the Papal Bull); Navigation Acts; 'Muscovado Bias'17; 'Metropolitan Exchange Standard'; and 'Imperial Preference'. An expansion of Best's 'institutional framework' reveals continuities, which are perhaps more recognisable since globalisation has entered our vocabulary, and nation states have receded in significance. But the territorial and economic spheres of influence of the major powers did not disappear in the post-war era of American hegemony over the whole 8

500 Years of 'Globalisation': The Old and The New

so-called 'free world'. Europe consolidated into the European Union which has maintained special relationships of trade and aid with former colonies in Africa, the Pacific and the Caribbean; new spheres of influence are arising in East and South East Asia, where Japan has assumed a leading role in an emerging Asian economic bloc. China (including Taiwan and Hong Kong) is clearly a major world power of the twenty-first century. The United States has responded with North American Free Trade Area (NAFTA) as a step toward consolidating its historic hegemony over the Americas. The old 'Navigation Acts' reinforced the monopolistic control of the old trading companies over the peripheries. Today, world trade is dominated by a small number of transnational corporations, which control access to the rich markets of the industrial heartland of the world economy by means of sub-contracting, licensing, financing of long-term delivery contracts, intra-company transfers of goods and services and direct negotiation with governments. Technology is effectively under monopoly control, formally through patents, licences and other proprietary arrangements, and informally as 'in house' know-how of transnational corporations (TNCs). The privatisation of telecommunications has re-enforced control of the electronic mass media by corporate advertisers promoting American lifestyles. The progression from Coca Cola to McDonalds as global icons of American consumerism reflects the shift to the export of services. The 'Muscovado Bias' described the old international division of labour when agricultural and mineral commodities were exported by peripheral countries in unprocessed form. Several decades of industrialisation in developing countries have modified these patterns, and significant numbers of developing countries have moved into export markets for garments, electronic semi-conductor assembly and other low technology manufactures. Sixty per cent of developing country exports now consist of manufactures. An important distinction must here be made between the export of manufactured products developed for the domestic market during import substitution industrialisation, and cheap labour 'free zone' production exclusively for export. In the latter case, there is no significant technology transfer, but extreme vulnerability to the switching of sourcing by metropolitan purchasers. The Metropolitan Exchange Standard referred to monetary arrangements whereby local money is fully backed by hard currency (metropolitan money) at fixed rates of exchange, as under the old colonial currency board system. Such systems deprived governments of monetary 'Capitalism and Slavery'

9

autonomy, and guaranteed foreign investors against exchange rate loss. Full currency convertibility and the removal of all forms of exchange control have been the primary objectives of international business since the end of the Second World War. Although currency stability has not been achieved, and exchange controls remain in place in many countries, foreign investors are almost universally guaranteed convertibility of profits from local to metropolitan currencies. The re-emergence of global finance has been the single most important economic factor in the restructuring of the international economic order since the demise of the Bretton Woods system in 1973.

Continuities: Mercantile Origins of Capital There is no better vantage point than the Caribbean from which to sort out what is 'new', and what is 500 years old, about the global reach of capital and imperialism. Continuity over 500 years has been the theme of Caribbean political economists, whose 'plantation economy' paradigm located the roots of Caribbean 'underdevelopment' in the legacy of three centuries of slave plantation economy and society.18 The 'plantation economy' models owe an inadequately acknowledged intellectual debt to Eric Williams's Capitalism and Slavery.19 The Caribbean is the place where metropolitan capital organised the production of a valuable globally traded commodity with imported human labour power purchased in coastal trade with Africa. It was the original model of the total subordination of labour to a highly profitable capitalist enterprise, protected from slave revolts by severe repression, and guaranteed monopoly profits within the 'overseas' economy of the metropole by mercantilist 'rules of the game'. The slave trade and the New World slave plantations were the original and most extreme form of the subordination of human life to profit made by trading in human cargo and the products of unfree labour. It preceded and contributed to the birth of industrial capitalism. Merchant capital is historically linked with control over channels of distribution of internationally traded goods. Since the birth of the world capitalist system, in the 16th century, the centres of merchant banking have been located in the great cities of Western Europe. The financial and mercantile institutions have, from their inception, been agents of centralisation of control.20 The genesis of capital and capitalism stems from mercantile wealth in the context of the mercantilist framework.21 m

500 Years of 'Globalisation': The Old and The New

'Primitive accumulation' in the overseas economy was a joint operation between merchants and the state which forcibly created institutions designed to separate the independent producer-consumer from his means of subsistence so he/she would be compelled to secede, yield, or sell the products of his labour, or his labour power, on terms which further enhanced the wealth of the merchant-capitalist and fueled the process of the further accumulation of money capital.22 Previously independent craftsmen 'who wove and spun' as a secondary rural occupation were brought under the merchant's control in the proto-capitalist 'putting out' system which preceded industrial capitalism.23 The legacy of three centuries of mercantile capitalism persists in political, economic, and financial ties connecting the metropolitan 'hub' with the peripheral 'spokes'. These structures constitute continuities in the organisation of the capitalist world economy. They disappear from view in the presentation of the world economy as a 'global supermarket' where producers compete on a 'level playing field'. Formal economics erases the institutional structures of power which underlie international economic transactions. The pure theory of international trade is a construct derived from the pure theory of exchange between individuals with different endowments and tastes. Money and finance play no role. It is the least useful of all the branches of economics. Worse, it is disempowering and misleading. The 'welfare gains of exchange' have been packaged by World Bank economists to rationalise demands that developing countries abandon economic diversification, and open their economies to a flood of imports. But history shows that no country has ever succeeded in overcoming economic underdevelopment by laissezfaire policies of free trade or unregulated market exchange. This is as true of Britain as it is of all the 'latecomer' capitalisms, including the United States.

Back to a 'Golden Age' of Nineteenth-Century Imperialism? Underlying the 'global market-place' and 'outward looking' policies designed to increase the 'openness' of national economies to trade and capital flows are structures of economic power and political institutions which enforce the 'rules of the game'. Viewed in historical perspective, the global economy is reverting to older patterns of the primacy of private capital over nationally determined economic and social goals. The economic order which prevailed from 1945 to 1990, was based on 'Capitalism and Slavery'

11

national policies of national development. The 'new order' of 'transnationalised' private capital is sustained by 'rules of the game' which aim to reconstruct the 'golden age' of the late nineteenth century when bond markets and the 'gold standard' fortified by political colonialism and gun boat diplomacy ruled supreme, and the interests of international finance were assured by the imperialist hegemony of the top metropole over the rest of the world. Bizarre as it may seem, the World Bank has invited developing countries to join in a return to this 'golden age': Will a new "golden age" bring convergence? Participation by developing countries in the earlier globalization of 1850-1900 was shallow and often based on unfavourable terms of trade....Today developing countries have the opportunity to play a far more active role. The potential for large gains is enormous. Whether they are realized will depend on the policy choices made by developing country governments....Globalization is unavoidable ... whether a new golden age arrives for all depends mostly on the responses of individual countries to this increasingly global economy.24 Leaving aside the historically inaccurate description of 1850 to 1900 as an era of 'free trade',25 and amnesia concerning the acquisition of extensive new colonies in Asia and Africa in the 'age of imperialism', the authors of this Utopian fantasy could not guarantee 'convergence': 'Overall divergence, not convergence has been the rule'. They conceded that global inequality rose slightly (sic) between 1960 and 1986.26 The 'level playing field' of deregulation, privatisation, and financial liberalisation has subordinated the sovereignty of nations to the 'sovereignty' of capital markets. Bond market ratings have become more influential in policy making circles than opinion polls or elections. Indeed, the subjection of governments and states to the 'discipline of the market' is an explicit agenda of financial and corporate capital, shared by the World Bank: 'A recurring theme of this [World Bank] report is that one effect of globalization is to expand the options available to private individuals and firms while reducing those of policy makers'.27 In a 'Survey of the World Economy' focused on financial markets, The Economist greeted the demise of the 'post war order' and the reemergence of global finance as a return to the 'golden age' before 1914 when,

12

500 Years of 'Globalisation': The Old and The New

under the gold standard international capital flows dominated economies. Monetary growth was tied to international flows of gold, leaving governments with virtually no say. Throughout history, foreign exchange controls have actually been the exception rather than the rule, so today's free flowing capital fits in with the long term pattern....The anomaly is not, as many believe, the current power of finance, but the period from 1930 to 1970 when capital controls and tight regulations insulated domestic financial markets and gave governments more control over their domestic economies. The collapse of the Bretton Woods system in the early 1970s signaled the rebirth of the global capital market... America, Canada, Germany and Switzerland had all scrapped their controls by 1973. Other countries took longer. Britain got rid of foreign exchange controls in 1979 and by 1980, so had Japan. But France and Italy hung on to the their controls until 1990; Spain and Portugal until 1992.28

The trend toward the privatisation of finance is complemented by an exposition of the globalisation of production as a (beneficial) escape by TNCs from the costs of maintaining social infrastructure in their home countries. We extract from an authoritative source reflecting the perspective of transnational corporations:29 Until quite recently, the world of work has been shaped by local and national forces. At least since the Second World War, the level of employment has been a major consideration influencing the policies of national governments. Most people, at least in the developed countries, expected a lifetime's employment, if not in the same company, then most likely in the same locality or country. Trade union and employer organizations bargained within an established framework of national industrial relations. All that is now changing under the pressure of globalization, as the increased mobility of capital meets the more location-bound asset that is labour.30

The domination of international trade by transnational corporations and the re-emergence of global finance are the two critical economic factors which have driven the globalisation process. The decisive political event has been the victory of the western powers in the cold war. The Third World as a grouping of non-aligned countries has lost its rationale with the demise of communism. It appears that there is only one 'metamodel', and it is capitalism, raw in tooth and claw. If non-alignment was the first victim of the death of communism, social democracy was the second. The demonisation of 'socialism' now extends beyond the

'Capitalism and Slavery'

13

attack on the 'welfare state' to the denial of the role of the state in any capacity other than as facilitator of global competition in a 'borderless world'. Indebted developing countries have been captured and ensnared in the service of capital. But all the nineteenth century 'latecomer' nations — including the United States — protected their domestic industries from external competition. Japan, Korea and Taiwan rose to economic strength in the context of the cold war contest between the superpowers which created permissive conditions — and financial support — for their autonomous economic development. The foundation of the economic development of the emerging Third World powers of the twenty-first century — China, India and Brazil — were not laid by strategies designed by the World Bank.

The TNCs: 'Internalised International' Markets Born from trading and banking, capitalism has come full circle to assert the dominance of global trading and banking over production. To the degree that transnational corporations have internalised capital flows, to the degree that they control channels of distribution, to the degree that they maintain a special relationship with the metropolitan state, they are the contemporary manifestations of the old mercantilism, when the great trading enterprises ruled over distant peoples, their lands and their resources. In the course of the high growth era which followed the Second World War, transnational capital flows increased faster than world output and world trade. Foreign direct investment (FDI) now constitutes the largest source of capital flows to developing countries, with private loans and bonds in second place. Official grants and loans have declined since 1990. By the mid 1990s, one third of international trade ($1.6 billion in 1993) consisted of intra-firm exports by TNC parent companies and their affiliates. Another third consisted of exports by TNC parent firms and foreign affiliates to unaffiliated firms, leaving only one third of trade to 'arm's length' transactions. Equally if not more significant is the fact that the sales of foreign affiliates of TNCs ($5.2 billion in 1993) now exceed world exports of goods and non factor services ($4.8 billion). The component units which comprise the international production system of a transnational corporation are not the 'free-standing' firms of textbook economics. The World Investment Report (WIR) of 1995 provides the

14

500 Years of 'Globalisation': The Old and The New

following succinct description of the 'internalized international markets' of a typical TNC: The international production system of a TNC constitutes an internal market for the flow of goods and services — a market to which its individual member firms have privileged access. A TNC system viewed as an internal but international market comprises three types of transactions: sales by the parent firms to its foreign affiliates; sale by foreign affiliates to their parent firms; and sales by affiliates in one country to affiliates of the same TNC system in another country. These transactions are not entirely determined by market forces or valued at market prices but represent the internationally integrated production and distribution systems of a TNC. They are valued at transfer prices set for internal accounting purposes and used for customs declarations. The a d v a n t a g e of internalising these transactions lies mainly in greater control over upstream supplies and downstream markets than would be provided by arm's length purchases and sales. Associated with that are lower transaction costs especially for goods and services that embody proprietary technological and marketing assets' [emphasis added].31 The share of developing countries in world (FDI) inflows is now higher than their share in world imports (about 30 per cent in the early 1990s). If the value of sales associated with inward FDI is compared with the value of imports, this suggests that, for developing countries as a group, inward FDI rivals imports when it comes to obtaining what they need from the rest of the world.32

The 'globalisation' agenda of the TNCs is directed toward removing restrictions on imports and securing national treatment for foreign investors in the domestic markets of developing countries. Marketing, trading and telecommunications are among the more important service activities attracting FDI. The 1990s: Trends in FDI Flows to Developing Countries TNCs loom larger than ever in the world economy, and in capital flows to developing countries. The stock of FDI continues to grow faster than world output, domestic investment and trade. The deep recession of the early 1990s resulted in a sharp decline of FDI flows to the OECD countries, accompanied by increased FDI flows to developing countries — principally to Asia. This marked a reversal of previous trends of declining FDI to developing countries.

'Capitalism and Slavery'

15

In 1970 developing countries received one third of world FDI; in 1980 one quarter; in 1987-91 merely 18 per cent. Since the late 1980s, there has been a resurgence of transnational capital flows to developing countries, which increased from $25 billion in 1990 to $ 84 billion in 1994 — from 25 per cent to 37 per cent of total world FDI; 26 per cent for Asia alone. FDI flows to Asian countries — including India — are likely to increase, while FDI outflows from some Asian countries are integrating production and trade within the 'Greater China' region. Prospects for growth and FDI in Latin America and the Caribbean are more difficult to predict. Poor countries in Africa and elsewhere are not interesting to foreign investors. The 47 least developed countries account for less than one per cent of FDI. In the first five years of the 1990s, official development finance ($50 to 60 billion) has been stagnant, with the exception of the large rescue package to Mexico in 1995. FDI flows are highly concentrated with ten countries receiving between 70 and 80 per cent of total FDI in flows to the developing world. In 1994, China alone accounted for $34 billion (40 per cent of FDI flows to the developing world) making it the second largest recipient of world FDI after the United States. The entire region of East, South, and South East Asia accounted for 70 per cent of FDI flows to the third world, up from 25 per cent in the early 1980s. While large FDI to China may decline in relative importance, FDI to India is only now coming on stream.33 According to the WIR, success in attracting FDI is due to three factors: 1) growing markets, 2) a favourable regulatory framework, and 3) 'general trends from firms from all countries to invest abroad to remain competitive internationally'.34 Transnational capital is targeting Third World markets with a growing middle class, with discretionary income to spend on consumer goods whose markets are saturated in the rich countries of Europe and North America: Asia, in particular, is adding to its middle class at a rapid rate: it is estimated that, if the 5 per cent to 8 per cent economic growth in the region continues, the middle class in Asia could top 700 million by the year 2010, having $9 trillion spending power — 50 per cent more than the size of the US economy today. Transnational corporations are targeting this new influx of consumers to the global market, and many of them that produce consumer goods envisage a future when profits from emerging markets will outstrip those in the industrialized world. In addition to per capita income growth in

16

500 Years of 'Globalisation': The Old and The New

these markets, the convergence of tastes and demand in a globalized world has contributed to such an expectation.35

Notwithstanding increased capital flows to Latin America and the Caribbean in the 1990s, the region has declined as a destination of FDI relative to Asia. (35 per cent in 1981-85; 24 per cent in 1994). The Mexican peso crisis had a sobering effect on earlier predictions that Latin America Newly Industrialised Economies (NIEs) could replicate the 'Asian miracle.' The WIR of 1995 was cautious: Inward growth of FDI in Latin America and the Caribbean appears fragile, depending much on privatization programmes....Argentina, which was the largest recipient among Latin American countries in 1993 with some $6 billion in inflows, largely as a result of the implementation of its privatization programmes, experienced a sharp decline in 1994. Other countries, notably Peru, with some $2.7 billion (also very much related to privatization), and Chile, with some $1.8 billion, experienced a sharp upward swing in FDI inflows in 1994. The devaluation of the Mexican peso at the end of 1994 ... created new opportunities for export-oriented investments. On the negative side, however, domestic market-seeking investments are suffering from the recession.36

From 'Resource' to 'Market-Seeking' Foreign Direct Investment The most significant change in the sectoral composition of world FDI stock has been the relative shift out of natural resource investment (23 per cent in 1970; 11 per cent in 1990) into services, including infrastructure (31 per cent in 1970; 50 per cent in 1990). The relative importance of FDI in manufacturing declined from 46 per cent in 1970 to 39 per cent in 1990. This data pertains to total world FDI. The 450 page WIR (1995) supplied no similar data for developing countries, where FDI in manufacturing for domestic and export markets is more important, particularly in Asia. A closer examination of FDI in manufacturing in the Asian region however reveals significantly different patterns of foreign investment, with increasing intra-regional capital flows, combining regional economic integration with extra-regional exports of manufactures. These patterns differ from the 'traditional' FDI flows from major metropoles to host countries in Latin America or the Caribbean, where the United States and Canada predominate as

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sources of FDI (63 per cent of the stock of FDI in Mexico; 69 per cent in Colombia is owned by US or Canadian firms). 37 The contrast is particularly striking in the case of China, where only 20 per cent of the (very large) FDI flows from 1990-1993 came from Japan, Europe or the United Sates.38 Most of the remaining 80 per cent came from overseas Chinese investors in Hong Kong and Taiwan, and most of these investments were in manufacturing. 39 Little of this FDI originates from mega-corporations; many foreign investors in China are medium to small businesses.40

Privatisation as 'Primitive Accumulation'? Another difference between foreign direct investment in East and South East Asia and other regions is manifested in privatisation as a means of entry. From 1989-1993, 78 per cent of all FDI privatisation in the Third World were in Latin America and the Caribbean ($9.4 billion) exceeding in value the $7.5 billion of FDI privatisations in Central and Eastern Europe over the same period. In Latin America, privatization-related FDI accounted for 17 per cent of FDI flows, compared with flows of only $1.7 billion to Asia comprising less than two per cent of total FDI.41 Debt conversions and privatisations are 'one-off ways to attract foreign investment. Where foreign investment enters by the acquisition of existing facilities, whether by purchase of private assets or privatisation of public assets, there is no net addition to the capital stock, unless the investors contract to bring in fresh money. However, re-investment of profits will increase the value of FDI stock, and new FDI will be attracted by liberalised policy regimes. In Chile and Mexico, privatisation is completed. There is virtually nothing left to sell. In Argentina, $7.2 billion in FDI was received from the sale of state assets (1990-1993). Together with debt conversions of $5.3 billion, this amounted to 83 per cent of FDI inflows over the period. The value of privatisations in Peru amounted to $2.4 billion or 87 per cent of total FDI inflows over the same period. To date, Brazil, which owns 28 of the 50 largest Latin American public enterprises, has resisted their sale to foreign investors. Mainly as a result of privatisation programmes, the number of foreign affiliates among the 500 largest Latin American companies has increased from 138 to 151, and the number of state enterprises has declined from 105 to 72.42 It remains to be seen whether the wholesale privatisations in Latin America will 18

500 Years of 'Globalisation': The Old and The New

contribute to efficiency and economic growth. With some exceptions (Philippines, Malaysia) state assets in East and South East Asia have not been traded for foreign investment. State assets, whether financed by borrowing, taxation, or utility prices are social property paid for by the savings of the population at large. Their sale to private investors in conditions of severe fiscal and foreign exchange shortfalls and pressure from international financial agencies is a form of 'primitive accumulation.' Transnational corporations have acquired 'commanding heights' of key industries including telecommunications and the generation and distribution of electric power. Divestment of ownership and control of technologically advanced infrastructure is a short-sighted policy which exposes societies to international competition on conditions and on terms which mortgage future 'technology rents' to transnational capital.

Employment Creation by Transnational Corporations in LDCs Contrary to popular impressions, the impact of TNCs on Third World employment is small — probably negative where less efficient domestic producers are displaced by competition from TNC affiliates in domestic markets. Six million of the estimated 12 million jobs created by transnational in the developing world are reported to be in China.43 This leaves a mere six million people employed by TNCs in the rest of the developing world, reported to be concentrated in manufacturing in East and South-East Asia, and in export processing zones in that region and elsewhere. The figure is modest, on any scale of comparison.44 With the exception of small countries such as Singapore, Jamaica or Botswana, employment by TNC affiliates in the developing world is two per cent or less of total employment.45 Although they provide very little direct employment, TNCs are proposed in influential circles as the best and most effective way to create employment by the transfer of technology, and access to external markets.

TNCs as 'Custodians of Development'? In a review of trends in foreign direct investment in the 1990s, the author of a paper entitled 'TNCs: Custodians of Development?' observed that 'governments now welcome EDI in a manner unprecedented in the history of economic development.' However, he noted that 'what is 'Capitalism and Slavery'

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beneficial for the enterprise is not necessarily so for society in the presence of market failures. It cannot be assumed that non-interventionist policies on FDI or trade will automatically ensure that developing host countries maximise their static or dynamic economic benefits'.46 Global planning by corporations is replacing national and regional planning by governments. The reservations concerning the role of TNCs as 'custodians of development' expressed 20 years ago have been set aside in an unseemly scramble by many developing country governments to attract capital inflows on virtually any terms. The monitoring and control of transfer pricing has vanished as a serious policy concern, for fear it could be interpreted as 'hostile' to foreign investors. Lall noted that TNCs today are extending corporate governance over much wider functional areas: internalised markets of TNCs are replacing normal markets over a wider range of goods and services in a growing number of industries. In this corporate 'integrated production', where host countries may receive only a segment of an industry, they may be disadvantaged in building their domestic technological capability. Twenty-five years ago, when foreign direct investment by metropolitan corporations first attracted study by economists, I searched economic theory for definitions of economic development beyond tautological propositions in terms of savings, investment and capital formation. I found a basic insight in the early work of Joseph Schumpeter. By 'development', he wrote, 'we shall understand only such changes in economic life as are not forced upon it from without, but arise by its own initiative, from within'. If there are no such changes, and the economy simply adapts itself to the fact that the data changes, then, according to Schumpeter, 'there is no economic development. By this we mean that economic development is not a phenomenon to be explained economically ... the causes and hence the explanations of development must be sought outside the group of facts which are described by economic theory.'47 If the entrepreneurial, technological and organisational capacities of a society are the source of economic development, as Schumpeter suggests, the TNCs cannot be the 'custodian of development'. This does not mean that TNCs have no contribution to make in facilitating access to technology, finance and markets. The 'high growth' Asian economies differ in the way in which these countries have tapped foreign loans and transnational investment to strengthen local capabilities. In no case, 20

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except in Hong Kong, which is endowed with a particularly vibrant entrepreneurial culture and long British links of trade and finance, has there been an 'open door'. The other Asian countries have nurtured and assisted indigenous firms by selective credit and complex industrial policies combining import substitution and a strong infrastructure with the promotion of exports of progressively more sophisticated products. This contrasts with the less successful Latin American and Caribbean policies of import substitution by inviting the entry of TNCs to benefit from highly protected domestic markets, dependent on primary income generation by the exports of natural resources. Japan, Korea and (to a lesser degree) Taiwan closed the doors to foreign investors throughout their march to industrial strength. High rates of investment were based on high rates of domestic savings. In 1986-91, FDI as a percentage of Gross Fixed Capital Formation in these three countries was a mere 0.1 per cent, 1.1 per cent and 3.5 per cent respectively. Research and development by productive enterprises, supported by subsidies and other incentives as a percentage of GNP was 1.9 per cent in Japan and 1.3 per cent in Korea. Thailand and Malaysia have been more dependent on FDI (6.3 per cent and 9.7 per cent of Gross Domestic Income (GDI) for the development of export manufacturing. Malaysia also pursued active industrial policies, including the setting up of public enterprises, in a programme of 'affirmative action' favouring ownership of small and medium firms by the previously excluded Malay ethnic majority. In both these countries, local research and development is virtually non-existent. Singapore, with a greater reliance on TNCs than almost any other country in the world, has received more attention than the other 'tigers' by Caribbean commentators. Singapore has done extremely well, but its government has also been very interventionist, although differently from Japan or Korea. Unlike Hong Kong, Singapore did not have a private sector with strong entrepreneurial traditions. The state orchestrated economic development, starting with a base in entrepot trading, ship servicing and petroleum refining. After a brief period of import substitution, Singapore moved into export oriented industrialisation, based on TNC investment. The government intervened by incentives and various pressures to guide resources into selected high value specialised producer and consumer electronics, precision instruments, optics and services of banking, freighting and aircraft servicing. A number of public enterprises were set up to enter into 'Capitalism and Slavery'

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activities which would be to the country's future comparative advantage, including an investment push into China. The public sector accounts for a substantial proportion of GNP. Sanjay Lall, whose work has informed our brief account of the Asian NIEs, commented that 'FDI can take a small economy a long way if it is carefully selected and guided, supplied with superlative (sic) infrastructure and a disciplined and trained workforce, and given a competitive and stable investment environment'.48 In summary, the dominance of trade by transnational corporations is a reality which cannot be ignored. However, experience has demonstrated that competitive advantages are not determined by static resource advantages: more than ever before they are created and nurtured within countries and regional groupings of countries which have the societal determination to shape their future, based on confidence in their culture and the capacity of their people to match — and surpass — educational levels of the old industrialised countries. In this process, the state has a critical role to play in setting priorities, starting with firstclass infrastructure, including information technology, and a first-class educational system, from primary to tertiary levels, including incentives for research and its application to all branches of productive activities. None of this is possible — and none of this has been achieved — without the active role of the state in guiding economic and social development.

The Re-Emergence of Global Finance Although international financial markets flourished in the late nineteenth and early twentieth centuries, they were almost completely absent in the three decades that followed the financial crisis of 1931 and the breakdown of world trade and investment. The pre-1930 bond market has only recently re-appeared as a significant instrument of international capital movements.49 After the war of 1914-18, the western powers attempted to restore the nineteenth century economic order, including the 'gold standard'. The loser countries were punished by requirements to transfer resources as 'war reparations'. The tottering and defeated Austro-Hungarian and Ottoman empires gave rise to a number of new states, which soon became indebted to western creditors and were subjected to 'stabilisation' programmes resembling the IMF programmes of the 1980s. Unemployment was endemic in Europe in the 1920s and 1930s. In the United States the 'Roaring Twenties' saw a wild stock exchange 22

500 Years of 'Globalisation': The Old and The New

boom which collapsed in 1929. The whole pyramid of US credits to Europe and Latin America unravelled. International investment and trade dried up. The 'Great Depression' of the 1930s persisted until the Second World War lifted the western capitalist economies back to full employment. In the interwar period, growth of the industrial heartland of the world economy slowed to 1.9 per cent per annum. The New Deal in the United States, fascist economic planning in Germany, the socialist Five Year Plans in the Soviet Union, and unilateral moratoria on debt and heterodox policies of currency management in Latin America were protective responses to the historic failure of the attempt to restore the pre-1914 capitalist economic order.50 The lessons learnt from the experience of the Great Depression laid the basis of the post-war economic order. Full employment was enshrined in legislation as the most important policy objective of the industrial countries, and national economic development became the primary agenda of countries emerging from colonialism. Domestic and international capital movements were subject to national controls. By the terms of the Bretton Woods monetary order, the IMF was empowered to provide balance of payments support for countries experiencing temporary difficulties. Member countries were permitted to maintain exchange controls. But the IMF never became the central banker for the central banks of the world, as had been the intention of J.M. Keynes. In reality, the post-war 'gold exchange standard' was a dollar standard, and the national money of the United States became — and largely remains — the world's main reserve currency. In the early post-war years, the Marshall Plan for Europe — and similar geo-politically motivated official expenditures in Asia — together with direct foreign investments by American TNCs, were the principal sources of international finance. Commercial banks, operating under strict rules and regulations of national central banks, channeled domestic savings to enterprises which mainly served domestic markets. Economies were relatively closed to trade. In 1950, the ratio of trade to GNP in the OECD countries was 7.5 per cent, significantly lower than the trade ratio of 12 per cent at the opening of the century. In Latin America, which was markedly open to trade in 1900 (20 per cent), the trade ratio in 1950 had declined to 7.5 per cent. Asia was never dependent on world trade in the same way, with ratios of 2.5 per cent in 1900, and 4 per cent in 1950. It was the age of 'export pessimism' when it was generally believed that international trade was unlikely to regain the 'Capitalism and Slavery'

22

relative importance it had before 1930. Keynesian economic management with 'automatic stabilisers' of progressive income taxes and social security benefits, produced three decades of unprecedented economic growth (approximately 5 per cent per annum) in the OECD countries — about twice as high as historically observed growth since the industrial revolution. In the industrial countries, wages and purchasing power rose with productivity for three decades (1950 -1980) of 'Fordist' mass production for mass consumption. The automobile and cheap petroleum energy provided the technoeconomic base, linking increasing purchasing power with the construction of highways and suburban housing, and the demand for motor vehicles and consumer durables. Between 1961 and 1973, developing countries grew at an average of 6.1 per cent, in all major regions, including sub Saharan Africa (4.9 per cent per annum). From the mid 1950s, trade expanded twice as fast as domestic production, at about 10 per cent by the end of the 1960s. FDI by transnationals contributed to the growth of productivity in Europe and to increased international trade by cross border sales and purchases of the growing networks of TNC affiliates. By the mid 1970s, the trade ratio of OECD countries had doubled to 16 per cent, and one third of US imports consisted of shipments by affiliates of US corporations abroad. Trade between industrialised countries expanded faster than their trade with the developing world, whose share in world trade declined from 1950 to 1970. Latin American economies remained relatively closed, with a trade ratio of only 6 per cent in 1975. The transnationalisation of finance was a direct result of the failure of the Bretton Woods system to develop a genuine international currency. In the 1950s, the strength of the dollar and the Federal Reserve's extraordinarily high gold reserves created a strong demand for that currency, for the accumulation of reserves by central banks and for liquidity for international commercial and financial transactions. In the 1960s, the United States began to lose competitive strength to Europe and Japan, while foreign expenditures on the Vietnam war and large capital outflows by US transnationals began to exceed foreign earnings. Because the US dollar was universally accepted as an international means of payments, the United States could finance its external deficits with its national currency, resulting in a large accumulation of dollar balances by central banks, private banks and corporations seeking means of international payments. Concerned with the declining value of their dollar reserves, central banks brought pressure to bear on the United 24

500 Years of 'Globalisation': The Old and The New

States to devalue the dollar. Washington declined and opted to de-link from gold in 1971. By 1973 all major currencies were floating. International reserves and international liquidity increased dramatically, 51 generating inflationary pressures on international prices and contributing to the commodity boom of the mid 1970s, topped off by the two OPEC 'oil shocks'. The recycling of petro-dollars into short term deposits in the international banking system added to the pool of liquidity seeking profitable investments. A gigantic financial structure, free from control by central banks and the costs of reserve requirements, with the capacity to create liquidity, was emerging. The currency of this system was the 'Eurodollar'. Dollars deposited in banks outside the United States (even where these banks were American banks) became Eurodollars. The keystone of the system, and the ultimate source of the dollars was the United States. The negative current account balance of the United States was the equivalent of an injection of primary deposits to the international financial system. After 1973 the creation of money by the system itself became a major source of credit creation. By comparison with the exponential growth of financial markets since that time, the Eurodollar market of the early 1970s was modest and unsophisticated. Most countries of Europe still had exchange and capital controls and could defend their currencies from speculative attacks. In the early 1970s, the reserves of central banks in rich industrial countries were about 8 times larger than daily trading in foreign exchange. By 1995, daily foreign exchange trading of $1,300 billion was twice the value of total foreign exchange reserves of the major central banks ($640 billion in 1995). 'Central banks these days have little chance of holding back the tide of international capital flows'.52 When productivity growth in the OECD countries began to slow down in the mid 1970s and corporate profitability declined, innovation in the development of new financial instruments increased the volume of credit created to compensate for slimmer margins. Rising prices and low or negative interest rates favoured borrowers. Total private and public debt escalated as corporations and governments took up loans offered by financial institutions eager to profit from increased lending. Latin American and other NIEs attracted large inflows of commercial bank loans. In the decade prior to 1978, these countries enjoyed high rates of export volume growth, solid rates of investment and GDP growth and increases in total factor productivity. After 1978, investment rates fell, export and GDP growth slowed down, inflation increased sharply 'Capitalism and Slavery'

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and total factor productivity declined. But banks continued to pump money into countries whose residents were transferring large sums to foreign accounts — partly in response to the widening gap between local and US interest rates following the US policy shift to very high interest rates in 1979-80.53 The herd-like behaviour of private capital markets between 1979 and 1982 ranks as an example of massive market failure. For developing countries, the change of the guard within the World Bank in the mid 1980s, reflected the rising influence of neo-liberal 'market-friendly' doctrines in the United States and Britain. The intensification of international competition and fears for the stability of the international financial system arising from over-investment by commercial banks in 'severely indebted' Third World countries, resulted in a policy shift within the World Bank. 'Basic Needs' disappeared from the agenda. Responsibility for the debt crisis of the 1980s was laid at the door of decades of 'price distortions' and 'dirigiste' policies of 'inward looking' import substitution. 54 'Outward looking' export promotion and adjustment stripped indebted governments of the policy tools (selective credit, export subsidies, or strategic public infrastructure) used so effectively by Asian countries to expand the volume and the technological sophistication of their manufactured exports. Developing countries seeking official finance to soften the impact of adjustment to the unfavourable environment of the 1980s, were obliged to bow down to the new rules of the game — the smaller and weaker they were, the more slavishly they were expected to implement the innumerable detailed conditionalities demanded by the staffs of the multilateral agencies. The old raw material-supplying peripheries of the former colonial empires in Africa and the Caribbean have been under tutelage by the IMF and the World Bank since the early 1980s. The policy prescriptions of these agencies have largely been accepted by governments whose policy options appear to be restricted by the continuing burden of debt service, and the 'self-realising' dynamics of trade and financial liberalisation. Once 'integrated' into the global economy by the implementation of the 'policy reforms' designed by international creditor institutions, there is an irresistible compulsion to comply with the 'rules of the game' on penalty of exclusion from markets and finance. 'As developing countries become more closely integrated in international markets, policy makers in these countries face the increasingly demanding requirement of a new discipline — the need to maintain the confidence of markets.55

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The accession of Thatcher and Reagan to office, in Britain and the United States respectively, marked a watershed in the shift of power in the economic, financial and political arenas from labour to capital, from debtors to creditors, and from industry to finance.56 Inflation adjusted (real) international interest rates have arisen above historic levels since 1979/80. High (real) interest rates raise the threshold profitability of investment in productive activity and biases it toward quick profits in trading, including the buy-out and take-over of existing firms. Real long-term interest rates are expected to remain high, at levels of 4 to 4.5 per cent,57 and the return on non-residential capital formation in OECD countries has increased from 13.3 per cent in 1978-85 to 16 per cent in 1994-96. For developing countries, this implies continuing high costs of external debt service, high threshold profitability for new productive investment, and a profit squeeze 'which can price less efficient firms and countries out of the market and increase pressure on them to improve performance'.58 Most explanations of the re-emergence of financial markets discount the roles played by states in financial liberalisation, emphasising markets and the revolution in information technology as the prime movers of the process. This overlooks the roles played by the city and Wall Street in the emergence of the Eurodollar, and the 'domino effect' which forced other financial centres to follow London and New York in financial liberalisation.59 Since 1980, the stock of financial assets has increased two and a half times faster than the GDP of the rich economies, and the volume of trading in currencies, bonds and equities faster still. The Eurodollar market required that the country in which it was located must relax exchange controls to permit banks to operate in foreign currencies and permit citizens to maintain foreign currency deposits. The 'Bank of England Treasury City complex' lost no time in removing obstacles to private trading by domestic and foreign financial institutions in assets denominated in foreign currencies. London became the principal centre of Eurocurrency transactions, consolidating the historical primacy of the City in international finance. In this manner, it was hoped to pre-empt European plans to establish a European Monetary Unit, headquartered in continental Europe and controlled by German and French central bankers. Washington benefited by virtue of the role of the dollar as international reserve currency,60 and by its ability to finance external and fiscal deficits by attracting international funds seeking safe investment in dollar deposits. US commercial banks opened

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thousands of branches abroad and moved funds out of the US to higher yielding investments, including sovereign loans to Latin American governments which financed the 'debt led' growth of the late 1970s. Unlike trade liberalisation by inter-governmental negotiation, the liberalisation of the financial trading environment can be unilaterally initiated by a major financial centre. Other financial centres must follow if they do not want to lose business. Similarly, one major centre can unilaterally veto international co-operative measures to control cross border capital flows by refusal to cooperate. Eventually all governments, with the possible exception of the United States, lose the capacity to operate autonomous interest rate policies, outside of strict exchange controls. Exchange controls could not withstand the tidal waves of international foreign exchange trading whose daily value of $1 trillion now amounts to 440 times the daily value of international trade.61 The effective privatisation of international liquidity, initiated by AngloAmerican policies of financial liberalisation, set in train a process of self-sustaining growth of finance outside the control of central banks. By contrast, trade negotiations are a bargaining process between states (as in GATT [General Agreement on Tariffs and Trade] 'rounds'), where governments increase their access to other countries' markets by trading access to their own. Paul Krugman has convincingly argued that 'GATT think' is 'enlightened mercantilism' that presumes that each country, acting on its own would like to subsidise exports and restrict imports. Granting access to a trading partner is a 'concession'. He observed that the process has been extraordinarily successful in lowering trade barriers, and in gaining external economies for export industries based more on Smithian 'vent for surplus' than on theories of comparative advantage. Producer — rather than consumer — interests predominate in these trade negotiations. The motivation of the GATT trade negotiators of the industrial countries is mercantilist and 'productionist'. Trade liberalisation imposed by international financial agencies on indebted developing and transition countries as a precondition for access to official development assistance is a qualitatively different logic from mutually beneficial market access negotiated between developed countries or large regional economic blocs.

Liberalisation of Trade in Goods and Services Since the end of 30 years of high growth in North America and Europe, transnational corporations have sought to conquer new markets 28

500 Years of 'Globalisation': The Old and The New

by breaking down barriers to trade and foreign investment. According to the World Bank, world trade integration increased from 26 per cent of world GDP in 1970, to 40 per cent in 1990; (trade in goods increased from 11 to 18 per cent; in services from 15 to 22 per cent). In developing countries, trade integration declined from 1970 (35 per cent) to the mid 1980s (30 per cent), but since 1990 it has increased phenomenally to 43 per cent (1995), reflecting strong Asian export performance, and the effects of liberalisation policies in Latin America, the Caribbean and Africa. In the deep recession of major OECD countries in the early 1990s, import growth of developing countries soared to 10 per cent per annum (1991-93) from 2.2 per cent in the preceding decade, and (briefly) contributed more to world import growth than did the OECD countries. The continued growth of developing country imports is the major objective driving the policies of the industrial countries in the developing world. It is by raising the import capacity of developing and transition countries and increasing their openness to trade and investment that the 'productivity crisis' in the OECD countries is to be countered by intensified market penetration. It is not 'economic development', nor employment, nor poverty eradication which is driving the globalisation agenda. It is the age old mercantilist thrust to conquer new markets. The World Bank has projected that, for the period 1994-2005, world trade will grow at six per cent per annum and will act as a major engine of growth. For the developing countries, this engine will now work in reverse gear, to effect what the World Bank has called 'reverse linkage'. In the high growth era of 1950-1975, the industrialised world was the 'engine of growth' fueling growth in developing countries by its demand for raw materials. Now the developing world is expected to pull the developed world out of stagnation by accelerating the opening of its economies to increased imports of goods — and especially services — from OECD countries. Developed country trade is programmed to grow faster than output by 1.9 percentage points. The developing world is projected to grow at 4.9 per cent per annum while the OECD countries grow at 2.8 per cent per annum. All this may seem like dry statistics, but it is in the drive to open the economies of developing countries to trade and investment that we find the rationale for the demonisation of 'inward-looking' policies, the sanctification of 'outward looking development' and the repeated warnings directed at countries which fail to adhere to the liberalising policy prescriptions of the World Bank. These policies have been packaged and marketed under the appealing label of 'globalization' presented as 'Capitalism and Slavery'

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an irresistible force promising fabulous gains for 'winners' — and marginalisation for countries which fail to obey the 'discipline of markets'. In the 'globalised' environment, liberalisation is not confined to commodity trade in goods. Developing countries are now under pressure to open their economies to the import of services. The World Bank has noted that 'trade in long-distance services is likely to bring especially large gains to firms in industrial countries since the cost of providing services in developing countries is typically a fraction of that in industrial countries'.62 Liberalisation of trade in services raises sensitive issues of sovereignty. Because the export of services increasingly takes the form of 'establishment trade', that is, sales by affiliates of foreign companies located in the service-importing country, the domestic regulation of public utilities and other services and the 'national' treatment of foreign investors are now treated as 'trade issues' by the industrial countries. To capture the opportunities offered by the internationalization of services, developing countries will need to adapt their regulatory environments. Because of the non-storability of services, FDI is a major mode for the international delivery of services. Removing barriers to FDI is therefore as important as lowering restrictions on imports. The domestic regulatory environment can create additional barriers to international competition (state monopolies in service industries; legal barriers to entry to economic activities; price controls). Domestic de-regulation is often a necessary complement to the opening up of the foreign trade and investment regime.63

Market access and national treatment are specific obligations under the General Agreement on Trade in Services (GATS). With reference to the Uruguay round, the same World Bank report noted that offers by developing countries to reduce tariffs under the Round were more important to the United States than those of either the European Union or Japan — and more important than those of the United States to Japan and the EU.64

The Marketing of 'Globalisation' Following the demise of the rival super-power, a 'globalisation' doctrine of extreme techno-economic determinism has filled the intellectual vacuum left by the disappearance of 'socialism' — however

30

500 Years of 'Globalisation': The Old and The New

imperfect in any of its varieties. There appears to be no alternative to compliance with the sovereignty of global markets. States, it is said, are essentially powerless to control cross border flows of goods, money and people. Neoclassical economic doctrines have been called upon to 'prove' that full liberalisation of commodity and financial markets is not only irresistible, but 'efficient' and universally beneficial. Implementation of liberalisation policies, whether from expediency or conviction, is largely due to the disempowering perception that 'there is no alternative'. Not since the 'golden age' of the 'long nineteenth century' have states and governments been so tightly locked into 'discipline' of capital markets.65 The World Bank is the principal source of neo-liberal policy advice to developing countries, presented as doctrinal economic truth. 'Imperfections' and 'distortions' in markets for goods, services, capital and labour are due to interference by the state; in the absence of such interference, markets would function more efficiently, and result in economic growth. Competition in the market place for ideas is not, however, part of the canon.66 'What makes the Bank so powerful is that it has no real rival. The Bank has become a virtual monopoly... in its research work'.67 Another critic complained that 'disguising a multimillion dollar ideological marketing operation as research has not been a heartening trend over the past dozen years for the World Bank'.68 Neoliberal policies have been marketed by endless repetition, and distorted interpretations of the East Asian experience and that of the former socialist countries of East Europe. They are validated neither by historical experience nor by the accumulated insights of the teachings of economics, but by the threat of financial strangulation and economic collapse of small countries which lose the confidence of markets. World Bank documents are replete with warnings of the: increasingly demanding requirements of a new discipline — the need to maintain the confidence of markets. The premium on sound economic policies has risen. In a more integrated global economy the rewards for such policies are larger, but so are the penalties for policy errors. The increased market discipline on policies is enforced by private agents — savers, investors, firms in both domestic and foreign markets. When market confidence in policies dips, not only does foreign financing dry up, but domestic capital tends to flee as well. 69

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For Caribbean and many other small developing countries, the problem is not the 'global' world economy; it is the 'globalisation' agenda of the international financial institutions (IFIs) which have systematically and deliberately taken advantage of the debt crisis of the 1980s to institute policy regimes which privilege the interests of private capital over the well being of people. Societies have been savaged by structural adjustment programmes and contaminated by a virus of unconstrained greed, nurtured in a 'culture' of social Darwinism of 'winners' and 'losers'. The problem lies in the reduced space within which countries are now permitted to manage their affairs on account of commitments, often extracted under duress by private and official creditors. The epicentre of these doctrines is located in major universities, think tanks, business organisations and business journals in the English speaking world — principally in the United States. The 'globalisation' agenda is basically an American agenda which regards the entire world as a gigantic 'playing field' from which all obstacles to the reach of American business are to be 'levelled', as a bulldozer levels a building site. The purpose of 'institutional reforms' is to demolish protective economic and social structures to clear the way for the construction of a 'free market' edifice, in the image of the Anglo-American model. The political culture of the United States is universalistic and proselytising. American triumphalism has put new wind in the sails of a 'neo-imperialist' project to impose their particular brand of capitalism and their representational institutions on the rest of the world. The domestic implementation of ('reaganomic') policies in the United States in the 1980s produced the illusion of prosperity — while three quarters of the population suffered declining living standards. Relatively full employment accompanied by a reduction in real wages for the majority of the work force validated the effectiveness of 'the market' for the elites of internationalised policy-making circles of the extended 'Washington consensus'. The attraction of this paradigm is seductive to young professionals privileged by the advantages of higher education, including 'Third World' technocrats trained in the graduate schools of American universities, as in the case of the Latin American 'Chicago boys'. It has seduced many intellectuals in East Europe and the former Soviet Union who failed to understand that a successful 'market economy' rests on formal and informal institutions of contract and trust, underpinned by a social security support system, whether based on state transfers as in western 32

500 Years of 'Globalisation': The Old and The New

Europe, or on extended familial relations as in Japan and other countries in Asia. Not least in importance is the appeal of neo-liberal policies to Galbraith's 'contented classes' who find comfort in economic philosophies which suggest that it is not their responsibility to pay taxes or otherwise contribute to the welfare of the rest of society. In developing countries, where this stratum is narrow — perhaps 10 to 15 per cent in the best of cases, and income disparities are frequently wider, economic policies based on methodological individualism produce neither stability nor sustainable growth. Wherever this model has been imposed on populations, whether voluntarily, or by compliance with conditions of creditor agencies, there has been an increase in income inequality, a growing 'underclass' of persons excluded from entitlement to economic livelihood, a fraying of societal cohesion and a rise in elementary class warfare in the form of criminal activity, including a global drug economy which now sustains the livelihood of unknown millions of people. The disruption of economic security in a world of 'winners' and 'losers' invites the mobilisation of discontent by religious fundamentalisms of all varieties, including extremes of evangelical Christianity, and the fractioning of established states on faultlines of ethnicities and micro-nationalisms. In this paper we have examined structures of economic and financial power of the 'global' reach of capital. We have noted continuities from the 'old' to the 'new' mercantilism, from the vantage point of the Caribbean, where 'global' has been the norm since the foundation of plantation economies with African slave and Indian indentured labour. A succession of rival European metropoles has contributed to the rich texture of Caribbean language and culture, making this region unique and distinct from the major geo-economic blocs which dominate its external relations of trade and investment. The neo-liberal 'globalisation' agenda has diverted attention from the shifting configuration of constellations of economic blocs. The demographics of the ageing populations of North America and Europe and their rejection of renewal by the intake of large non-European migrations, are among the factors likely to change the global balance of power in favour of Asia, Africa, and Latin America in the next century. The shift of the growing points of the world economy from Europe to Asia is already incontestable. The attempt by the United States to extend NAFTA to embrace all of the Americas has been checked by the problems 'Capitalism and Slavery'

33

of absorbing Mexico, geographically part of North America. At the initiative of Brazil, the countries of South America have formed a new trading bloc, MERCOSUR. For the Caribbean, located off the shores of North America, with historic links with Europe and Latin America, and ethnic roots in Africa, India, China and the Middle East, the emerging constellation of a polycentric world presents the possibility of realising the dream of a Caribbean 'nation' composed of the entire archipelago of the islands of the Caribbean Sea. This was the vision of the late Dr Eric Williams — reflected in his book, From Columbus To Castro. Such a project is contingent on effective resistance to the pull of irreversible absorption into the North American economic and cultural space. For the small English-speaking countries of the Caribbean, it calls for the revitalsation of CARICOM, and the development of common negotiating positions on trade relations with Europe, and with North and South America.70 Only closer association of the Caribbean island states with each other, within the umbrella of the Association of Caribbean States (ACS), can assure the territorial and economic security of the region. In Capitalism and Slavery, Dr Williams documented the global dimension of mercantile capitalism, when Africans were transported across the Atlantic as human capital in the service of profits for European merchants and planters. Centuries of shared experience have forged cultural commonalities among Caribbean peoples. They are the matrix which sustains the project of Caribbean 'nationhood', based on respect for the sovereignty of societies and the diversity of cultures. Such a project has no resemblance to the crude doctrine of 'globalisation', which is no more than economic and cultural imperialism, dressed in postmodern clothing. Global markets are a reality; 'globalization' is a self-serving agenda of transnational corporations and global finance, backed by a gridlock of 'rules of the game' which the United States is attempting to impose on the world. But the world is far too complex and fluid to be ordered by designs made by a declining hegemonic power. That is another way of saying that the future of the Caribbean region depends, in no small measure, on the ability of its peoples to unite to defend Caribbean sovereignty, to realise the dream of the late Dr Willimas of one Caribbean nation, spanning time and space, from Columbus to Castro.

34

500 Years of 'Globalisation': The Old and The New

a

The Plantation Economy Models: My Collaboration with Lloyd Best1

Forty years have passed since Alister Mclntyre, Lloyd Best and I conceived the plantation economy models in two or three days and nights of intensive discussion in St Augustine in 1964. From the beginning of our work, we conceived three models of the 'passive' incorporation of plantation hinterlands into the 'overseas economy' of the metropoles. The plantation models traversed a historical path from the slave plantation (Model I) to post emancipation (Model II) to modernisation and 'development' following the labour unrest of the late 1930s and the Second World War (Model HI). Our methodology was one of successive 'modifications' of the original model of 'pure plantation economy'. Model IV was the 'anti-model' — a self-sustaining, self-reliant economy which had transcended metropolitan dependence and the economic and social legacy of the plantation system. Cuba is the only Caribbean country which has made significant progress toward achieving this objective. In these 40 years much has happened and much has changed. I can speak only for myself. Lloyd speaks for himself, always with eloquence. When I first met Lloyd Best in 1961, I was profoundly ignorant about the Caribbean. I learned a lot about West Indian history and society from Lloyd, from West Indian students at McGill University who formed the core of the Montreal New World Group in the 1960s, and from an intensive reading of West Indian literature. But it was the daily contact with colleagues, co-workers, students, friends, neighbours and strangers during my years of work in Trinidad, and more recently in Jamaica, which projected me into a continuous learning process which will not end until my final departure. I think it is useful to put on the record the basis of my collaboration with Lloyd Best, as I see it. I believe the approach and methodology of our work was, and remains, valid. I return to a discussion of methodology and ideology later. When our collaboration started, I did not appreciate that the explanatory power of the plantation models reaches beyond

the modelling of contemporary economic structures, to illuminate the many ways in which the legacy of the plantation system has conditioned the behaviour of all groups and classes, and all institutions, including the state. In the 1960s I was teaching courses in economic growth and fluctuations, techniques of economic planning, linear programming, and the history of economic thought at McGill University in Montreal. At the same time, I was directing a large research project on the construction of input-output tables for each of the four Atlantic Provinces of Canada, at Statistics Canada. Its purpose was to serve as baseline data for regional economic planning. In addition, I was writing background papers for the New Democratic Party of Canada on the effects of foreign investment on the Canadian economy. These, together with a familiarity with Marxist political economy, were the skills I brought to my collaboration with Lloyd Best. In 1964, I invited William Demas to McGill, as the first Visiting Senior Research Fellow of the Centre For Developing Area Studies (CDAS), where he wrote The Economics of Development in Small Countries with Special Reference to the Caribbean? In 1966, we obtained a small research grant to bring Lloyd Best to McGill, and from 1966 to 1968, we worked together on an elaboration of plantation economy models. The result was 'Externally Propelled Growth and Industrialisation in the Caribbean'. 3 The project had a number of collaborators, including Norman Girvan, who contributed a comprehensive study of the Mineral Export Sectors4 and Adlith Brown, Edwin Carrington and Ainsworth Harewood, McGill graduate students, at that time. Our expectation was that we could construct a multi-sectoral model of Caribbean economy to serve as a planning framework for the transformation of these economies to be less externally propelled and more self-sustaining. I was attracted to the idea of modelling Caribbean economic reality on its own terms, to reveal how such highly open and dependent economies adjust to the changing fortunes of their commodity export sector; how incomes generated are distributed between foreign and national capital, wage earners and the government; and how employment is created. The approach was recognisably 'structuralist' in the Latin American sense of the term. But we had read little of this literature, with the notable exception of Celso Furtado's Economic Growth of Brazil.5 The influence of Latin American structuralism came principally through Dudley Seers. Before he visited Trinidad and Jamaica 36

500 Years of 'Globalisation': The Old and The New

in the early 1960s, Seers had worked for the United Nations Economic Commission for Latin America (ECLA) on the Venezuelan petroleum economy,6 and had become the principal exponent of Latin American structuralism in the English-speaking world.7 His 'Model of an Open Petroleum Economy' and his modified accounting framework for primary commodity exporters directly influenced our work. 8 When we first adopted 'the plantation' as the fundamental and original economic institution of Caribbean economy, we had in mind export economies in which sugar, bauxite or petroleum were the principal generators of income, while domestic manufacturing was almost exclusively 'industrialisation by invitation' (Lloyd Best's term) by 'branch plants' of foreign companies. Both the leading export sectors and import substitution manufacturing were, at that time, predominantly owned and controlled by foreign capital. In Trinidad, the sugar industry was owned by Caroni Ltd, a subsidiary of Tate and Lyle, and the petroleum industry was dominated by Shell and Texaco. The latter owned the refinery at Pointe-a-Pierre, at one time the largest in the Commonwealth. A similar situation prevailed in Guyana, where the sugar industry was owned by Bookers, and bauxite by the Aluminum Company of Canada (Alcan). In the 1960s, Jamaica was the world's largest exporter of bauxite/ alumina, with participation by all the major North American companies.

Methodological Approach What we modelled was a variant of a dependent export economy, with strong external and weak internal linkages. The originality of the work, however, proved to lie in the explanatory power of 'the plantation' as the original and fundamental institution of Caribbean economy. While the methodology we devised drew on Marshallian partial analysis of the firm and the 'industry' and on (Keynesian) categories of national income accounting, it was, from the beginning, grounded in a historical/ institutional approach. We situated 'plantation economies' geographically in 'plantation America' and typologically as 'colonies of exploitation' — distinct from colonies of settlement (for example, New England, Australia) or colonies of conquest (India or Andean America). In the islands of the Caribbean, the pre-Columbian Amerindian population had been almost entirely eliminated. Caribbean society was effectively the historical product of the New World slave plantation. Historically, Model I (pure plantation The Plantation Economy Models

37

economy) belonged to the era of the Old Mercantilism where the active agent of economic change was not a capitalist who engaged in production, but a merchant venturer engaged in overseas trade under the protection of a metropolitan monarch. Investment in the hinterland production of a valuable exportable commodity like sugar, cotton or tobacco was an extension of a metropolitan mercantile enterprise in trading activity. Merchants took the first cut of plantation surplus, collectable as interest charges on the advance of supplies and from the proceeds of sale of the export staple in the metropole. Planters made high profits in good times, and lived off their capital (overworking and underfeeding their stock of slaves) in bad times. In principle, they lived in the metropole, leaving attorneys to manage their estates. To maintain their luxurious lifestyles, they mortgaged their plantations, increasing indebtedness and incurring future interest charges. The rigid labour regime of plantation production offered no incentive for technical improvement. When soils became exhausted and physical yields began to decline, investments shifted to new locations with virgin soils and better techniques. As terms of trade turned against the 'mature' plantations, the planters did not shift into other staples, but called on their influence in the metropole to obtain 'imperial preference'. Model II (post-Emancipation) belonged to the era of nineteenthcentury industrialisation in the metropoles, the dissolution of exclusivist mercantilist trading systems and the rise of modern nation states. As the plantations were confronted by increasing competition and declining profits, spaces opened up for a 'residentiary' domestic economy of food production, small scale crafts, and new ('non-traditional' minor staples) export crops like cocoa and bananas. Opportunities for access to land by ex-slaves increased the supply price of labour, and the planters responded by importing indentured workers, principally from India, to work their plantations. They engaged in various colonial practices to prevent free labour from making a living by non-plantation economic activity, including the limitation of access to land and to education, especially for male children. As the profitability of mature plantations declined, hardship increased, small estates were liquidated and their lands sold to large plantations. Pressure of competition from new territories forced technological improvements, but declining terms of trade turned these improvements to the advantage of the metropolitan importers and consumers. Regrettably, we did not develop Model II. Work stopped in 1969. It resumed briefly in 1974, when I was appointed to the Institute 38

500 Years of 'Globalisation': The Old and The New

of International Relations at St Augustine. A year later my work permit was withdrawn by the Government of Trinidad and Tobago and our collaboration was suspended. Model III was the modern post-World War II modification of the plantation system. The international economic context was that of a New Mercantilism of transnational corporations, which replicated some of the features of the Old Mercantilism. We saw the transnational corporation as the dominant economic institution of the last third of the twentieth century, and their overseas subsidiaries and branch plants as the 'representative firm' in dependent host countries. My initial interest in our work was to elaborate on Model III as an operational framework for economic planning of the transformation of externally dependent Caribbean economies into self-reliant and self-sustaining economies, with equitable distribution of income and dynamic capacity for innovation.

A System of National Economic Accounts for Trinidad and Tobago In 1969, I hoped to obtain a Canadian International Development Agency (CIDA) funded position at the Institute of Social and Economic Research in Trinidad to continue the work, and elaborate on Model III. This initiative was frustrated by intervention in Ottawa, believed to have been related to my close association with West Indian students in Montreal during the Sir George Williams affair, when Canadian authorities became paranoiac about 'black power'. 9 Because I had made preparations to move myself and my family to Trinidad, I accepted an invitation to serve as technical adviser to the Government of Trinidad and Tobago in the area of national income accounts. I was located in the Ministry of Planning and Development and the assignment was to improve the country's economic statistics in preparation for the next Five Year Development Plan. My salary was initially paid by a technical assistance programme of the International Monetary Fund (IMF). In the course of four years (1969-73), a team of economists and statisticians working closely with the Central Statistical Office under my direction constructed an improved system of national economic accounts for Trinidad and Tobago. The system was detailed, but incomplete. In 1973, the exercise was shut down, the unit was dissolved, the files and worksheets were locked up, my interim report was declared 'confidential', and became totally unavailable. The revenues from the The Plantation Economy Models

39

oil boom following the OPEC price hike of 1973 and the discovery of large offshore oil reserves were given as reasons why development planning was no longer required. The system we had devised incorporated some of the features of the Best-Levitt accounting framework for Model III.10 Our accounts for the manufacturing sub-sectors attracted the attention of World Bank economists, who used our estimates to correct their data — and adopted our terminology of 'non-traditional' exports. Perhaps the project was too ambitious. However, in retrospect, I am impressed by the fact that we were able to generate data which captured the most important linkages of (detailed) commodity producing sectors with each other, with the 'rest of the world', with households, government and 'savings/investment' accounts. All of this was done without access to electronic data processing. It could not have been achieved without the firm support of the Permanent Secretary of the Ministry, Mr Eugenio Moore and the teamwork and dedication of the civil servants who constituted the research unit. We believed that our work was contributing to the welfare of the country.

Externally Propelled Growth in the Caribbean: Selected Essays 11 In the initial phase of our work in Montreal, we addressed the 'problematic' and the methodology. 'Externally Propelled Growth and Industrialisation in the Caribbean: Selected Essays' (Best and Levitt 1967,) was a 'progress report'. The introductory statement and the first chapter 'Toward a Theory of Caribbean Economy' set out reasons for the failure of policies to achieve expected results in terms of employment and selfsustaining economic growth. It posited the 'urgent need for work which describes in detail the structures and institutions of the economy and comes to grips with the real constraint on change.' Because 'no serious work can proceed without a theoretical framework within which Caribbean experience can meaningfully be described'12, we started with a reassessment of received economic theory in the light of Caribbean experience. We concluded that despite the pre-occupations of the profession with the problems of so-called developing countries in the post-war years, 'professional dilettantism was offered as a substitute for an effort to isolate the real problem'. For these reasons,

40

500 Years of 'Globalisation': The Old and The New

we occupied ourselves with efforts to isolate the institutional structures and constraints within which Caribbean economy operates. In so far as the New World was brought into existence by the Old, Caribbean economy is the creation of metropolitan enterprise, from the start. Current economic institutions in the region have been formed by the historical accretion of the hinterland operations of the metropolitan economy, from the slave plantation to the modern corporation.13

We have sought to study the contemporary economic problem in the perspective of the past performance of Caribbean economy. To this end, we have employed the method of histoire raisonnee. We have constructed a series of models. Each model distils from diverse historical experience of the Caribbean countries, the essential mechanisms of economic change characteristic of the phase. The models are pitched at a level of generality which permits identification of the peculiar characteristics of Caribbean economy without sacrificing important features of individual sub-types.14 The second chapter, 'Pure Plantation Economy' was essentially Best's work. In the next two chapters, 'Early Metropolitan Industrialisation' and 'Mature Metropolitan Industrialisation', we reviewed classical political economy from Smith to Marx in the historical perspective of the evolution of European industrialization. The next three chapters: 'The New Mercantilism', 'The Metropolitan Balance of Payments' and 'Hinterland Economy' contained a large amount of material generated by my research for Canadian policy papers on foreign direct investment. The last chapter, 'Post War Industrialisation Policy in the Caribbean', was drafted by Lloyd. The volume also contained two empirical studies of the manufacturing industries of Jamaica and Trinidad. The Jamaican study was the work of Adlith Brown, extracted from her McGill Master's thesis; the Trinidad study was done by Edwin Carrington, and subsequently published in New World Quarterly.15

Canada: Economic Dependence and Political Disintegration16 Lloyd pressed me to write up my Canadian material for an issue in the New World Quarterly produced by the Montreal New World Group. The result was 'Canada: Economic Dependence and Political Disintegration', several times reprinted (without permission) and circulated as an underground manifesto of Canadian nationalism. Subsequently it was expanded and published as Silent Surrender: The The Plantation Economy Models

41

Multinational Corporation in Canada.17 Silent Surrender was a forerunner of a large body of literature on multinational corporations. In retrospect, I see it as prophetic in its prognosis that the ultimate result of the incorporation of Canada into the continental economy of the United States would be political fragmentation. Will Canada be the first industrialised country to disintegrate through the social and political pressures of global competition and the dismantling of the welfare state? I mention this to thank Lloyd, for his encouragement and to underline the fact that the multinational corporation was present in our plantation economy work, from the beginning. (Critics who could not see the relevance of the 'plantation' to non-agricultural mineral and manufacturing industries in the Caribbean failed to understand the essence of our argument concerning the persistence of inherited structural and behavioural factors in contemporary Caribbean economy).

Export Propelled Growth and Industrialisation in the Caribbean18 Volume I: A General Theory of Plantation Economy The first volume of 'Export Propelled Growth and Industrialisation in the Caribbean' was jointly drafted, sometimes following prolonged discussion, disagreement and negotiation. I have recently re-read the text, and it stands as an excellent exposition of our work. It is lucid and well written. It is unforgivable that this manuscript text has remained unpublished, not only because of its originality at the time it was written, but because it is carefully documented and replete with insights which have not lost their relevance. An Introduction set out the methodology of successive modifications of 'pure plantation economy'. The next chapter, 'An Outline of a General Theory of Caribbean Economy' introduced Best's five point (exclusivist) 'general institutional framework' or 'rules of the game'. Other topics covered were: 'the dominant unit of enterprise' distinct from 'the dominant unit of production'; income and employment determination; the emergence of a 'national economy'; mechanisms of adjustment; new staples (minerals and tourism) and 'quasi-staples' (cheap labour export manufactures); the problem of small size; problems of transformation; the persistence of mercantilist patterns; and regional economic integration.

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500 Years of 'Globalisation': The Old and The New

The last chapter of the first volume, 'Post-War Economic Thought in the Caribbean' traced Caribbean approaches to development from Moyne to Lewis. It presented diagrammatic flows of labour/employment and goods and services/incomes in the case of 'quasi-staple' (cheap labour manufactured exports) and 'mineral-staple' economies. The critique of the work of W.A. Lewis and of policies informed by his writings, is a classic episode in the history of Caribbean thought. The chapter concluded with an appraisal of the Seers Model, with an algebraic critique of Brewster's comments on Seers19, and an exposition and critique of Kennedy's Open Keynesian models20.

Volume II: Pure Plantation Economy The second volume of 'Export Propelled Growth and Industrialisation in the Caribbean' was devoted to pure plantation economy. The first two chapters: 'The Emergence of the Metropoles' and 'The incorporation of the Western Hinterlands: Model of Histoire Raisonnee' were written by Best. The third chapter: 'An Ideal Accounting Type Framework for Pure Plantation Economy' was joint work. The itemisation of transactors and transactions derived from Best's historical research on the slave plantation, as developed in his 'Outline of a Model of Pure Plantation Economy' (Social and Economic Studies, 1968). In the fourth chapter 'Model of Pure Plantation Economy' we attempted to analyse the short and long run adjustment of the firm (single plantation) and the industry. The latter could be defined at the level of a single hinterland, a region, an overseas economy of a metropole, or the world as a whole. In our model, the industry normally experiences increasing returns (declining real costs) as production shifts to new terrain while old mature plantation economies will inevitably experience diminishing revenue returns and eventually also diminishing physical returns, negative net profit, and capital consumption. As new hinterlands enter with virgin soil and better technology, increased supplies on metropolitan markets reduce staple prices. Mature hinterlands experience deteriorating terms of trade, and falling — eventually negative — profitability. Because the fixed costs of plantation production are high, and the rigid labour regime of plantation slavery does not permit diversification into other export staples, adjustment to declining profitability is countered by increased indebtedness and capital consumption of the stock of slaves by overwork and reduced rations. In The Plantation Economy Models

43

the fourth chapter we attempted to formalize the growth path of the slave plantation economy from its foundation, to maturity, decline, and eventual liquidation and collapse. The price which values the plantation surplus and determines its division between metropolitan merchants and hinterland planters is the terms of trade, and also determines the allocation of land and slave labour between the production of export staples and food. There is much in this work which suggests continuities with contemporary patterns of allocation of land and (slave) labour, and investible 'surplus'. The remaining text of Volume II was little more than a rough draft and required further work before it could be considered for publication. Lloyd presented our work to the third conference of Caribbean Agricultural Economists in 1968 in an important paper subsequently published as 'A Model of Pure Plantation Economy'.21

Volume III: An Ideal Type Accounting Framework For Plantation Economy Further Modified The third volume of 'Export Propelled Growth and Industrialisation in the Caribbean' was devoted to 'An Ideal Type Accounting Framework For Plantation Economy Further Modified'. The point of departure was the Seers modified input-output model developed for Jamaica and Trinidad which sacrificed a full matrix of domestic transactions for a more elaborate treatment of income leakages of taxation and transfers to the rest of the world. My contribution to the accounting framework was its overall design. An innovative feature of the system was the introduction of several savings-investment accounts, reflecting segmentation of the capital market, and the absence of an aggregate 'pool' of savings available to finance investments of all types. Specifically, the capital transactions of the plantation-mineral enterprises were separated from those of the remainder of the economy. Within this remainder, there was a further division between the capital transactions of large enterprises in manufacturing and tourism, and those of the rest.

Back to the Plantation In 1974,1 was appointed to the Institute of International Relations on a three year contract. I now had time to re-work the draft of the 'Pure Plantation Model' we wrote in Montreal. Four of six planned

44

500 Years of 'Globalisation': The Old and The New

chapters (Chapters II, III, IV and VI) were reworked, discussed, and negotiated and approved as our joint work. The missing Chapter V was intended to treat the long-term adjustment of the plantation to declining profitability. Chapter I was to be an introduction, relating our work to that of other so-called 'dependency' theories. I was unable to rework this material because my contract with the University was frustrated in 1975 when the government of Trinidad and Tobago withdrew my work permit. Rereading this work after 20 years, I am satisfied with its carefully executed presentation. Much misunderstanding in subsequent critiques of our work might have been avoided, had it been available to critics. In the rest of this chapter I summarise these four chapters, and comment on some general features of the plantation system.

Metropoles and Hinterlands Many features of the 'exclusivist mercantilist institutional framework' of metropolitan dominance and hinterland dependence, outlined in Best's five 'rules of the game', persist in the contemporary world of 'globalisation'.

Inter-Caetera The Caribbean is undeniably situated in the 'sphere of influence' of a major metropolitan power, as instanced by a history of US military interventions in Cuba, Haiti, the Dominican Republic and Grenada, and the extraordinarily hostile pressures which the United States continues to apply to Cuba, notwithstanding the end of the Cold War.

Muscovado Bias The traditional division of labour governing trade between metropoles (centres) and hinterlands (peripheries) persists. The latter are confined to the extreme ends of the value chain — extracting and processing raw materials and engaging in finishing touch assembly manufacture. Caribbean economies continue to be dependent on the export of one or two principal commodities (petroleum and natural gas; bauxite/alumina; bananas or services — tourism) for their growth dynamic. Manufacturing, whether for domestic or export markets,

The Plantation Economy Models

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continues to be low in the value chain as in the case of the garment industries of Jamaica and the Dominican Republic.

The Navigation Laws Metropolitan control over channels of transportation, distribution and communication between hinterlands and metropoles persists and continues to re-enforce the 'Muscovado Bias'. Hinterlands are 'price takers' vis-a-vis monopolistic metropolitan buyers and, to only a lesser degree, vis-a-vis monopolistic metropolitan suppliers. Information by electronic media is dominated by emissions from the United States; the prime source of international TV news is CNN.

The Metropolitan Exchange Standard Although hinterland currency is no longer fully backed by metropolitan (hard) currency, full convertibility has (recently) been reintroduced 'to eliminate exchange risk [of investors] and to ensure that hinterland assets are fully realizable in terms of metropolitan goods and services'.22

Imperial Preference Important export commodities continue to depend on preferential access to metropolitan markets in Europe (LOME Convention) and the United States (CBI preferences).

Characteristics of Pure Plantation Economy The unit of production is separate from, but subordinate to the unit of enterprise ... the planter is subordinate to the merchant because ... the merchant enjoys a decisive advantage by virtue of the bargaining position he holds because he controls access to finance and markets. 23

We have already mentioned the subordinate position of the hinterland vis-a-vis transnational enterprises. To this we must add the subordination of production to finance which is a feature of the currently prevailing Anglo American style of capitalism. In plantation economies,

46

500 Years of 'Globalisation': The Old and The New

the short term (financial) view, favouring a quick return over long term commitment of funds to the productive sector, is a legacy of the planter's mentality, which never envisaged a permanent stake in the country. 'Production for consumption in a residentiary sector is tolerated only to the extent that it does not compete for the resources of the staple (export) sector.'24 The pattern persists in the allocation of good quality land between domestic and export production, and has recently been re-enforced by neo-liberal policy measures to favour export over domestic production.

Economic Roles in Pure Plantation Economy '[The planter] may or may not physically reside in the hinterland [but] lives, in effect, in the metropole.'25This is an easily recognised legacy of the plantation, evidenced in aspirations to metropolitan lifestyles. While not unique to plantation hinterlands, the phenomenon is extreme in plantation economies where it is not offset by traditional (pre-capitalist) cultural values. 'The Attorneys provide management ... and are the "senior staff" of the plantation ... They obtain executive income in the form of salaries and perquisites'26 (consumption of services produced on the plantation) — again, an easily recognised category of private (and public sector) 'senior staff whose perks consist of expense accounts and similar charges on the national product. Overstaffed and overpaid senior managements are another legacy of the plantation system. Labour power continues to be provided by the descendants of slaves, as manifested in the hierarchy of class and race in contemporary Caribbean society.

Incalculably There is incalculability at the level of the multinational merchantplanter enterprise and at the level of plantation production in the hinterland. The former affects the distribution of surplus between metropole and hinterland and results from the fact that explicit market prices appear only in the metropole — at the original point of purchase of goods to be consigned to the hinterland, and at the final point of sale of the (export) staple. The valuation of all other transactions is in some sense notional because they are more or less internal to the unit of The Plantation Economy Models

47

enterprise. Prior to the participation of the government of Jamaica in the bauxite industry, and the government of Trinidad and Tobago in the petroleum industry, these governments were totally uninformed about internal and external corporate pricing practices. Transfer pricing favouring the transfer of surplus to the metropole continues to be a problem wherever a large private enterprise is simultaneously engaged in the production and the overseas marketing of an export commodity, as is currently the case with bananas in Jamaica. 'Incalculability' within the plantation arises from the fact that 'the only explicit prices in the hinterland are formed by international markets, and the production decisions of planters are governed by a desire to maximize income in the form of metropolitan purchasing power (foreign exchange).' 27 The cost of non-staple outputs to the planters is an opportunity cost in terms of staple production foregone. Where the production of domestic goods and services does not compete with staple output for resources (where there is 'excess capacity' on the plantation) these are 'costless' or 'free goods' to the planters. This is so in spite of the fact that the production of 'free goods' requires an input of real resources and may yield a real non-monetary income to planters and senior staff. Thus the hinterland is a price taker not only in the obvious sense that hinterland producers have little or no control over the selling prices of their exports, or the purchase prices of their imports, but in the more fundamental sense that the internal structure of prices is determined by (external) prices corresponding to the requirements of resource allocation and accumulation in the metropolitan centres. The internal price structure is derivative of the external or world price structure. This pattern of pricing holds the essential clue to the continuing export bias of hinterland economies. The survival of a price structure which perpetually and systematically undervalues and underprices production aimed exclusively for domestic consumption accounts for the failure of hinterland productive forces to foster technological and entrepreneurial development and raise productivity, output, employment and income in the domestic sectors. The two previous paragraphs are fundamental in understanding how and why plantation economies persist in the misallocation and underutilisation of natural and human resources. Measures designed to redress the 'export bias' by fiscal and exchange rate policies favouring production for the domestic market have come under attack as 'inefficient' because they favour 'non-tradable' goods and services. But 48

500 Years of 'Globalisation': The Old and The New

these are precisely the goods and services which meet the basic requirements of the population. The implicit assumption behind the doctrine that 'world prices' are the 'right prices' which should determine resource allocation in all countries is that the optimal resource allocation on a world scale is — and should be — governed by the grossly unequal distribution of purchasing power on a world scale.

Locus of Control and Locus of Production in the Overseas Economy The organisation of production in peripheral capitalist countries has at all times been subordinate to larger metropolitan-based enterprises whether as plantations and mines, or small commodity producers selling at prices set by a small number of distributors with a monopoly of access to metropolitan markets. Exclusivist channels of communication between centre and periphery have been a constant feature of the international geo-political system since the beginning of West European expansion overseas in the sixteenth century. Viewed from the periphery neither 'monopoly capitalism' nor globalisation is a recent phenomenon. As Marx explained, the genesis of capitalism stems from mercantile wealth in the context of a general mercantile framework. So-called primitive accumulation in the overseas economy was in fact a joint operation between the merchants and the state which forcibly created institutions designed to separate the independent producer-consumer individuals from their means of subsistence in order that they would be compelled to cede, yield or sell the products of their labour, or their labour power, or in the extreme case of slavery, their person, on terms which further enhanced the wealth of the merchant-capitalist and fuelled the process of accumulation of capital in the metropole. Notwithstanding the transformation of capitalism from its pre-industrial mercantile origins to its present state of evolution, the controlling power has at all times rested with the mercantile/financial element. In the long run, outcome in economic affairs is determined by an irreversible sequence of short-run decisions. The chronic incapacity of the plantation system to diversify itself derives from the typically shortterm horizon of the planter, from his 'get rich quick' mentality, his chronic lack of liquidity and his progressive indebtedness to the metropolitan merchant. Here again, we identify an aspect of a dependency syndrome which has obvious contemporary relevance. The link between the short The Plantation Economy Models

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and the long run is provided by the investment decision of the planter. Expected profits govern the planter's willingness to expand or contract. Realized profits determine his liquidity and credit worthiness, and hence the feasibility of investment and the losses associated with capital liquidation. Plantations, and plantation hinterlands pass through a 'staple cycle' from foundation, to expansion, to maturity, to decline, to liquidation. Merchants switch capital to new terrain, which enters with superior technology of newer vintage. Mature plantation and plantation hinterlands are at a disadvantage to less mature ones. But preferential shelter may enable them to survive and endure. Under the assumptions of our model, the staple industry experiences falling average unit costs as it expands. Technological progress is transmitted by new fixed investment in plant and machinery of superior design, as well as by organisational innovation. Technical progress is discrete rather than continuous, and is embodied in production and organisational techniques of successively newer and superior vintages. In the context of primary production, this implies that, in our model, cultivation and extraction extended to 'superior' natural resources by means of technological progress. There is a chronic tendency to oversupply, and consequently, staple prices eventually fall. But this does not adversely affect the overall returns to the merchant. Located at the metropolitan centre, he can convert financial involvement in an older vintage high cost locus of production into interest and mortgage claims and he can and does move his risk capital to a low cost, new vintage location. This monopolistic control at the centre is not in contradiction to an expanding volume of peripheral staple production. The squeeze is passed on to the marginal (more mature hinterlands. Only in simplistic textbook models does monopoly control of a homogeneous product necessarily imply a restriction of production. This description of sourcing, taken from our text of Pure Plantation Economy, fits the case of large merchant houses, giant retailing organisations, or metropolitan manufacturers who subcontract production to ever cheaper locations, as wage and other costs rise in older more mature exporting countries. The global structure of cheap labour manufacturing industries (for example, garments) resembles that of the older agricultural commodity production of expanding output with control by metropolitan buyers.

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When the assumptions of Pure Plantation Economy are modified to correspond with a later historical stage, in which the metropolitan countries enjoy self-sustaining growth based on their access to cheap raw material imports (including energy), the terms of trade of hinterlands continue, in general, to deteriorate, because the fruits of technical progress in industrial countries are not passed on in the form of lower prices of imported industrial goods. This phenomenon persists when hinterland countries substitute assembly-type industry for the import of wholly manufactured goods. The reason lies once again in market structures: metropolitan monopolistic control over access to sophisticated capital equipment and intermediate goods is in fact greater than monopolistic control over finished manufactured goods. Product differentiation in capital goods and intermediate components is intimately related to intellectual property rights in the form of patents, trademarks, and technical 'know-how' in production processes. It is implicit in this argument that the balance of payments deficits which characterise efforts of industrialisation in dependent economies are not in fact 'financed' by corresponding capital inflows. These apparent capital inflows are a statistical illusion — the reflection of the systematic undervaluation of hinterland exports and overvaluation of hinterland imports with respect to the metropolitan price of finished goods embodying the hinterland staple, and metropolitan ex-factory price of industrial goods imported into the hinterland. It follows that recorded excess of profit and interest over foreign capital received greatly understates the transfer of real resources from hinterland to metropole; a recorded excess of foreign capital received over profit and interest remitted is not inconsistent with a net transfer of real resources out of the hinterland.

The Composition and Distribution of Plantation Surplus The plantation has two outputs-, staple, and residentiary goods and services. The latter have no prices, and are inputs to staple production. They may or may not have 'opportunity costs' in terms of resources diverted from staple production. There are two inputs to staple production: import of slaves, supplies and interest charges payable in metropolitan cash, and residentiary goods and services produced on the plantation.

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If we treat the plantation hinterland as a one sector economy with local production of residentiary goods and services treated as an intermediate input, and planters, attorneys and 'senior staff treated as 'non resident', there is zero national income, and the entire Gross Domestic Product accrues as national income to the metropole in the form of rents and royalties (taxes); cash salaries to attorneys and 'senior staff; expenditures by planters; interest due to merchants; plus venture profit divided between merchants and planters. Depreciation ('capital consumption') is a (partially deferrable) cost of maintaining the stock of capital intact. The Gross Domestic Product equals net export earnings (export receipts minus imports) plus additions/liquidation of the stock of capital, and also equals plantation surplus. If we consider the plantation as a two sector economy with resident planters, attorneys and senior staff, and consider the slave work force as the labouring sector of the hinterland population, receiving a quasiwage in the form of domestically produced and imported subsistence rations (quasi-wage goods), residentiary plantation activity becomes the genesis of the domestic residentiary sector of plantation hinterland economy. This domestic sector is a creation of the plantation and, to repeat, this is the essential clue to a full understanding of all variants and modifications of plantation economy. It follows that plantation economies are not and never have been 'dual economies' and that there exists no significant 'pre-capitalist' formation. When we view the plantation as a two sector economy, the Gross Domestic Product increases by the addition of residentiary production, and the plantation surplus increases by the addition of the consumption of residentiary goods and services by planters and management staff, and expenditures on security. The greater part of surplus is either consumed by non-productive hinterland residents, or is transferred to the metropole. There is a 'ratchet effect' whereby increased availability of residentiary goods and services in good years become part of the customary lifestyle of the great house and management staffs, and are maintained in bad times. Whereas economists conventionally describe the distribution of the national product in terms of shares accruing to labour, land and capital, the major distributional categories appropriate to plantation economies — and perhaps also to other types of colonial or neocolonial economies are somewhat different. Accordingly, we define

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the three major categories of income as labour income, national non-labour income and metropolitan or foreign income. The sum of the first two constitute the net national income or net product of the hinterland; the third component of Gross Domestic Product is a contribution to the national income of metropolitan residents.28

In the system of national accounts of Trinidad and Tobago, we allocated 'value added' of producing sectors to these three categories. Depreciation was allocated to national non-labour or foreign income according to locus of ownership.

Allocation and Rate of Utilisation of Plantation Resources This chapter addressed the (short term) allocation of resources between staple production and residentiary output. In this model, the land constraint is functional as well as structural. Although cultivable land more residentiary output, planters will not increase increase is advantageous metropolitan cash. 29

may be physically available to produce it is functionally unavailable because the domestic food production unless such an in terms of increasing their earnings in

The planters deliberately limit the access of slaves to provision grounds to conserve labour power for staple production. There is a customary minimum of imported food (saltfish) and of locally produced food (ackee). Allocation of resources between staple and residentiary production depends on the terms of trade, and so does plantation surplus realized in metropolitan cash. If staple prices (terms of trade) are very favourable, residentiary output is minimal, and staple surplus maximal. As terms of trade decline, residentiary output is increased, and staple surplus declines. There is a critical price (terms of trade) beyond which the staple cost of supplying minimum imported rations exceeds the value of staple output. Beyond this point, the planters incur losses, increase indebtedness, attempt to increase staple output to meet unavoidable metropolitan charges, overwork and underfeed their slaves, and are faced by revolt and rebellion. Diagrammatic representations illustrate the critical importance of the terms of trade as the price governing allocation decisions.30

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Ideology and Methodology At the beginning of this text, I promised some comments on methodology and ideology. In 'Externally Propelled Growth in the Caribbean: Selected Essays' and again in Volume I of 'Export Propelled Growth and Industrialisation in the Caribbean' 31 we stated that economics is never 'value free', and that economists should be conscious of the social and philosophical values which underlie their work, and should make them explicit. This applies equally to our work. The ideology underlying the plantation economy models was best expressed by Lloyd Best's 'Independent Thought and Caribbean Freedom'.32 Our work was motivated by a desire to escape from dependency, starting with a rejection of the use of imported ideas and concepts to explain the persistence of underdevelopment in Caribbean economies. It was influenced by anti-colonial and anti-imperialist intellectual traditions associated with the work of C.L.R. James and of Eric Williams, whose Capitalism and Slavery^ viewed plantation slavery as a manifestation of early (mercantile) capitalism. Williams argued that the transfer of surplus from the plantations to the metropole assisted in financing the early industrial revolution in England, and that the trade in African slaves to serve as plantation labour institutionalised racism in the emerging modern world.34 Our intention was to turn the dependency relationship on its head, placing the Caribbean 'hinterland' at the centre of decision making. The plantation models were designed to show that, without a break with the subordination of Caribbean societies to 'rules of the game' perpetuating metropolitan control, economic and social structures established in the era of the slave plantation persist. The legacy of the plantation system was manifested in a private sector with a 'get rich quick' mentality and a high rate of discount of future returns; a preference for imported consumer goods by all sections of the population; a low regard for physical work and low esteem — and low remuneration — for those who performed it; an authoritarian bureaucratic state, and a general lack of commitment by the elites to the long term development of the country. Mimicry of metropolitan lifestyles combined with the psychological internalisation of inferiority created the Afro-Saxon, a term popularised by Lloyd to describe the professional classes of contemporary Caribbean society. The methodology we used to analyse the behaviour of the 'planter' as the principal transactor in plantation capitalism was drawn from the 54

500 Years of 'Globalisation': The Old and The New

theory of the 'firm' and the 'industry', with crucial structuralist modifications. We have been criticised for using the traditional apparatus of economics in violation of our rejection of 'imported' concepts. But this criticism fails to understand that it was precisely the articulation of the behaviour of the principal transacting 'agents' (merchants, planters, 'senior staffs', peasants and cultivators) which gives the work its explanatory power. It was an approach which placed 'agency' at the centre of the analysis, but circumscribed the behaviour of the transacting agents — principally that of the 'planter' — by his subordinate position in the procurement and sale of the plantation staple. The result had no similarity with the textbook case of independent producers exchanging the products of their labour in competitive markets. Our use of some of the apparatus of conventional economics in no way implies the acceptance of the hypothesis that equilibrium or planters' profit maximization is to be equated with optimality in terms of welfare. In the context of Pure Plantation Economy, where the working population is enslaved, where labour power is explicitly a capital good akin to human machinery, and where national income in the hinterland is zero, any welfare calculation is manifestly absurd. If we employ some of the analytical apparatus of classical and neoclassical economics it is precisely to underscore the fact that the outcome of product maximizing behaviour by hinterland decision makers (planters) given the institutional framework of the mercantile system, results in progressive distortion, mis-development, and resistance to structural transformation. In conditions where hinterland decision makers have little control over factors or product prices, where plantations, once established, are strictly price takers, the apparatus of partial economic analysis is particularly appropriate in exploring the range of options open to planters in terms of product mix, the allocation of resources and the rate of capital expansion or contraction. Here again, we shall see how the profit maximizing behaviour of planters leads to the systematic underdevelopment of the domestic sectors of the plantation hinterland.35

The plantation hinterland was a creation of metropolitan enterprise designed to produce a surplus accruing in hard currency. The allocation of resources in contemporary Caribbean economies continues to favour the major export staple, and the ruling elites continue to regard the rest of the population instrumentally, as 'factors of production' to be 'mobilised' to increase foreign exchange earnings which can sustain high levels of imports and service external debt. The old 'export bias' of The Plantation Economy Models

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plantation economies has been reinforced by international financial agencies which have pressured countries to increase the 'openness' of their economies by dismantling remaining barriers to external trade and investment. The 'health' of the economy is judged by its export performance, not by the health or the welfare of its population. The plantation economy models were 'economistic' in the sense that the focus was on the economic decisions made by planters and merchants. That was their strength in the sense that it was possible to explain why and how these decisions underutilised and misallocated resources of land and labour; why and how 'non-tradable' domestic output was chronically underpriced; why and how 'mature' hinterlands suffered deteriorating terms of trade; why and how metropolitan financial capital could shift investments from less to more profitable locations, while mature hinterlands remained locked into high cost export staple production. But in our models, economic transactions were contained within social and political institutions, which were explicitly described and defined. The ambiguity of the 'residence' of the planter, and the 'incalculability' of the division of the surplus between hinterland and metropole were features of the model which conditioned the behaviour of the planter. The planter was the hinterland partner in a capitalist enterprise in which the production of the surplus and its realisation in metropolitan currency was — and remains — a joint enterprise between metropolitan finance capital and hinterland organisation and supervision of labour; hence the commonly held view that 'investment' is synonymous with inflows of private foreign capital. The plantation models emphasised continuity in economic, social and political structures. Critics complained that the approach failed to identify the agents of change and transformation, in the manner in which the working class was identified as the agent of change in the (traditional) Marxist model, or 'private enterprise' and 'the market' have been identified as agents of development by the neo-liberals. The criticism is valid, in the sense that the model is open and indeterminate. A plantation economy in stagnation and decline may or may not find a new staple or 'quasi-staple' to lift it back onto a growth path. If no new staple appears, it may fall into decay, as happened to the once fabulously prosperous sugar plantations of Bahia or Saint Domingue, or the population may rise in revolt or revolution, as has happened many times in history. There is, however, a special feature of plantation economy which distinguishes it from other export dependant economies, and offers 56

500 Years of 'Globalisation': The Old and The New

possibilities of developing an economic base which is grounded in the natural and cultural resources of the Caribbean people. It is the free labour of a Caribbean peasantry born of struggle against the plantation system, and fortified by the will to assert the economic independence of family and community by small-scale food production and small business. In post-emancipation Jamaica, free labour left the plantations to construct an independent economy in the hilly interior of the country. The Caribbean economist who saw the hope for the future of the region in the culture of the Caribbean peasantry, was George Beckford.

Lloyd Best and George Beckford As said at the beginning, much has happened in the 35 years since the plantation models were conceived. My purpose here has been to review the results of our collaboration, to underline their continuing relevance and hopefully, to encourage young economists to be as creative and innovative as we tried to be in our time. In preparing the George Beckford Papers for publication, I read — or reread — all of Beckford's work, which ran along a parallel track to our own. Best and Beckford stand together as the most original and important West Indian economists of their generation. While sharing a vision of the sameness of all Caribbean peoples, and a view which identifies the 'plantation system' as the tap root of contemporary Caribbean economic, social and state structures, the singularities of their work reflect differences of generation, intellectual formation, and country. Lloyd Best comes from Tunapuna in Trinidad, a society of ethnic and religious pluralism, relatively recently populated, relatively urbanised, with a weak state, independent labour organisation, and an anti-colonial intellectual tradition exemplified by Padmore, James and Williams. He was an island scholar, educated in Oxbridge in the Cold War ambiance of the late 1950s. He carries his British erudition and intellectual selfassurance with panache, combining independent thought and flashes of brilliant insight with local idiom. Lloyd was never exposed to the radical intellectual currents which Beckford encountered in his formative years as a graduate student in California in the early 1960s. Lloyd was adamant in his rejection of all 'isms'. He was reluctant to entertain similarities between our work and that of others, such as the 'dependency' writers of the 1960s and 70s, he refused to acknowledge The Plantation Economy Models

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the existence of class in West Indian society. He insisted that Caribbean plantation economy was a unique social formation. The Caribbean from Suriname up to Cuba, Jamaica and Belize was the centre of the universe. His repeated call for 'independent thought' as the key to 'Caribbean freedom', his devastating criticism of the University of the West Indies as a backward institution, hostile to creativity, his call to 'take charge here', to build on local culture, with local material, and local expertise — all of that was the singular appeal which Lloyd had for a whole generation of West Indians. Beckford was quintessentially Jamaican, a product of rural Jamaica — a society conditioned by centuries of plantation slavery, with a proud tradition of slave and labour rebellion and a large 'peasantry' of runaway and freed slaves who established a self-reliant food economy in the 'yam belt' of the hilly interior of the country. Race was — and remains — deeply institutionalised in the class structure of the country. The ruling classes have, to this day, maintained a hegemonic control over the state. Political clientelism in the urban ghettos of Kingston has set poor people against each other in fratricidal warfare. For Beckford, the struggle by the Caribbean 'peasantry' for a self-reliant economic base, rooted in the rich culture of the people, was the thread which wove together all of his work. For Beckford, Marcus Garvey and Bob Marley were the most influential Jamaican voices articulating liberation, not only for Jamaica, not only for black people, but for all oppressed non-European peoples of the world. The singularity of Beckford's contribution was his insistence on the Caribbean 'peasantry' as the repository of a popular culture of selfreliance and independence. The Caribbean 'peasantry' was unique, because it was not 'traditional' in the European, Asian or African sense, but was a product of 500 years of revolt and struggle of slaves and exslaves against the 'plantation system'. Like Lloyd Best, George Beckford saw the hope for Caribbean sovereignty and self-reliance in the common culture of a Caribbean nation of English, Spanish, French and Dutch speaking peoples. For GBeck, the land and the free spirit of free men and women who rejected the plantation to cultivate the land to grow food were the hope for the future. Beckford believed in the resourcefulness and creativity of people as the most important economic resource of a society. The Caribbean people, freed from the economic, social and political legacies of the plantation, could, as he said, 'transform what is physically the most beautiful part of the planet Earth into a human paradise'. 58

500 Years of 'Globalisation': The Old and The New

Lloyd Best and George Beckford were the moving spirits and the solid rock which sustained the New World Movement of the 1960s. New World described itself as a 'movement which aims to transform the mode of living and thinking in the region'. The need for intellectual, philosophical and spiritual renewal in the region is more urgent today than it was in the 1960s, when independence offered hope of a better future. There is urgent need for vision beyond chasing economic indicators whose meaning in terms of the well being of people is questionable. I congratulate the Economics Department for their initiative in marking the 25th anniversary of the plantation models. I am fortunate to have participated in the most creative phase in Caribbean economics. Breaking new ground intellectually is difficult, time-consuming, and sometimes lonely work. But there are rewards in terms of satisfaction and appreciation.

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a

In Search of Model IV1

It is not necessary in this chapter to summarise the plantation models. As collaborator with Lloyd Best in this work, I wish to initiate a critical discussion of the value of the plantation economy models in addressing the challenges Caribbean economies now face from 'globalisation'. This predatory style of capitalism is best understood as a 'new mercantilism' driven by the expansion of corporate and financial capital into ever deeper geographic and social spaces; pushing peripheral countries to extremes of export dependence; destroying viable economies; eliminating secure employment; reducing real wages; amassing disgusting fortunes for a relatively few, and consigning others, many others, to a marginal existence in the so-called informal economy. We are told that liberalisation, deregulation and privatisation are good for business and economic growth, and that countries that follow the 'party line' of the Washington Consensus will be winners in this casino capitalism. But there will be no winners where accumulation is accompanied by rampant economic and social injustice. There will be no security for the rich in gated communities — and no security for the world's super power, no matter how many billions are spent on military responses to problems historically and currently created by imperialist policies of the major powers. In the Caribbean, we are blessed with good fortune, compared with many regions of the global South, especially here in Trinidad and Tobago where we await a tidal wave of revenues as reserves of natural gas are monetized. But there is no room for complacency. It is not by the growth of exports or Gross Domestic Product (GDP) or any other economic or financial indicator that a country's well being is measured — important as these may be — but by social indicators reflecting the real quality of life of real people in real communities. Economists have to get real. Back to basics. Finance must serve production and productive activity must yield decent incomes to those who do the work.

In retrospect, the 'metropolitan' models of development of the 1950s and 1960s, whether of western or Soviet provenance — rejected by Lloyd Best as irrelevant to the specifics of Caribbean economies — were more favourable to economic decolonisation and transformation than the present international economic order. Full employment was a more meaningful policy objective than balanced budgets, zero inflation, or net foreign reserves. Development in any meaningful sense has been replaced by financial stabilisation, export promotion and poverty alleviation, while the egalitarian influence of socialism, whether communist or social democratic, is (temporarily?) in deep retreat. The principal concern of central bankers and the international lending institutions they largely control, is the security of the financial value of property claims to equity and debt, with little or no concern for the real costs in terms of famines and war, premature death from preventable disease and malnutrition, social collapse, crime and suicide, and more generally shattered lives. They have elevated the property rights of investors, creditors and multinational corporations over the basic human rights of peoples and the right of nations to determine policy priorities according to the specific needs and aspirations of their population. The plantation economy models were an innovative intellectual initiative to specify the features of a self reliant, self-sustaining Caribbean economy. The intention was to produce a stylised model of a typical (generic) Caribbean economy, as an instrument of national economic planning. It was the era of political decolonisation. The best of a generation of West Indian economists set their sights on structural transformation to reduce dependency on the metropole and increase spaces of economic self-reliance. The plantation economy models emphasised historical continuities of dependency, from the slave plantation (Model I), to modification following emancipation (Model II), to further modification in the era of postcolonial industrialisation (Model III). The break with dependency — the 'anti-model" - was Model IV. It was not clear, however, how thi was to be achieved, by which agents of change, or with what role for the state. Where were the limits of the possible, given the small size of Caribbean economies? The emphasis in the models was more on continuity than change. The changes from Models I to III were mere modifications of the original ('pure') slave plantation economy. The models see the present in the light of the past, but illuminate the way ahead only indirectly by providing a sort of checklist against which progress toward the 'anti-model' IV can be evaluated. In Search of Model IV

61

The work was not completed; the incomplete work was not published in accessible form, national planning went out of style; and Caribbean economies have significantly diverged over the past 30 years. Moreover, an ideological counter-revolution in economics has trivialised academic economics by elevating market driven behaviour over all other aspects of human and social motivation. Mainstream economics has become a sterile exercise without foundations in structural, institutional or historical reality — especially at the graduate level. The 'old' development economists — Lewis, Prebish, Furtado — are absent from the curricula of major metropolitan universities, which we aspire to emulate and copy. However, the rising perception of the failure of policies based on neo-liberal market fundamentalism, and the crisis of legitimacy of the international financial institutions (IFIs), which have advocated and frequently imposed such policies on developing countries, is creating a backlash against 'globalisation' in the intellectual arena — and in the streets of the global village. Given all of the above, what insights can we draw from the plantation models for the here and now? Are we on the cusp of a renewal of independent thought and Caribbean freedom, or are we merely indulging in a self-congratulatory ritual concerning the originality of work done 30 years ago, which has given rise neither to serious critique nor innovative intellectual development? To this agenda, we must add another question. Why did the work of the West Indian economists of the 1960s — in government and university — not give rise to a 'school' of Caribbean structuralist economics, analogous to Latin American structuralism? By this I do not mean a doctrine, but a common point of departure of an intellectual discourse of debate — as existed in embryonic form in the New World Quarterly— exemplified by the important exchange between William Demas and Lloyd Best on 'Size and Survival'2 in the pages of that journal. Of course there are obvious differences in the circumstances which produced the 'Cepalistas' and those prevailing in the Caribbean, including the absence of an institutional base such as the United Nations Economic Commission for Latin America in Santiago, Chile. Nevertheless, there are interesting comparisons of the roles played by Prebisch and Lewis as pioneering advocates of the industrialisation of their respective export economies, and critiques of the limitations of these policies by subsequent generations of Latin American and Caribbean economists. 62

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The New World Quarterly did not survive the political rifts of the early 1970s. In the fractured decade of the 1970s, development experience of the English speaking Caribbean diverged — Trinidad was riding the crest of an oil boom well into the 1980s. Jamaica's promising experiment with democratic socialism had crashed by 1980. In Guyana, state socialism by nationalisation of industry evolved into an authoritarian regime of privilege and domination of Afro over Indo-Guyanese. After the self-destruction of the Grenada revolution and the humiliating 'liberation' of a traumatised population by US marines, the lights went out on radical social transformation. In the 1980s, the economics of survival, advancement and accumulation characterised behaviour at the personal and the institutional level, including business, university and politics. Ideological initiative passed to the political centre right. By the opening of the 1990s — economic policy shifted to neo-liberalism, whether by conviction, or the apparent absence of viable alternatives. However, it is my considered opinion — expressed on several occasions in Jamaica in the 1990s — that Caribbean intellectuals were too quick to embrace the neoliberal paradigm of 'globalisation' and too quick to concede the end of national sovereignty. Michael Manley returned to office in 1989 as a born-again believer in Adam Smith, and claimed full responsibility for the disastrous financial liberalization of 1991 in correspondence with the author.3 Trinidad managed a painful ten-year adjustment to the collapse of the oil boom less ideologically, more pragmatically and successfully In the 1990s, new issues (environment, gender; drugs, crime, growing inequality and personal insecurity) joined old issues of size and survival of Caribbean economies in a more 'globalised' and liberalised international environment. Zillions of bytes of information are now available on the internet, but we are only dimly aware of what is happening in the rest of the world — or even in neighbouring Caribbean countries. In Jamaica 44,000 jobs (30 per cent) in agriculture, forestry and fishing disappeared in the decade of the 1990s (62,200 jobs since 1988). From 1990 to 2000 the whole goods producing sector of Jamaica — agriculture, forestry, fishing, mining, manufacturing and construction — lost 128,000 jobs. Mining jobs declined from 6,400 to 4,600. Manufacturing jobs declined from 133,800 to 69,600 — a loss of 64,200 jobs or 48 per cent. Construction employment increased by 26,000, due to major road works and other government projects financed by loans which will have to be repaid. All these figures come from official sources. In Search of Model IV

63

Perhaps these facts are well known to Caribbean economists. But if these and similar facts about other Caribbean countries are well known, we really have a problem. This situation is not acceptable. There has to be a better way to provide a decent living by matching resources to needs more efficiently and effectively. Consider the case of Argentina, until recently, the country with the highest GDP per capita in Latin America and a favourite destination of investment funds seeking high returns in emerging markets — until it all crashed. Imagine people hungry in a country with vast plains of grasslands to feed vast herds of cattle, reduced to a barter economy, a middle class living in fear of leaving their homes on account of a rash of hijackings. Presidents, finance ministers and central bankers shuttling back and forth to Washington for the past three years — and no solution in sight. Economists have a responsibility to wake up and take stock of the malaise afflicting the world economy, because the financial and economic crises which have devastated livelihoods in country after country in the past 15 years — from Mexico to East Asia, Russia, Brazil, back to Mexico and now Argentina and Turkey have a common root in the liberalisation of global finance from national and international controls and regulation. The times call for a renewal of intellectual discourse, but it will not happen if we cannot critically confront the reasons why the vibrant intellectual discourse of the late 1960s failed to survive the fractious politics of the 1970s, why the campuses of the University of the West Indies are now so lacking in intellectual vitality and debate, and why the initial work on plantation economy models did not give rise to critical or innovative work by younger scholars. One reason was that this work was not available in published form. As Lloyd stated more than once, the completion and publication of our common work was not his priority. For his purposes 'The Model of a Pure Plantation Economy'4 was sufficient to establish continuities of plantation legacy on Caribbean economy and society, and to underline common historical experience in the Caribbean. Lloyd has been constant in charting his own path in his own way, on his own terms, including his engagement in Trinidad politics for the past 35 years. Studies should be dedicated to an assessment of Lloyd's role as a political activist and key player in initiatives to break patterns of a two party system with dangerous temptations to seek electoral support by appeal to racial communalism. My priorities were more conventional. I wanted to complete and 64

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publish the work because I believed — and still believe — that it is original and important. In 1969 I planned to spend two years at the Institute for Social and Economic Studies (ISER), St Augustine. This was frustrated when the Canadian International Development Agency (CIDA) withdrew financing for reasons related to Canadian 'security'. William Demas then asked me to undertake a reconstruction of Trinidad's national accounts to serve as a database for the next development plan, with initial funding by IMF technical assistance. In 1973, the project was abruptly terminated. The oil boom lifted the resource constraint. Economic planning was no longer necessary. I am pleased that much of our work — although incomplete — has survived in the Trinidad and Tobago System of National Accounts (TSNA), which embodies an innovative treatment of the petroleum sector, with possibilities of estimating the contribution of this key sector to national labour income, national non-labour income, and foreign income. The complete system would have yielded a full Social Accounting Matrix (SAM). Given the size of projected gas-based revenues, this system should yield estimates of the rapidly widening gap between GDP and national income accruing to Trinidad as earned incomes and government revenue. In 1974 Professor Manigat invited me to join the Institute of International Relations for a three-year term as visiting professor and I resumed work on the incomplete plantation models. In 1975 the government of Trinidad and Tobago withdrew my work permit and ordered me to leave the country. Many years passed. In the winter of 2002 I started work on the preparation of the Best-Levitt papers for publication. Among the insights yielded by this work are the following: 1)

2)

3)

Trade and investment in the global South are structured by spheres of influence of the major metropolitan powers — currently consolidating in regional blocs: the European Union, NAFTA expanded to embrace all the Americas as the FTAA, and an emerging Asian bloc. The 'mercantilist' operations of transnational capital with monopolistic control over channels of distribution (purchase and sale of peripheral goods and services), communication and information (including technology) account for the small value of the 'commodity chain' which accrues to peripheral producers. The 'new' international division of labour (internationalisation of production) replicates the old international division of labour. Low technology, cheap labour manufactures are the new In Search of Model IV

65

4)

5)

6)

7)

8)

9)

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'commodities'. Terms of trade of countries exporting cheap labour commodities — whether primary or manufactured — continue to decline. A huge bureaucracy in international lending agencies is managing complex conditionalities designed to replicate some features of the old metropolitan exchange standard. Independent central banks, currency boards, 'corner' policies of strictly pegged or freely floating exchange rates, dollarisation, zero deficits, zero inflation, and capital account convertibility are measures intended to secure the value of investments in real and financial assets. Imperial preference is alive and well as networks of 'special relationships' offered by major blocs or principal metropoles to client dependent states. Investment flows to primary commodity exporters are procyclical. When earnings are high and prospects are good, capital is attracted. When terms of trade deteriorate (falling export prices or rising costs) capital flows out. Adjustment may take the perverse form of increased exports, contributing to chronic oversupply of international markets, and continuing downward pressure on commodity prices. The burden of adjustment falls on the labouring population, which is required to work more for less pay, as in the old days of overworking and underfeeding plantation slaves. The costs of keeping human capital intact are deferrable. This is one of the most important insights of the plantation model. If we extend the analysis from planters squeezed for liquidity to maintain consumption expenditures and pay debts, to the economic and political decision making classes of today, similarly motivated to maintain private and public consumption expenditure and service debt, 'adjustment', by declining wages, decay of social infrastructure and decline of public services, is achieved at the cost of drawing down human, social and environmental capital. The premium put on earning hard currency (metropolitan exchange) by economic and political decision makers re-enforces the traditional export bias of peripheral economies. Commercial, financial and capital liberalisation introduces world prices into the domestic economy, but these prices may not be appropriate to the needs and resource availabilities of a country at a particular stage of its economic development. This is why governments have subsidised basic items like cooking oil, flour or tinned milk. When prices of essential consumer goods rise, families whose incomes do not increase are impoverished. Inequality rises. As restrictions protecting subsistence sources of food or shelter are lifted, goods and services, which appeared to be 'costless', acquire 'opportunity costs'. Thus developers eject squatters, or foodstuffs rise in price when they become 'exportables'. 500 Years of 'Globalisation': The Old and The New

10)

Outcomes depend on who is making the decisions, for what purpose, to which ends. In the model of pure plantation, planters are the sole decision makers and their objective is to maximise profit in metropolitan money, and to ensure access to metropolitan credit. Slaves have no voice. They can rebel or run away (migration). When a residentiary sector is introduced in Model II, small farmers, and craftsmen have a space of decision-making over the allocation of their resources. Their objective is survival and the social reproduction of the sector. They may produce export crops to earn income, but this is not the purpose of their existence. In the post colonial context of Model III, transformation implies a shift of the objectives of economic activity from those of the 'planter' (amassing profit secured in foreign exchange) to the complex set of aspirations of all sectors of a society, including the dispossessed. The 'residentiary' sector appears as the key to economic transformation. But what exactly does 'residentiary' mean? Ownership? Market orientation? Norman Girvan has posed this and other questions in a useful summary agenda for a retrospective of the theory of plantation economy.5

The shift of the objectives of economic activity does not exhaust the insights of the plantation economy approach. It does however suggest that much of this analysis is not specific to plantation economies, but has a more general application to peripheral export economies. If this is the case, the fact that Caribbean economies have diverged significantly since the mid 1960s, when the plantation economy models were conceived, does not invalidate the approach, as long as economic and political decision makers regard export growth as the primary objectives of economic management. If our work had been completed in the mid 1970s, it would have received the kind of attention and criticism it deserved to attract, both here and overseas, where there was at that time a lively interest in similar models of dependent peripheral economies. The costs of the interruptions of this work for reasons relating to politics in one way or another have been considerable. The times are now less favourable to national economic planning, although the need is perhaps more critical — especially in Trinidad, where we must ensure that the national heritage of natural gas will benefit all citizens, present and future. We no longer have a public service of the quality of times gone by. Economists are no longer trained as political economists with a national perspective, but rather as managers with a business mentality. Most seriously, we have a political deadlock, In Search of Model IV

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which favours short-term electoral advantage over long-term vision, with dangers of patronage politics based on racial communalities. But we also have assets — human assets of competence, professionalism, a tradition of public debate and informed analysis to which Lloyd has made a sustained and singular contribution in the pages of the daily press, radio, television, Tapia and the Trinidad and Tobago Review. Thanks to his tireless and repeated expositions, the plantation economy tradition survived. The flame was never extinguished in Trinidad and Tobago. It is my hope that our work may serve as the quantitative instrument of economic planning we had in mind when these models were first conceived in 1964, here in St. Augustine. We like to say that globalisation is nothing new for the Caribbean. We have been there for 500 years. But that is no excuse for complacency. It is the responsibility of intellectuals to widen the parameters of the possible, to challenge the sustainability — and the morality — of a model of 'development' that privileges rights of property over the rights of Caribbean peoples to the amenities of modern existence. We have to return to the search for Model IV — a self reliant, self-sustaining Caribbean economy to serve Caribbean society and its entire people. The greatest tribute we can make to Lloyd Best is to re-dedicate ourselves to this task.

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nm

The Persistence of the Plantation

Legacy in Contemporary Jamaica1

From Decolonisation to Neo-Liberalism: What Have We Learned about Development? Jamaica is blessed with a wellspring of creative capacity which has projected its image internationally to North America, Europe, Africa and Asia. But it is inescapable that the country is in serious crisis — a much abused word which is regrettably appropriate to describe a level of social and economic dysfunction which cannot persist without some form of resolution. The comments in this chapter are made in the spirit of George Beckford, who never pulled punches in expressing his views, regardless of who may or may not like what is said. Perhaps it is also time for women to speak up. We sometimes have a more direct way of seeing how things really are. I will try to set Jamaica's problems into a historical perspective of shifting trends and ideologies which have swept across the world since economic development of post colonial societies came onto the international agenda 40 years ago. I will touch on some of the lessons which have more recently been learned from the 'social deficits' resulting from structural adjustments to the debt crisis of the 1980s, and from comparisons between the East Asian and Latin American styles of development. In conclusion, I will attempt to draw some lessons from all of this for Caribbean — and specifically Jamaican — development. First, however, I must backtrack to a retrospective on the plantation economy paradigm which was developed by Lloyd Best, Beckford and others 25 years ago. This paradigm addresses an agenda of social and economic transformation which remains to be completed. The quality of Beckford's commitment and his uncompromising belief in the power and wisdom of Jamaica's ordinary people, accumulated over centuries of hardship, dispossession, revolt and resistance — from plantation

slavery to post-emancipation food production on interior lands of the 'yam belt' to black survival in the urban ghettos of greater Kingston — is the bedrock of the Beckford legacy. He was more than a scholar and a university teacher. He was an educator in the best tradition of the thousands of teachers, pastors, community and cultural workers who have sustained hope in the hearts of the people of Jamaica, in adversity and hardship. Beckford chose to study agricultural economics because he believed that the hope for Jamaica lay in the land and the culture of the independent peasantry who created a 'residentiary' economy of basic food production and non-traditional agricultural exports in the postemancipation era. 'The wellspring of the Jamaican people', he wrote, lies in the land. It is the land which brought us here. It is on the land that we were transformed from free Africans into slaves for plantation work. It is through the land that we were subsequently to free ourselves from plantation slavery and develop as an independent peasantry. And it is this last achievement that continues to sustain us, however tentatively, through food production and the spirit of independence.2

An impressive body of empirical study led Beckford to conclude that in the Caribbean the root cause of persistent poverty — the title of his most important work — is the persistence of class structures and mental attitudes carried over from plantation slavery and internalised by Jamaica's largely brown middle-class elites. Beckford's Persistent Poverty3 stands as the most coherent statement of the plantation economy paradigm, with emphasis on the Caribbean peasantry as the key to economic transformation and escape from dependence and poverty. It was Beckford's profound belief that there is no escape from poverty without the freeing of the creative power of all the people. Escape from poverty and dependence begins in the mind. In the words of Jamaica's most famous poet: 'Emancipate yourself from mental slavery! None but ourselves can free our minds!'

Independent Thought and Caribbean Freedom In the nineteenth century, emancipation and the declining profitability of sugar gave rise to an independent peasantry and the migration of Caribbean labour to Panama, Venezuela, Cuba, and later to Britain, the United States and Canada. The links of the Caribbean 70

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with the black diaspora of North America was an ever present theme of Beckford's work. He was a principal author of the historical/structural analysis of Caribbean economies developed in the mid 1960s by the group of West Indian economists associated with the New World Movement. The mission of the movement of intellectual regeneration was to 'free the mind' from imported metropolitan concepts and colonial habits of mimicry of lifestyles and ideas — its manifesto was Lloyd Best's 'Independent Thought and Caribbean Freedom'.4 On the Mona campus George Beckford insisted on a relevant economics capable of addressing the real problems of real people in the region. The first issue of the New World Quarterly was produced in Guyana in 1963. The second was published by the Mona group which sustained it for the next five years. Mona was the base, and Beckford the key coordinator of New World Groups in Jamaica, Trinidad, Guyana, New York and Montreal. He was an uncompromising regionalist. Beckford contributed studies on the banana industry of Jamaica and the Windward islands to the important series of regional integration studies commissioned by West Indian governments. The regional integration studies by Thomas and Brewster, Beckford , Girvan, de Castro and others, marked the high point of forward-looking independent thought, recognised internationally — albeit with the usual delay before intellectual work in the periphery reaches the metropole. When the Jamaican government withdrew Beckford's passport following his visit to Cuba, the group of West Indian economists decided that they would no longer draw on the financial resources provided by the governments, but would complete the studies on their own resources, and make them available to the public. Reflect on this for a moment. Could that happen today? Were the UWI economists of that era foolishly idealistic? Were they naive, to think that their work was important to society? Or were they pioneers in setting an example of intellectual leadership which had, for too long, been dormant? The West Indian economists of the 1960s have been accused of 'parochialism'. This is a profound misreading of their intellectual enquiry into the institutional and behavioural characteristics of small dependent Caribbean economies — what would today be called the 'stylised facts'. Questions posed by West Indian economists in the 1960s such as 'why do unemployment and poverty persist even where there is strong economic growth?' anticipated research by North American development The Persistence of the Plantation Legacy in Contemporary Jamaica

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economists by at least a decade. The role of institutional, behavioural and cultural factors in the functioning of markets is today at the frontier of socioeconomic development research. In that regard, we were a quarter century in advance of the mainstream. It was certainly not the 'parochialism' of the West Indian economists which attracted my attention and interest when I first set foot in the region in December 1960. Rather, it was the spirit of independent enquiry and shared experiences with a generation of West Indian social scientists trained in England, many at the London School of Economics (LSE), where I myself was introduced to economics in a first year course given by Arthur Lewis. At the LSE we were the lucky beneficiaries of exposure to an intellectual formation broader in scope than the graduate programme in economics at the University of Toronto in which I was enrolled in the late 1950s. In the West Indies, I experienced a sense of liberation from the parochialism of Canada. As a graduate student in Toronto, I received an unexpected invitation from my Canadian professor, then spending a sabbatical year on the Mona campus at the invitation of Arthur Lewis — university principal. Professor Burton Keirstead had undertaken to produce a study of the Federal Shipping Service which moved cargo from Jamaica to Trinidad, with stops at every island territory en route. I was sent for to assist. Here I met a number of — then young, now eminent — West Indian scholars, claiming their rightful place in the university, at that time still a College of London University and predominantly staffed by expatriates. It was here that I first met Lloyd Best, employed as junior research fellow at the Institute of Social and Economic Research. After three days of briefing I was dispatched to Trinidad where I was located in Port of Spain in offices of the (then) Federal Government of the West Indies. I renewed acquaintance with Lloyd Braithwaite who remembered me from LSE days. I met fellow LSE alumni Jack Harewood and Frank Rampersad. I heard about Trinidad's chief economist, Willie Demas, described to me by Dr Carleen O'Loughin as brilliant but 'not sociable'. Three years later, I invited William Demas to be the first visiting research fellow of the newly established Centre For Developing Areas Studies of McGill University. The area of my own academic interest was economic underdevelopment and techniques of development planning. Familiarity with the construction of inter-industry flows and multi-sectoral planning models formed the basis of my collaboration with Lloyd Best, which 72

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resulted in the 'plantation economy' models. Lloyd's contribution was his profound understanding of West Indian history, about which I was at that time totally uninformed. In 1963, in several all-day and all-night sessions in St Augustine — with Alister Mclntyre popping in and out to share the excitement — we first conceived the idea that the sugar slave plantation was the original economic institution (Model I), whose structural legacy was modified by the rise of a 'residentiary' peasant sector after emancipation (Model II), and further modified — but not essentially transformed — by postwar modernisation (Model III). Model IV was the 'anti-model' — signalling emancipation from the plantation legacy. Our basic thesis was that contemporary Caribbean economies bear the legacy of their historical origins. The burden of that legacy is nowhere more evident than here in Jamaica. Lloyd Best was at McGill from 1966 to 1968 to collaborate with myself and others in completing our work. It was not to be. Politics intervened, the Montreal Black Writers Conference of 1968, the banning of Walter Rodney and the Rodney riots; the Sir George Williams computer burning; the dissolution of the Trinidad New World Group by Best; the Black Power revolution in Trinidad; Abeng in Jamaica, the election of the Manley government in 1972. Important insights of the work were lost by its non-publication. On the basis of a single published article (Best 1968) which dealt only with our model of 'Pure Plantation Economy' a largely oral tradition of 'plantation economy' persisted for a number of years in courses on Caribbean economy. The basic insights which informed our work have not lost their relevance, although the countries of the region have diverged in terms of social and economic development over the past 20 years. It has became more problematic to speak of a typical 'Caribbean economy.' Jamaica was always different, manifesting in some respects more similarity with Haiti than with Trinidad or Guyana. The differences between the economic structures of CARICOM countries have widened. Persistence of Plantation Culture In Jamaica, the legacy of plantation society persists. It is carried forward in the form of a risk-averse private sector with a bias toward trading and a short view directed to the financial bottom line; a public sector engaged in crisis management; and a political system which The Persistence of the Plantation Legacy in Contemporary Jamaica

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manipulates the hopes and fears of a population of seemingly enduring patience and resilience. The commercial and professional middle classes have internalised a contempt of the ordinary people, who survive thanks to strength and fortitude acquired from generations of hardship, and spiritual nourishment by the power of religion, ranging from formal Christian denominational worship to syncretic beliefs, to Rastafarianism. There is a dysfunctional disjuncture between the energy, creativity, spiritual values and culture of the 'Caribbean peasantry', and the plantation legacy which permeates formal economic and governmental institutions. The country is divided against itself. Nothing functions as it could, or should. All that is 'formal' and 'modern' — including the large private sector and the state — is mired in stagnation, with the exception of the domestic financial sector which now accounts for 15 per cent of Gross Domestic Product (GDP) — almost as much as the 18 per cent of GDP contributed by the manufacturing sector, which cannot even hold its own in the CARICOM market. While providing considerable employment, the domestic financial sector acts as an engine of reverse distribution of purchasing power from productive workers, entrepreneurs and taxpayers to privileged owners of financial assets. Not only social infrastructure, but 'social capital' of trust, civility, cooperation, reciprocity, respect, and a sense of country is dissipating. The bedrock of social cohesion is disintegrating. The societal foundations which sustain investment, growth and development are in danger of disappearing into a black hole. A modern economy cannot function if the working people who sustain it are held in contempt. The public transportation system of the greater Kingston region is an insult to the dignity of the people who depend on it to go to work or to school. It does not deserve to be called 'public'. It is a form of economic apartheid, designed exclusively for the lower income classes, the 'have nots' who have no cars. Air-conditioned vehicles daily pass by crowds of people waiting in the hot sun or the driving rain for buses that do not come, that pack up people like animals, that leave school children behind, that crushed a child under the wheels as people pushed and scrambled. In schooling, health care, housing — same story: economic apartheid. At mid morning of October 16, I turned on my TV. A man of the cloth was speaking about the state of the country, in what appeared to be a studio interview. As sound and picture took shape on my rather ancient TV, I heard the following passionate plea for justice for the poor: 74

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Where are the schools for our children, where are the hospitals for sick people, where is the justice in the courts, where is the equality the Bible speaks about? Tell me. What we want is jobs. We don't want handouts. We are tired of hand me downs. We have to earn our own money so we can buy our own land. I wonder how much longer they think that big words and guns can frighten people in this country. Poor people catching hell here in Jamaica. There is no hope, there is no opportunity. We keep hearing about patience. Oh be patient while them up in the Great House having them jumbie jamboree.

It was only then that I realised, this was no studio interview. This was a historical drama. This was Paul Bogle — the Morant Bay rebellion, 1865.1 had really thought the words I heard were spoken about Jamaica today. Of course, there has been progress since 1865; since 1938; since 1962. In some respects, however, there has been regression. The culture of the independent peasantry of small farmers and crafts people, with its indigenous institutions, civic and religious leaders, and spirit of independence free of plantation mentality, has declined in significance in national life. The urban folk culture of reggae and dance hall, rooted in the spirit of resistance to oppression, has projected Jamaica's image internationally. Independence came in 1962, but where is the voice of the majority class in the determination of national affairs? Where is the democracy Norman Manley spoke about at the launching of the Peoples National Party some 50 years ago: 'There is a common mass in this country' he said, 'whose interests must predominate above and beyond all other classes, because no man is a sincere and honest democrat who does not accept the elementary principle that the object of civilization is to raise the standard of living and security of the masses of the people.' In a column in the Jamaica Observer, Sir Philip Sherlock speaks with concern of 'hurricane signals' of a general mood of frustration and anger reminiscent of the decade of the 1930s, with its grinding mass poverty and its racial discrimination, of signs that the majority classes see the government of independent Jamaica in a way they saw the colonial government, as oppressors who care little about them. Independence came in 1962. But where is the voice of the majority class in the determination of national affairs? How is it that Jamaicans who migrate overseas are such high achievers, but the same people cannot find dignity and productive employment here in Jamaica? The Persistence of the Plantation Legacy in Contemporary Jamaica

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Jamaica's teachers have raised generations of children to take their place as productive citizens of the country. How many professionals owe their success, at least in part, to a teacher? But where today is respect for the teachers whose salaries are so low they cannot afford a car, who come to school on the bus and supplement their earnings by selling insurance or higglering? We are told that the information age demands a literate and numerate population. By what set of values are teachers paid so little? We are told that macroeconomic stability is an essential condition to attracting investment and re-starting economic growth. That is true, although there is no reason to expect foreigners to invest in a country whose local-moneyed classes are not prepared to risk their own savings in productive activities. But macroeconomic stability is not a simple technical matter of programming appropriate monetary and fiscal variables. Stabilisation in a liberalised environment bears down excessively upon the poor and the disadvantaged. I suggest it is a political impossibility, without a more egalitarian, participatory and cooperative relationship between the major classes and interest groups in society. Addressing the social crisis has now become more urgent than any other aspect of policy. Crime and violence directly affect the investment climate. Jamaica's Declining Status Looking back from the 1990s, the 1960s appear as a 'golden age' of Jamaican development. In the 1970s, Jamaica ranked first among all developing countries, and nineteenth, just behind Spain in a list of 79 industrial and developing countries for which the United Nations Development Programme (UNDP) had calculated Human Development Indicators (HDIs). The HDI combines income per capita, life expectancy and educational attainment. Barbados ranked next (20) and Trinidad and Tobago was close behind (22). All three Caribbean countries ranked above Chile (24); Costa Rica (25); Singapore (26) — now cited as leading examples of successful development. In 1970, Jamaica was considered outstanding among developing countries. Jamaica's community health service, pioneered by Sir Kenneth Standard of the University of the West Indies was acclaimed as a model for the world. Jamaica was poised to play a leading role within the community of Caribbean countries formalised in the Treaty of

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Chaguaramas (1973). The HDI's for the so called 'more developed' CARICOM countries reflected their superior levels of development relative to other Third World countries which are now cited as exemplars (Costa Rica, Singapore, Chile). By the early 1990s, Jamaica and Guyana had experienced the greatest slippage in rank of all 79 countries in a list of developed and developing countries. Jamaica fell 17 rankings to thirty-sixth place; Guyana fell 20 rankings to fiftieth place. No other countries experienced such dramatic regression. Barbados moved up to eleventh place, the highest scoring country in the developing world, above New Zealand (12), and above nine European countries, including the United Kingdom (13), while Trinidad maintained its relative position at 24. In 1992, the UNDP indicator was revised to take into account advances in gender equality (GDI), and extended to 174 countries. Jamaica was singled out for its outstanding achievement in this area of development, which raised Jamaica's rank by 14 points. This is good news. The bad news is that Jamaica's rank at an abysmal 88 would have been even lower at 102, without adjustment for the role played by women. Another factor which has sustained Jamaica's rating is the country's good health status. But we are consuming social capital invested in the health sector in the 1960s and 1970s. Jamaica (88) now ranks far below all other Caribbean countries including Belize (29); Saint Kitts (37); Trinidad and Tobago (39); Antigua (55); Grenada (67); Dominica (69); Cuba (72); Suriname (77); Saint Vincent (79); and Saint Lucia (84). Barbados tops the list of all developing countries (25). Only the Dominican Republic (96), Guyana (102) and Haiti (148) rank below Jamaica. The principal reasons for Jamaica's relative regression were (average) negative economic growth of per capita income from 1965 to 1980 (-0.1 per cent per annum) and very weak growth from 1980 to 1992 (0.2 per cent per annum). In that first period (1965 to 1980) very few — mostly African — countries failed to experience per capita growth; the whole developing world grew at 4.6 per cent per annum. In the second period (1980-92) — the 'lost decade' of the debt crisis — most Latin American and almost all African countries had negative growth, as did Trinidad (-2.6 per cent per annum), Guyana (-5.6 per cent per annum) and the Dominican Republic (-0.5 per cent per annum). Most of the smaller OECS countries, however, did well in the 1980s (average growth for the countries of the OECS in the 1980s was The Persistence of the Plantation Legacy in Contemporary Jamaica

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5.5 per cent). Average per capita income growth for the whole developing world was a surprising 4.6 per cent, due to high and sustained growth in east and south-east Asia and the whole Indian sub-continent, including Bangladesh. It has become commonplace to question how much progress has really been made since decolonisation and independence. In a lecture delivered at the Central Bank of Trinidad and Tobago some years ago, I reflected on what Dr Williams would have said about the external programming of scores of Third World countries by experts in Washington who know nothing about the societies for which they are setting targets and conditionalities for liberalisation and privatisation in return for finance which has to be repaid with interest. I think he would have called it recolonisation. 'One of the worst things about colonial life,' said Norman Manley, on the occasion of the establishment of Jamaica's Central Bank, 'is that you are not even allowed to formulate your own budgets.' Plus fa change, plus c'est la meme chose? (The more things change, the more they remain the same.)

The 1950s: The Puerto Rico Model Revisited In the 1950s, Gross National Product (GNP) per capita in Jamaica was approximately one-fifth that of the United States, while that of Japan was less than 40 per cent. It was believed that the developing world could, within a generation or two, attain a standard of living approximating that prevailing in the industrialised world at the time. The path to economic development was generally held to be by way of industrialisation. Japan achieved that objective. But the rest of Asia, Africa and Latin America has fallen far behind in relative economic development. Today, US GNP per capita is 20 to 25 times that of Jamaica. In the 1950s, Puerto Rico's transformation from an ailing sugar economy to an exporter of manufactures was the model for the British West Indies. In the context of the colonial international division of labour which confined the West Indies to the role of exporter of primary commodities and importers of British manufactures, the Puerto Rico model was a radical departure from traditional colonial economic structures. The economist most closely associated with the drive to industrialisation in the West Indies was Arthur Lewis. 78

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Economic and social philosophies prevailing in England in the 1940s and 1950s directly influenced development thinking in the English-speaking Caribbean. It was reflected in the Fabian socialism of Arthur Lewis, Norman Washington Manley, and George Cadbury who was brought to Jamaica in 1955 to set up a Central Planning Unit — whose thirtieth anniversary was recently celebrated. Fiscal and commercial concessions were the principal instruments used to encourage the industrialization of Jamaica and other British West Indian territories. In hindsight, I believe Lewis was too quick to abandon his earlier advocacy of radical land reform and the creation of an efficient modern small scale farming sector. On the assumption of 'overpopulation', and using European and American criteria of a (relatively large) minimum size of an efficient farm unit, he opted for manufacturing as the only way to absorb 'surplus labour' into productive employment. Not only did manufacturing fail to fulfil expectations regarding employment, but the realisation of the full potential of Jamaica's agricultural resources remains on the agenda of long term development policy, as does land reform. Jamaica is the only Caribbean country where one can still find large privately owned estates of prime lands, in some cases idle, or only partially cultivated. In the 1950s, the small size of each Caribbean territory, the policies of the British colonial office, and most importantly the dream of West Indian nationhood of the generation of Eric Williams, Norman Manley, Grantly Adams, Arthur Lewis and others pointed toward a union of the British West Indian colonies. Following the collapse of the Federation, the example of successful European economic integration of the 1960s, and similar initiatives in Latin and Central America, sustained the regional economic effort. Subsequently, the divergence of economic development within the family of CARICOM countries and the strong pull of closer economic integration with the United States for some countries, has diminished the prospect of deepening regional economic integration.

The 1960s: Growth without Development By the end of the 1960s, the Jamaican economy was in the final years of two decades of strong economic growth fuelled by foreign investment in bauxite mining, alumina production, tourism and a manufacturing sector nurtured by 'pioneer' fiscal concession and protection from external competition. In Puerto Rico, export The Persistence of the Plantation Legacy in Contemporary Jamaica

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manufacturing — topped up by large fiscal transfers from the United States — financed imports. In Jamaica, Trinidad and Guyana the new export commodities of bauxite, tourism and petroleum, together with the old staples of sugar, and bananas, were the engines of growth and earners of foreign exchange. Although governments took credit for attracting foreign investment, they played minor and passive roles in economic development. Foreign investment came because the region had natural resources to exploit. Jamaica and Trinidad manufacturers who benefited from fiscal and other concessions have been charged with failure to develop export markets — Puerto Rico style. But they had no necessity to compete in external markets to survive. They were able to sell and expand in protected domestic markets as long as bauxite, tourism and petroleum provided the primary purchasing power to sustain the export propelled economies of the 1950s and 1960s. In the course of 20 years of export-propelled growth, income differences escalated as the professional and commercial classes moved into Beverly Hills, while downtown Kingston began its descent into urban decay, speeded by the relocation of commercial and financial development uptown to New Kingston, and a string of shopping plazas on Constant Spring Road. As Beckford pointed out, migration of rural folk to town was exacerbated by the displacement of small farmers by the bauxite companies who were granted vast tracts of land as reserves for future exploitation. The new middle classes were able to nourish their limitless appetite for the finer things of life, including luxury imports and foreign travel, while urban unemployment and dispossession fuelled discontent at the bottom of society. In the 1960s, American consumption patterns and lifestyles were grafted onto the older English plantation culture. Jamaica became more class divided than ever between the 'haves' and the 'have nets'. Economists called it 'growth without development'. The early development economists did not imagine that uprooted rural populations coming to town in search of employment might be forced to scratch a living from the scrapheaps of urban garbage, while suburban wealth replete with Benz, Volvo, BMW or similar status symbols advertised the arrival of new privileged classes. Only the top of the income scale could realistically expect to attain metropolitan consumption styles. Aspirations 'trickled down' while the income needed to satisfy them did not. Perceptions of exclusion, exploitation, inequality and injustice set 80

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the stage for the upsurge of Third World militancy of the mid 1970s. By the close of the 1960s, radical protest movements culminating in the Rodney riots of 1969 signalled a latent social explosion. The influence of the American civil rights movement and more generally the upsurge of radicalism which swept across the western world between 1968 and 1970 — from Chile to Paris, from Mexico to Prague, from Quebec to Trinidad and Jamaica, heightened political activism. Some observers believe that only the election of the PNP in 1972 and the promise of radical social reform saved Jamaica from revolution. In Trinidad, the black power revolution resulted in nationalisation in the sugar and oil industries. In Guyana, Bookers, Alcan and just about everything else was nationalised. By the mid 1970s, development economists had lost their innocence and naive assumptions that economic growth would 'trickle down' to benefit the lower income classes. It was recognised that modernisation and rapid economic growth frequently increased urban unemployment, as in Jamaica. The international development gap had more than doubled since 1950. By 1975, the World Bank estimated that 75 per cent of the gains from growth in the Third World accrued to the upper 40 per cent of the population. The assumption that economic growth should or could be engineered at the expense of the living standards of the masses was challenged by economists like Gunnar Myrdal who insisted that the nutrition, health and education of the population should not be treated as 'consumption' but as an essential input to production. Research on the relationship between income distribution and growth has revealed that an unequal distribution of income is not a necessary condition of a high rate of investment and growth, and that some of the most successful newly industrialising countries, including South Korea and Taiwan, achieved high rates of growth with relative income equality.

The 1970s: Illusions of Third World Commodity Power The demise of the Bretton Woods system in the early 1970s and the floating of major currencies, resulted in a relaxation of monetary discipline on a world scale. Volatile prices and inflationary trends in the world economy opened up spaces for primary commodity producing countries to exercise commodity power, most dramatically in the case of oil. The successes of OPEC gave rise to illusions of Third World The Persistence of the Plantation Legacy in Contemporary Jamaica

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commodity power in other commodities, including bauxite and copper; and hopes of negotiating a more equitable new economic international order. The majority of the newly decolonised nations were primary commodity exporters. Their collective efforts were focused on the implementation of the UNCTAD agenda drawn up in 1964 under the direction of Raul Prebisch. In the mid 1970s the Non Aligned Movement and the Group of 77 were at the pinnacle of their influence in the General Assembly of the United Nations, and Jamaica was centre stage as a spokesman for the Third World. Popular forces appeared to be in the ascendancy; imperialism in retreat. When the PNP was elected in 1972, measures of social reform long overdue enjoyed the support of the middle classes. From 1971 to 1976, social expenditures increased from 21 to 27 per cent of government expenditure, and the distributional share of labour in net national income increased from 61 to 69 per cent. The national product however started to decline from 1973, when the construction of Jamaica's last alumina factory was completed, and continued to decline for the rest of the decade. In 1974, commodity power was applied to the bauxite companies which were forced to share economic rents with the government in the form of a unilaterally imposed levy on production. An international bauxite association was formed to act as a producer cartel, headquartered in Kingston. The proceeds of the bauxite levy were approximately equal to the increased cost of imported petroleum. In response, the companies reduced production, which was costless because the market was temporarily depressed, and because they were in any event re-organising and re-sourcing their operations on a world scale. The windfall gain of the bauxite levy was squandered in public and private consumption. The combined effects of reduced bauxite production, disenchantment of the middle classes with populist rhetoric, de-stabilisation by domestic political forces assisted by the CIA — now confirmed by Henry Kissinger — exaggerated reports which adversely affected tourist arrivals, and economic pressure of declining living standards terminated this experiment in redistribution with negative growth. In 1980, the PNP was defeated in an election which claimed the lives of several hundred persons in political violence. By that time, GDP per capita had declined by some 30 per cent, thousands of professional and skilled workers had migrated, international reserves were negative, 82

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external debt amounted to $1.7 billion, and the IMF had been called in. Beckford was harsh in his judgment of the lost opportunities of the 1970s. 'History', he wrote, 'will never absolve Michael Manley.' Socialism was discredited — although Jamaica's 'socialism' was more rhetoric than reality. Trinidad and Tobago has a larger and more proactive state sector, which was greatly and successfully expanded in the years of the oil boom. It has a significantly more egalitarian distribution of income and excellent public services — including public transportation used by all classes of the population, including people who own cars, but may find it more convenient to take a bus to avoid the hassle of traffic and parking. The political party founded by the late Dr Eric Williams, which ruled Trinidad and Tobago almost continuously for the past 30 years, was neither socialist nor anti-imperialist, but pragmatically nationalistic and culturally attuned to the urban population of the densely populated East-West corridor. The last ten years have witnessed three changes of government in Trinidad and Tobago — the most recent one brought the first Indian prime minister to office. Over the same period there was a massive downward adjustment caused by declining production and falling oil prices, which only recently bottomed out. But there is an essential stability and continuity in the management of the country's economic affairs which has opened spaces for private enterprise in industry, agriculture and services without destroying the capacity of the government to govern. The benefits of the oil boom percolated through the society; income differences narrowed during rapid growth. The pain of the downward adjustment was more equally shared than was the case in Jamaica because the society is more egalitarian and socially mobile. When the PNP returned to office in 1989, it had undergone an ideological conversion from socialism to market-driven neo-liberalism. In the 1960s opportunities to use the gains of strong economic growth to reduce external dependency were squandered. In the 1970s, the energies and sacrifices which the population was prepared to make for a more equitable society were frustrated. In the 1980s, it became evident that social ferment of the 1970s had failed to make an impact on traditional class structures. Although informal traders — mostly women — were able to advance economically, and some black professionals joined the ranks of management in the large formal sector, social differentiation between elites and the black working classes persisted. American lifestyles replaced the roots fashions of the 1970s. The Persistence of the Plantation Legacy in Contemporary Jamaica

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The 1980s: Structural Adjustment and Liberalisation

In the early 1980s, Jamaica accumulated an additional $2 billion of external debt, as the United States and the international financial institutions (IFIs) rewarded Jamaica for its rejection of 'communism'. This injection of borrowed funds financed a private and public sector spending spree and a record external payments deficit. It was 'money jingle in your pocket' time. Jamaica's external debt more than doubled and the country was firmly in trusteeship to the IFIs, which continued until 1995. In 1984, pressure for adjustment was applied. The Jamaica dollar was devalued, taxes and utility prices raised, public servants made redundant, and external debt service began to kick in. The US$2 billion increase in Jamaica's external debt raised debt service charges to about 30 per cent of fiscal resources. Jamaicans have paid dearly for the spending spree of the early 1980s. The share of labour in national income declined from a high of 67 per cent in 1982 to 54 per cent in 1990, reflecting the weakened position of labour and the growth of the informal sector. Social expenditures declined from 21 per cent in 1981 to 17 per cent; and migration exceeded levels of the 1970s, now composed of skilled workers, nurses, secretaries, teachers and skilled workers — the country's most valuable human resource. In 1985, the government decided to resist IMF pressures for further devaluation and stabilised the exchange rate by a managed auction system. Interestingly, export earnings increased year by year to the end of the decade, thanks to the recovery of bauxite/alumina, the concerted efforts of local entrepreneurs in the tourist industry, and some growth in non traditional exports. A controlled and stable exchange rate, marginally overvalued, proved a better climate for the expansion of exports than the IMF prescription of persistent devaluation. Per capita growth was insignificant for the decade, although there were faint signs of recovery when Hurricane Gilbert struck in 1988. When the PNP assumed office in 1989, Jamaica's per capita income was marginally lower than it was in 1969. The PNP embraced the neo-liberal market paradigm with the same enthusiasm, untempered by pragmatism or caution, which had characterized the socialist rhetoric of the 1970s. Once more, it was ideology — this time the ideology associated with 'free markets' where the poor and the rich, the weak and powerful compete on 'level playing 84

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fields'. It is true that policy was constrained by IMF and World Bank conditionalities — as was the case for all other countries under similar programmes. It is also true that adjustment to macroeconomic imbalance is inescapable and unavoidable. But why the rush to liberalisation? Why pride in the fact that Jamaica had met all possible liberalisation criteria and was lining up behind Chile as a 'Naftable' candidate for admission into the club? Why the belief that the exchange rate can be left to market forces, to the scramble of banks and corporate entities for scarce dollars — without descending into free fall? The literature warns that financial liberalisation should not be undertaken until an economy is stable and growing. The industrial countries maintained exchange controls on capital movements for 35 to 40 years after the war. In the context of the continuing Mexican peso crisis, and volatile movements of short term capital, the managing director of the Bank of International Settlement was reported as warning 'that capital controls can be relaxed too fast. Colombia, Chile and the East Asian countries phased out capital controls more slowly.' I do not know whether the IMF was responsible for the financial liberalisation of 1991; I rather think not. (Pressures came from United States sources and from the private sector. The IMF reportedly advised caution. Prime Minister Manley has taken personal responsibility and put on record that he succeeded in persuading his cabinet colleagues). It was a major error, which has contributed to the vicious spiral of inflation and successive devaluations. Whoever advised it, and from whatever sources the pressure came, it should have been resisted, as should pressures for further devaluations. A stable exchange rate is now essential to restore confidence, to signal the determination to defend the living standards of the working people. It is probably the most important single item in a credible package of stabilisation measures. It is too important to be left to the free market. While devaluations produce short windfall gains for exporters, they are instantly followed by price increases, more often than not greater than the devaluation, and subsequently by wage increases. They are economically and socially destablizing. There is no evidence that the decline in the Jamaican currency from ten to one in mid 1991 to 35 to one or so by mid 1995 has contributed to increased supplies of exportable goods and services. Financial liberalisation has left the government with no instruments other than monetary policy to strike a balance between The Persistence of the Plantation Legacy in Contemporary Jamaica

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the need to defend the currency by high interest rates and the desire to encourage production by loosening the reins on the availability of credit. The 'mopping up of liquidity' has accumulated a mountain of short term debt, serviced from government revenues and renewed short term borrowing . External and internal short term borrowing now eat up 50 cents of every tax dollar. In the absence of capital controls, lower interest rates have translated into increased imports of motor vehicles and other consumer goods and the exit of short term capital previously attracted by high interest rates. Recent measures to restructure short-term debt and increase resources available for on lending through national Development Agricultural Credit Banks are moves in the right direction. I leave further discussion of short term macroeconomic management to the crowded field of experts who daily fill the airwaves, to address the problems of the long term social and economic development of the country. Investment in Productive Enterprise Let me start with investment. There is a belief that if we restore macroeconomic stability — which in a regime of financial liberalisation is almost certain to result in negative growth next year and possibly also in the following year — foreign capital will be knocking at the gates. I suggest that no amount of wining and dining of investors in New York, Toronto or Frankfurt will produce a substantial inflow of long-term capital until Jamaicans with money, both those living in Jamaica and those residing abroad, risk their money in productive enterprise. Significant foreign investment will not come until the Jamaican economy is on a path of sustained growth of domestic and export production. The 1990s are not the 1960s. Patterns of investment have changed. Natural raw materials are less important in contemporary technology, reflected in falling commodity prices. Technology has resulted in the substitution of man-made for natural inputs to industry, and in a greater 'de-materialisation' of manufactures, as in personal computers which are smaller, lighter and immensely more powerful than a few years ago. We are in the information age. Cheap labour is interesting to foreign investors only when it is literate, disciplined and supported by efficient infrastructure and ancillary services. The share of developing countries in global foreign direct investment is high at 40 per cent, and is projected to reach 48 per cent by 2010. But 86

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it is concentrated in a small number of large countries with fast growing domestic and export markets, good infrastructure and a skilled and educated population — principally in Asia. China is now the largest host country in the developing world, and the second largest host country in the whole world, after the United States. The 'Chinese Economic Area' consisting of China, Taiwan and Hong Kong is potentially the world's largest trading area. The poorest, so-called least developed countries as a group received less than one per cent of FDI flows to the developing world. In this world of winners and losers, Jamaica urgently needs to position the country to benefit from its potential to attract investment. The Deficit in 'Social Capital'

The highest priority must be given to addressing the 'social deficit', both in terms of making good the decline in public health and education and in the more intangible but pressingly urgent loss of 'social capital' in the form of rising anger, frustration, alienation, and loss of hope, as described earlier in this paper. Public transport is critical not only for the obvious reason that it is monumentally inefficient, causing long delays in travel to and from work, and obliges private enterprises to incur the costs of providing their own transportation for employees, but because it is, as I said before, a daily assault on the dignity of the hard working citizens who use public transport; it is a reflection of the contempt in which Jamaica's working classes are held by its political and business elites. Is it any wonder that there are road blocks, or that labour relations are confrontational? How is it that every other country in the region has a reasonably well-functioning transportation system — including Guyana. The biggest challenge is in the area of education. There is no quick fix. Education is a long term investment, and every year of delay will affect the living standards of Jamaicans in the future. There is increasing need for functional literacy, and numeracy of the labour force; and a stronger foundation in mathematics at the secondary school level. Office work will routinely require competence with computers, which are now found in primary schools in North America. A beginning should be made by upgrading the economic and social status of teachers. A similar situation exists in the public health services, where nurses and other support staffs are overworked, underpaid, and often have to work in appallingly dilapidated physical surroundings. The Persistence of the Plantation Legacy in Contemporary Jamaica

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It is now recognised that investment in social capital is not something that can wait for economic growth. It is an input into economic growth and a basic source of social peace and stability. A four-year plan adopted by the government of Colombia, entitled 'The Social Deal', projected to increase social spending from 5.8 per cent to 8.9 per cent of GDP, between 1994 and 1998. It is prefaced by a statement which is as relevant to Jamaica as it is to Colombia: 1) 2) 3) 4)

Equity and solidarity are the essential objectives of economic and social development, and the basic sources of social peace and stability. Economic growth does not depend as much on investment in individual agents or sectors as on an accumulation of "social capital" Since comparative advantages are created rather than given, economic dynamism is not the automatic result of free market forces. To reach the objectives of the plan, the entire society must be mobilized. 6

Dysfunctional Income Inequalities The document from which I have quoted reflects a growing consensus that inequality — social and economic — is a major factor in explaining Latin America's relatively slower growth and greater macroeconomic instability compared with the East Asian region. The contrast between the relatively equitable distribution of income in the high growth economies of East and South East Asia — excepting the Philippines — and the severe inequalities in the Latin American/Caribbean region are well established and amply documented. It is the relationship between inequality and slow growth which merits attention. A paper prepared for a World Bank Conference on Development in Latin America and the Caribbean held in Rio in June 1995, ranks 20 countries by the Gini coefficient of inequality. Income inequality in Jamaica is surpassed only by Ecuador, Peru and Honduras. Even Brazil and Mexico are marginally better. By contrast, Trinidad has the most equal distribution of income, followed closely by Barbados. A study by Norma Lustig, senior research fellow of the Brookings Institution in Washington, found that 'grinding poverty and profound inequities of income in Latin America are holding the region back from

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becoming an economic success story. Poverty continues to sap the energies from the labour force, drains foreign investment and thwarts market reforms.' Nancy Birdsall, vice president of the Inter-American Development Bank who spoke at the launch, said that the book showed that 'it is impossible to have a marriage of sustainable growth and democracy in a country without reducing the level of poverty.' A major factor in the distribution of income in a modern economy is the distribution of wages and salaries. Comparison between wage and salary differentials in the manufacturing industries of Jamaica and Trinidad reveal that in Jamaica the median reported salary of a CEO in manufacturing was 20 times greater than the remuneration of the average wage earner; (20 for food manufacturing; 22 for sugar refining; 36 for garments; 40 for textiles). Data for comparable manufacturing subsectors show that the median salary of a CEO in Trinidad was only six to seven times greater than that of a worker in dairy, fruit and vegetable industries; eight times greater in sugar refining; and 23 times greater in textiles. A similar pattern prevails in the public sector. In Jamaica's public sector, basic salaries at the top are 11 to 16 times greater than the pay of a telephone receptionist or a clerk typist. In Trinidad the corresponding ratio lies between four and six; or five and eight if we include monetary perks. Although Trinidad is a richer country with average GNP per capita more than 3 times greater than Jamaica, the remuneration of top positions in the public sector in Trinidad is equal or only marginally greater than is the case in Jamaica. In the lower grades of the public sector however, Trinidad public servants are paid very much more (US$3,500 to US$5,500 per annum) than similar grades in Jamaica (US$1,200 to US$1,600). Similarly, in the private sector, the compensation of a CEO in the Trinidad manufacturing sector of US$45,000 (median figure in 1993) is only marginally higher than the US$33,000 received by a Jamaican CEO (median in 1994). In the Service Sector, Jamaican top salaries are higher at US$52,000 compared with Trinidad's US$35,000. The remuneration of workers, however, is very much greater in Trinidad — US$6,500 to US$7,500 in food processing, US$5,700 in sugar refining and US$1,900 in textiles (1993 figures). Comparable wages in Jamaica are US$1,600 in food processing; US$1,300 in sugar refining and US$ 800 in textiles.7 The subject merits more research. Jamaican professional salaries are affected by proximity to the United States and perceived opportunities in the US labour market. University salaries at Mona are higher than at The Persistence of the Plantation Legacy in Contemporary Jamaica

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St Augustine. At the bottom of the income scale, Jamaican wages are very much lower, reflecting the plantation legacy of low wages and the educational disadvantages of the poorer classes. The study presented in Rio, cited earlier, suggests that educational attainment is a significant determinant of income. As schooling of the population increases, income inequality diminishes. Education contributes both to productive efficiency and to social equality. Modern economic activity favours a more egalitarian society, a more universally middle income society. An egalitarian society is more stable and more productive than a society where incomes are at levels found in Jamaica. Social, economic and educational advance is an inseparable package. It requires a solidaristic society, a proactive state, the subordination of finance to the economic and social priorities of society, cooperation between the major interest groups, and above all, respect for the working people whose labour and creativity are the ultimate source of wealth of the nation. What is now required are measures to open economic spaces, to liberate the productive and entrepreneurial capacities of all the people; to bring idle lands into production for increased domestic food and agro-industrial exports. There are opportunities in niche markets for high value 'exotic' vegetables, fruits, ornamental plants, medicinal herbs and recreational fish — the production of which do not require large sums of capital. It is in the marketing that scale is important. It is in the marketing that these products become 'exotic' — that yam and bammy are transformed into fashionable health foods valued for their high fibre qualities. There are opportunities in high value, high style garments, hand crafted furniture, and products of local marble and clays. Jamaica's entertainment industry has created an image of Jamaica which imaginative and skillful marketing can transform into markets for any number of Jamaican products, and incomes for their producers. There are opportunities in ecological, cultural, heritage and health tourism, spas based on the therapeutic qualities of Jamaica's mineral springs. Nature is bountiful. Jamaicans are a creative and talented people. There is hope, much hope for the future of this very beautiful and blessed land.

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Part Two Post-Mortetn on Debt and

Adjustment

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Facing Up to the IMF in Trinidad and Tobago1

Stabilisation and Structural Adjustment: Rhetoric and Reality Stabilisation and structural adjustment programmes designed and monitored by the International Monetary Fund — in cooperation with the World Bank — are the order of the day in almost all the countries of sub-Saharan Africa and two-thirds of the countries of Latin America. These programmes have become highly controversial. They have been more successful in enabling international commercial banks to extract interest payments and buy time to adjust to the obvious incapacity of some Third World governments fully to service their debt, than in enabling debtor countries to adjust to the destabilising external environment of the 1980s. According to an American expert, United States policies since the onset of the debt crisis in August 1982 have been oriented to only one goal: to keep the debtor countries paying the full amount due to American banks. To this end, the United States has put direct pressure on debtor countries and has also pressured the international financial institutions (IFIs) to get policy targets aimed at uninterrupted debt service.2 A country cannot get an IMF programme while in arrears to commercial banks. Commercial banks will not reschedule or refinance sovereign debt without a pre-existing IMF programme. The IMF has in effect been transformed into the principal agent of an unofficial creditor cartel of the international banks — an International Ministry of Finance (IMF) which sets the parameters within which national budgets of Third World deficit countries are now written. The Bretton Woods System

This is, indeed, a far cry from the original purposes of the IMF, as anchor of an orderly international system of stable exchange rates, with sufficient flexibility to permit deficit countries to access temporary finance

to enable non-deflationary adjustment with minimal 'grandmotherly' interference in their domestic economic management. The underlying objective of the original Bretton Woods System was the maintenance of full employment by member countries and the underlying economic theory was the Keynesian analysis of active economic planning and macroeconomic management To this end, the IMF was to have been complemented by an international trade organisation (ITO) with the dual purpose of stabilising primary commodity prices and promoting world trade. The ITO was shot down by the United States Congress; in its place we have the General Agreement on Tariffs and Trade (GATT), with an agenda of trade liberalisation without commodity price stabilisation. There were, however, several 'worms in the apple' — to borrow Hans Singer's evocative phrase.3 Keynes had proposed a world currency based not on gold, nor on the US dollar, nor on special drawing rights (SDKs), but on 30 primary commodities (including gold and oil) which would automatically have stabilised at least the average price of these commodities. Instead, a gold exchange standard became in effect a US dollar standard, enabling the US to exercise the special privilege of settling its balance of payments deficits with its own lOUs. This was the permissive condition giving rise to the worldwide inflation of the 1970s and the rapid growth of a private Eurodollar market awash with liquidity. The second worm in the incomplete Bretton Woods structure was the abortion of the plan to locate the primary responsibility for economic development assistance to Third World countries within the United Nations system, in the form of a special UN Fund for Economic Development. Instead, the industrialised countries channeled development assistance through the World Bank, which they controlled. The third major flaw in the system was the rejection by the major industrialized countries of Keynes's insistence that penalties be levied on surplus as well as on deficit countries. These chickens have now come home to roost — to mix metaphors — in the form of massive macroeconomic imbalances which place the burden of adjustment to a thoroughly disordered world exclusively on deficit countries, with the single notable exception of the United States of America. Thus the surpluses of Japan, Germany, Taiwan, Canada or Korea are in effect recycled to the benefit of the world's most powerful capitalist country, which is now the world's largest net importer of capital and the world's largest debtor. The IMF cannot tell the Americans that they are 'living 94

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beyond their means'; or that they should reduce their exorbitant nonproductive military expenditures or that they should export rather than import capital. The IMF has in effect been transformed into an agency of the industrialised countries which since 1979 deals exclusively with developing countries. The latter, however, have virtually no input into its policies and decisions. The Root of the Problem

In the two decades prior to the demise of the Bretton Woods System in 1971 (when the United States suspended the convertibility of the dollar to gold) the world economy experienced one of the longest sustained booms in world history. There was full employment and little inflation in the industrialised countries. The developing world, including scores of countries emerging from colonialism to political independence, was attached to this 'engine of growth' by trade and capital investments, principally in raw materials but also in import substituting industry, particularly in the larger domestic markets of Latin America. It was in this period that American business led the way towards the transnationalisation of production. Japanese and others soon followed. Although some three quarters of these foreign investments were made in industrialized countries, the transnationalisation of production led by North American companies irradiated the whole world with homogenised consumption patterns and lifestyles. These transnationalised consumption patterns were and are associated with the large scale accumulation of durable consumer goods in the hands of private persons, the predatory use of non-renewable resources, and the rapid obsolescence of final goods, speeded by traditionalised advertising. The middle classes which were spawned by the economic growth of the 1960s and 1970s became an integral participant in an international culture which privileges personal over collective interests. The increasing inequality of income which accompanied the economic growth of the 1960s and 1970s in Latin America and in some countries of the Caribbean increasingly differentiated its transnationalised elites from the masses of working people. Societal relationships and national cultures came under increasing stress as new class cleavages were added to the traditional ones and the acquisition of private consumer goods appeared to offer upward social mobility.

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Destabilisation of the International Economic Order

By the late 1960s, the United States was experiencing ever growing balance of payments problems: the financing of the Vietnam War, the large social programmes in response to domestic unrest, the continuing outflow of capital by American multi-nationals and the re-investment of their profit abroad, combined with a weak export performance were rapidly depleting US gold reserves. The United States, however, was able to avoid — or at least to delay by one or two decades — the adjustment to its weakened competitive position. Thanks to the privileged status of the US dollar as the world's leading reserve currency, the United States was able to finance its current account deficits by opening lines of credit in its bank branches abroad. Thus the Eurodollar market was back. This market was available to all parts of the world. The vast increase in dollar reserves outside the United States is ultimately nothing but the appropriation of foreign resources by the simple creation of means of payment. The suspension of US gold convertibility in 1971 speeded the transnationalisation of the private financial system. The value of international monetary reserves increased from $70 billion in 1909 to $687 billion in 1984. Exchange rates floated. Monetary stability was abandoned. Commodity prices climbed from the late 1960s, culminating in the first oil shock of 1973. The oil price rise of 1979 was but the last phase of a vast commodity boom, just as the slide of oil prices from the early 1980 is part of a general commodity price slide. The dollar overhang, further boosted by the OPEC (Organisation of Petroleum Exporting Countries) surpluses of 1973 and 1979, laid the basis for a dizzying growth of international monetary and financial markets of increasing sophistication, with the capacity to borrow very short and lend medium long. Banking innovations, including cross default clauses, syndicated loans, and floating interest rates, served to shift interest and exchange risk from the lender to the borrower. It was this pool of financial capital, forever looking to make idle money work, which constituted the supply side of the ballooning Third World indebtedness to commercial banks. These loans, initially at low or negative real rates of interest, were extended by several hundred commercial banks to a handful of semi-industrialised developing countries, in the belief shared by creditor and debtor alike that the high

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rates of GDP and export growth of the 1970s were sustainable. Sovereign lending by private banks was universally applauded by academic and governmental experts as an example of the efficiency of the private market. The major industrialised countries who opposed the establishment of multilateral facilities for the recycling of excess reserves in the 1970s must now bear a considerable share of responsibility for the gigantic market failure of private bank lending to Third World countries. The Debt Crisis

The basic facts of the debt crisis are by now well known, deteriorating commodity prices (fuel fell by 45 per cent from 1977 to 1982); soaring nominal and real interest rates initiated by the Volker shock which reversed US monetary policy and precipitated the deep recession of 19817 83; and the reverse stampede of the commercial banks, starting early in 1982, as private creditors fell over themselves to pull their money out of situations which had only recently appeared rightly attractive. Capital flows to Latin America, which had been running at annual levels of $30 to $40 billion, plummeted to $5 billion in 1983. Capital flight was a significant factor in debt accumulation as transnationalised elites borrowed foreign funds to acquire foreign assets and their governments subsequently socialised their debts, adding them to the official governmental debt to be serviced at the expense of the standard of living of the masses of the population. The 'adjustment' of the United States to the second oil shock and more specifically to inflation and inflationary expectations was effected in May 1979 by the 'Volker shock' which projected nominal interest rates toward 20 per cent per annum and raised real rates of interest from very low or negative levels of 1974 to 1980 to historically unprecedented levels of 5 per cent to 8 per cent per annum. (The rise in interest rates of 2 per cent has added $7 billion per annum to Latin America's debt service obligations). 4 The pressure to dampen inflationary forces, if necessary at the cost of creating unemployment, came from the powerful interests of the holders of financial wealth who abhor inflation which devalues their bond portfolios. The changes in monetary policy by the Central Bank of the United States in 1979, whereby a stroke of the pen resulted in the transfer of billions of dollars from Third World debtors

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to first world creditors (which moreover attracted massive capital inflows to the United States, sustaining an overvalued dollar and creating yet more problems for debtor countries holding US denominated debt selling in non-US markets), is a sobering reminder of the vulnerability of developing countries to the combined power of the banks and governments of the industrialised countries.5 The reduction in employment to combat inflationary pressures and rising real wages in the industrialised countries was yet another adjustment made in the interest of capital. Among the consequences of intensified international competition, increased unemployment and the partial dismantling of the social security network in industrialised countries, has been the defense pressure for protectionism and the trend toward the formation of major trading areas, relatively self-sufficient but trading with each other under some sort of new international order. The outlines of such a system are taking shape in the form of the European Community with a special relationship to traditional trading partners in Northern and Eastern Europe, including probably also the Soviet Union; the United States with privileged bilateral relations in Canada (a fait accompli) and probably also with Mexico; and the 'Inverted V Formation' of flying geese: Japan, with Korea and other countries of the Pacific Rim in tow. A generation behind are the outlines of other blocs: China; the Indian subcontinent; and Latin America. When the US dollar finally loses its pre-eminence as the world's major reserve currency, and the hypertrophic globalised financial structures come crashing down or are otherwise brought under control, and with them the underworld of drug traffickers and money launderers, those blocs are likely to transform themselves into major currency areas. It is not until such time that there is likely to be a restructuring of the International Monetary Fund. This digression into a backward and forward look at the world within which we find ourselves is essential if we wish to situate ourselves realistically within it. It is a hard world which deals harshly with small developing countries which lack a collective sense of direction and purpose. We need to understand history if we do not wish to be bamboozled and led by the nose by advice which is often mistaken and generally also self-interested. The same pundits who praised the commercial banks for their sovereign lending in the 1970s also believed that the recovery of the industrialised world from the (self-inflicted) deep recession of 1981-83, combined with heroic adjustment measures 98

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undertaken by debtor countries in the early 1980s, would have enabled them to 'export' themselves out of the debt trap. This is not at all what happened. After a deceptively good year in 1984, the situation has substantially deteriorated. According to World Bank figures for all developing countries, debt service of principal and interest of $345 billion for the three years of 1985-87 exceeded net capital inflows of $264 billion by $80 billion, while outstanding debt of these countries increased by $216 billion. Capital inflows to developing countries in the same three-year period were running at 40 per cent of average levels in the pre-crisis period (1978-83) and consisted largely of rescheduling, refinancing and capitalisation of interest. An average annual resource transfer of close to $30 billion from Third World debtors to First World creditors in the form of massive trade surpluses has not succeeded in reducing the total amount of outstanding debt, which continues to increase with the costs of refinancing and capitalization of overdue debt service, now approximately $1,300 billion. The trade surpluses extracted from debtor countries were generally not achieved by increased export earnings, but rather by massive contractions of import volumes resulting in reduced public and private investment, falling levels of average per capita consumption and deteriorating levels of nutrition, health and education of the mass of the people. The costs of stalled development rise exponentially with every year that passes as the longterm effects of these 'adjustments' manifest themselves. Economic growth in virtually all the countries of Africa and most of the countries of Latin America and the Caribbean has gone into reverse or at best is hovering on the brink of fragile and insecure recoveries. Economic development in any meaningful sense of that term has disappeared from the agendas of the industrialised countries. The reformist projects of the 1970s — redistribution with growth, basic human needs, a new international economic order — have receded into history, leaving a legacy of indebtedness and economic structures critically dependent on import capacities which can no longer be sustained from export earnings and net capital flows. The burden of 'adjustment' typically falls most heavily on the masses of the people while the transnationalised elite is frequently able to secure personal deliverance by migration and by virtue of a privilege with the network of international finance. Contrary to the situation in the crisis of the 1930s, many impoverished countries have spawned a thriving and

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prosperous elite whose sources of income remain shrouded in mystery and gossip. The option of 'exit' for the professional and commercial elites and the pervasive nexus of transnationalised finance have rendered these countries more vulnerable to the crisis of the 1980s than was the case in the 1930s. In some countries the situation has deteriorated to the point of disintegration of civil society and the destructuring and deligitimisation of the state. Such is the case in Peru today; perhaps it is the case also in Guyana. In many countries, 'adjustment fatigue' has reached the political boiling point — thus the narrow victory of the long-ruling PRI in Mexico, the riots in Venezuela, the flourishing coca economy of Peru, Bolivia and Colombia, and the prospect of victory by leftist forces and Peronistas in Brazil and Argentina respectively. No doubt all these things had an input into the Brady initiative of the new US administration concerning bank debt reduction. The initiative is to be welcomed, although neither the modalities nor the conditionalities concerning domestic policy reforms, nor the willingness of major banks to participate in concerted debt reduction, are as yet assured, In any event, the banks are 'out of the woods' having increased reserves and made their adjustments, thanks to the pressures applied to debtors by the US Treasury and the IMF since 1982, as I have already mentioned. In the Caribbean, we stand to gain little from these initiatives. Over 80 per cent of Jamaica's debt is owed to bilateral and multilateral agencies and Trinidad and Tobago did not qualify for some time because GNP per capita was above the ceiling (US$3,000). As for the many countries whose debt is owed principally to official (Paris Club) agencies, the industrialised countries remain adamantly unwilling to write down (high interest) export credits. This is particularly punitive to the poor countries of Africa, whose debt burden is much more onerous in relation to their capacity of service than is the case for Latin America and the Caribbean. The World Bank and the IMF do not agree to forfeit debt or debt service under any circumstances — although an increasing number of very poor countries have been unable to pay them. Stabilisation and Adjustment This is the context within which the burden of adjustment is being placed on scores of developing countries. Moreover, some of the 'adjustments' made by industrialised countries to their own problems 100

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have compounded the problems of the developing countries. We refer particularly to the high real interest rates sustained by tight monetary policies to protect financial assets from depreciating by inflation, protectionist measures by industrialised countries, and the combination of circumstances which are resulting in massive capital inflows to the world's richest country. Additionally, there has been a shift from production to speculative activity, on a world scale, facilitated by a globalised private financial network whose international transactions vastly exceed the value of international trade. Those are some of the circumstances which have accompanied an ideological counter-revolution in the form of a 'market fundamentalism' which has diagnosed the roots of the problem of Third World countries to lie in 'domestic distortions' due to governmental mismanagement. It is this ideological baggage and the policies which flow from it which constitute the major problem in relations between the IMF (and the World Bank) and developing countries obliged to deal with these agencies. It is important to keep in mind that these problems are not created by these agencies as autonomous bodies, but derive from the policies of the Central Bank and Finance Ministries of the governments of the industrialised countries which control them and the apparent capacity of capital to assert evidence of financial gain over traditional values of fair reward for labour, nurture and care of the young and the elderly, and responsibility for the natural environment that sustains our life on this planet. The harsh fact is that Third World countries, faced with a shortfall of foreign exchange to sustain vulnerable import-dependent economies, must come to terms with the need to adjust to adverse circumstances. Although the terms 'stablisation' and 'structural adjustment' tend to be used interchangeably, it is useful to keep in mind the traditional distinction between stablisation, in the sense of short term macroeconomic measures taken to restore balance between supply and demand in the economy, and 'structural adjustment', as long term measures taken to effect a reallocation of resources in the real economy. The stabilisation component of an adjustment programme operates principally on the demand side, by demand management, while 'structural adjustment' pertains to measures taken to increase the real supply of goods and services, and reallocate them toward exports. The typical IMF programme combines these two aspects of adjustments and relies to an excessive degree on key prices to effect supply adjustments. Moreover, it operates with an unrealistically shortFacing up to the IMF in Trinidad and Tobago

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time horizon. The key price in those programmes are the exchange rate (devaluation) and the interest rate (higher cost credit), while the principal thrust of 'demand management' is directed toward reduction of government expenditure and reduction in the overall deficit of the public sector. The assumption underlying this approach is that the private sector will respond to devaluation by producing for export or for importsaving domestic activity and will be facilitated by easier access to credit in so far as the reduced public sector deficit will no longer 'crowd them out' of the domestic capital market. It is a doctrinal belief of the Fund that high real interest rates will increase domestic savings and cause capital to return from abroad. There is a remarkable absence of evidence for this belief. In so far as the Fund provides finance to cover a balance of payments shortfall, it is wholly within its rights to obtain assurances that there will be a restructuring of the real economy toward increased exports and import substitutes, if only to assure the capacity of the country to repay the loan. Furthermore, the Fund is within its rights to ensure orderly financial management, a greater measure of fiscal discipline, and where appropriate, improved public enterprise finance. These are reasonable demands which a creditor is entitled to make, to ensure the capacity of the borrower to repay a loan. In other words, in my view, conditionalities should be concerned exclusively with a country's ability to turn around its balance of payments, while maintaining its capacity to minimise the deflationary effects of adjustment, and to determine its distributional impact on social classes and groups. Conditionalities should not be used, as is currently the case, to impose arbitrary and ideologically based 'liberalisation' policies on countries with payments problems. Specifically, the IMF should abandon conditionalities pertaining to import liberalisation, which results in the bankruptcy of domestic firms and increased unemployment, a shift from productive to distributional activity, and in the case of agricultural imports, conflicts with the need to generate a higher level of food selfreliance. Experiences have shown that financial liberalisation is particularly hazardous, and should not be attempted until a country has regained stability and economic growth. Most importantly, the Fund should drop its resistance to selective policy measures which governments may wish to apply to minimise the deflationary effect of stabilisation and adjustment, and to protect the poor from its principal burden. The distributional impact of an IMF 102

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adjustment programme is a particularly sensitive matter because it can strain the political fabric to the point where governments — especially democratic governments — are forced to buy social peace at the cost of rekindling inflation. In a small open economy, inflation will lead directly to the loss of foreign exchange reserves, followed by devaluation and further inflation. This is to be avoided at all costs. The Fund should abandon excessively restrictive monetary and fiscal targets; it should moderate the speed of deficit reduction. In no circumstances should the Fund identify specific categories of expenditure to be cut. Where fiscal matters are concerned, such as orderly tax administration, effective public expenditure controls, realistic investment plans, anti-corruption drives, limits on foreign borrowing, accountability and sound management of public enterprises, it is clear that these are legitimate concerns of the Fund as a multilateral creditor. The use of conditionality to impose economic policies or economic doctrines on borrowing countries, because these happen to be the prevailing views in Washington, has been a major source of conflict between the Fund and the World Bank on the one hand and Third World governments and scholars on the other. Indeed, such ideological conditionalities are counter-productive. In so far as they are externally imposed, and biased toward private sector interests, they delegitimise the government's stabilisation efforts. A country which desires to maintain control over its social, economic and political priorities must have the capacity to correct external imbalances — if necessary by import and demand contraction. The appropriate instruments of macroeconomic policy are well known: exchange rate policy (where appropriate); fiscal measures for deficit reduction; incomes policy in the form of wage guidelines; and monetary policy. Depending on the structure of the economy, a devaluation may or may not stimulate exports and import saving domestic industry. If a devaluation cannot increase export earnings, it will reduce total output: imports will become more expensive, the domestic price level will rise; and if money wages do not rise to match the higher cost of living, there will be a deflationary reduction of real wages and real consumption. In such circumstances there will not be any offsetting increase in investment as predicted by IMF models, and proven by experience. In so far as industrial and also agricultural activity depends on imported inputs (now more expensive), a devaluation will result in higher costs for domestic industry, bankruptcies, unemployment, and wasted potential output and savings. The use of the exchange rate as a key price Facing up to the IMF in Trinidad and Tobago

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signal resulting in a shift in output from non-tradeables to tradeables, is more fiction than reality in small developing countries with a limited range of productive activities. The encouragement of export expansion, which is highly desirable, is not a matter of short-term manipulation of exchange rates but rather of long-term adjustment. In this connection, the experience of Jamaica is instructive. After several large devaluations in the early 1980s, the Jamaican authorities refused to implement further devaluations. Since 1985, the external value of the Jamaican dollar has, in effect, been fixed and supported by Central Bank intervention. The devaluations did not succeed in raising export resources, and the stability of the Jamaica dollar over the past several years has been credited as contributing to recent good macroeconomic performance. Deficit cutting by expenditure reduction of the public sector is generally necessary to achieve balance of payments stability, because an unfinanced fiscal deficit is a step on the road to inflationary finance. Reduction of subsidies or divestment of public enterprises may be an appropriate measure of rationalisation where the government is faced by difficult choices concerning expenditure cuts. Such decisions should be made on non-ideological and pragmatic criteria in accordance with the circumstances and the political culture of the country in question. Above all, we must insist that the distributional impact of adjustment is ultimately a political and not an economic question, and the state must be able to override the market, where this is essential to social consensus. This may pertain to such matters as subsidies for basic food, or school meals, or basic health services. Any programme which cannot command a critical degree of acceptance by the major interest groups within the society is bound to fail. The limits of stress which the 'social compact' can tolerate cannot be measured by econometric models or formulae of IMF technocrats whose calculation and projections have in any event frequently been wrong. There is no substitute for public discussion and public consultation. Income policy as part of a tripartite process of consultation between labour, capital and the government is ultimately the better alternative to a credit squeeze in which the higher bidders gain access to credit, while hard-pressed businesses and the public sector are unable to meet their wage bills. In developed countries, and perhaps also in some large semiindustrialised Third World countries with a well-developed capital market, a rise in the domestic interest rate may attract short-term funds which will assist in closing the payments gap. In most developing 104

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countries, short-term capital movements are a one-way street. Money only goes out. No matter how high the domestic rate of interest, there is a premium on holding funds abroad, especially if future prospects are uncertain. On the other hand, high interest rates are likely to be passed on in high prices by merchants (because working capital is now more expensive) and will certainly reduce construction activity, particularly residential construction, on account of the high cost of mortgage money. Moreover, studies have shown that domestic savings do not respond to high interest rates. High interest rates are likely to favour speculative investments and distributional activities and unduly add to the risks of legitimate productive activity. Adjustment to adverse external circumstances is painful and disagreeable. It is, however, the price to be paid by society for control over its economic, social, political and cultural priorities, in defense of independence. If many of the necessary measures coincide with the terms of an IMF agreement, this does not mean that the country, or its government, has necessarily accepted the totality of IMF/World Bank diagnoses with their attendant baggage of market fundamentalism. It merely reflects the reality, a calculated decision that the costs of adjustment with IMF finance and conditionalities are significantly less painful than they would be without such finance. A postponement of adjustment, however, would certainly expose the country to the full measure of the forces of international capital, whether in the form of a more comprehensive Fund/Bank structural adjustment programme or by entrapment into a direct relationship of clientelism with the United States, as is unfortunately now the case in Jamaica. In Trinidad and Tobago, the short term goal must be to restore the relationship with the Fund to its previous minimal and formal nature, and build on the considerable heritage of physical, human and cultural infrastructure, in pursuit of national goals, and the economic and social agenda associated with the late Dr Eric Williams. Above all, it is now necessary to turn around the economy, to get the growth process started again — and to do so with minimal further external borrowing. When I told my colleagues at the University of the West Indies in Jamaica that I was coming to Trinidad to talk about the IMF and structural adjustment, their advice was loud and clear. 'Tell them', they said, 'to learn from the experiences of Jamaica. Tell them that adjustment is inescapable; and most importantly, tell them to keep out of debt!'

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Jamaica is now firmly in the grip of the debt trap, with the full support and counsel of the IMF, the World Bank and the United States Agency for International Development (USAID). The Seaga administration fed the Jamaican economy on a diet of official external capital funds, escalating the country's debt from $1.7 billion in 1980 to $4.5 billion by the end of 1988. Jamaica is now a debt-fed economy, addicted to annual net capital inflows to generate the foreign exchange necessary to top up export earnings to the level of imports required to keep production, investment, and consumption from collapsing. This explains the remarkable continuity of economic policy of the Manley administration with respect to its predecessor. We have heard of debt-led growth, as in the 1970s in Latin America. In Jamaica, it is a case of debt-fed growth, right down to PL 480 financed food stamps for the poor. While a special status as favoured client state of the United States of America may be compatible with the sentiments of Jamaica — where Carl Stone polls show that three-quarters of the electorate and the elite perceive the United States as the country most likely to help Jamaica — I do not believe that such a status is either desired or inevitable or ever attainable for Trinidad and Tobago. Trinidad and Tobago is not a poor country. National income per head, even after eight years of negative growth, is three or four times higher than that of Jamaica. The ratio of debt to GNP is about 30 per cent, compared with 150 per cent for Jamaica. The oil boom has not passed 'like a dose of salts' leaving nothing but a national hangover. In spite of considerable waste, mismanagement and corruption, there is an important legacy of public sector investment in physical infrastructure in the form of the petroleum based industries, new highways, telecommunications, the medical complex and other fine public buildings, including the auditorium of the new engineering complex of the UWI. The contribution of the private sector during the years of the oil boom is more questionable because it was so closely associated with the distribution of imported consumer goods or their manufacture with minimal local content. Nevertheless, there is here also a valuable legacy of experience in business management. Trinidad and Tobago is blessed with rich resources of energy, good agricultural land and a population with a high level of literacy and resourcefulness. (Where else can you find a country of one million people with two daily newspapers and half a dozen weekly publications, all widely read?) In spite of all the grumbling, a lot of adjustment is being made by individual effort and initiative, most significantly in the production and processing 106

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of food. The economy is irrevocably 'mixed' with an important state enterprise sector. Labour is highly organised, and the trade union movement has an important tradition of national consciousness. What is most important now is the need to divorce policy from ideology, whether the 'worker fundamentalist' or the 'radical socialist' variety. The trend in Third World countries today is toward the rejection of ideology and the adoption of pragmatic and nationalist approaches to economic policy. We must examine with the greatest care and suspicion the simplistic diagnoses and false choices offered by the self-appointed experts of the international agencies. Among the false dichotomies are: Market versus state. Externally versus internally oriented development. Export production versus import substitution. In all these cases, the former are declared to be 'good' and 'right'; the latter are 'bad' and 'wrong'. What are we to make of this kind of advice? Firstly, all 'development' must be internally oriented, that is, oriented to the needs of the society. This does not mean that export earnings are not important, or trade is not beneficial. It does, however, mean that no society worthy of the name can see 'export earning' as its top priority, as its most important social goal. And none of the 'successful' exporters have done so — not Japan, nor Korea. No self-respecting society can permit the international system of prices to rule over the internal allocation of resources and the internal distribution of the national product without imposing social priorities over market criteria. The poor must be protected, if necessary by subsidised basic food and essential health and educational services. No self-respecting society can permit an excessive dependence on imported sources of food. Food dependence an debt dependence are the two Achilles heels of developing countries. None of the so-called developed counties have permitted market forces to eliminate their agricultural producers. This is crucial. No self-respecting society can permit the alienation of land. This is particularly important in a small country where land use is obviously of the highest importance. Obviously, there is need to strengthen regional integration and diversify the levels of trade with the major economic blocs referred to Facing up to the IMF in Trinidad and Tobago

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earlier — North America, Europe, the Far East and Latin America. This region has reached a historic turning point. The choices are clear — the farther drift of these islands toward satellite status at the fringe of the North America continent, or the realisation of the dream of a unique West Indian society with links of trade and culture to the far corners of the world, protected from the gravitational pull toward North America by their 'islandness' and above all by the desire to preserve and protect their own lifestyle. The next year or two, perhaps three or four, while the country is involved in a programme or is otherwise under the surveillance of the IMF, will mark the turning point of Trinidad and Tobago with respect to the choice of future direction. The outcome is by no means predetermined and it is mistake to ascribe an excessive measure of power to the IMF. Ultimately, the future will be determined by the degree to which a national consensus can impose constraints upon agendas of sectional interests and ambitious politicians of whatever stripe. Hopefully, the 1990s will consign the prevailing 'market fundamentalism' of the era of Reagan and Thatcher to the dustbin of failed social experiments. Meanwhile, I say keep the dream of independence alive, because without dreams there is no creation. But keep your feet firmly grounded in realities and do not by misled or bamboozled by ideologies or technocrats, wherever they may come from.

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B1

The Origins and Consequences of Jamaica's Debt Crisis, 1970-19901

Summary of the Problem

Political partisanship runs high in Jamaica, and intense rivalry is a traditional feature of Jamaican political life. The fact is that the PNP and the JLP, personalised as Mr Manley and Mr Seaga, share responsibility for the escalation of Jamaica's external debt from insignificant levels in the early 1970s to the monumental levels of today. Most of the debt was incurred in the ten years which include the last five years of Manley's PNP (1975-80) and the first five years of Seaga's JLP (1980-85). Partisans of the JLP squarely put the blame on Manley, for the decline of the Jamaican economy in the 1970; in reality, the JLP is equally if not more responsible, because it benefited from the special relationship with the Reagan administration, which pumped vast sums of money into Jamaica, and leaned on the International Monetary Fund (IMF) and the World Bank to do likewise. The huge inflow of official loans and grants in the early 1980s, which might have rebuilt the capacity of Jamaica's economy to increase production, was largely spent on public and private consumption of imported goods and services. In the 1970s the two parties espoused contesting ideologies: the PNP asserted the need for the state to play a leading role in the economic life of the country, while the JLP maintained that economic initiative must be entrusted to the private sector, and that the private sector must be free to play the leading role in the economy. As a result of the high level of Jamaica's indebtedness, neither the state, nor the private sector is today playing the 'leading role' in the economic life of the country: their role is privileged to the international financial institutions (IFIs) which are now in charge of the economic management of the country. The government is effectively in receivership, and agricultural and industrial

producers are reeling under the blows of devaluations, deregulation and economic liberalisation. The commercial private sector is laughing all the way to the bank, as the saying goes. The achievements of decades of industrial development are unravelling, as high interest rates and import liberalisation choke production for the domestic market, including residential construction, while the banks are raking in profits on shortterm commercial and speculative loans. Meanwhile, a silent and growing emigration of skilled and educated workers and professionals is eroding the capacity of the country to effect meaningful adjustment in the 1990s — with or without the multilateral agencies that bear a considerable degree of responsibility for the high level of indebtedness of Jamaica. Jamaica is the most important country in Canada's development assistance programme in all of Latin America and the Caribbean, and Canadian International Development Agency (CIDA) expenditures on Jamaica are larger than on any other country in the region. Canada has strong ties with Jamaica and enjoys the goodwill of Jamaicans. The ties are largely 'people-ties' — the result of generations of Jamaicans who have made their home in Canada, and tens of thousands of Canadians who have visited Jamaica as tourists. The serious problems now facing Jamaica as a result of its very high level of external indebtedness are the subject of this chapter. Jamaica is now one of the most indebted countries in the world. Jamaica's total external debt currently approximates $4.5 billion dollars. This amounts to $1,800 for every man, woman and child on the island. The great majority of Jamaicans are poor. Gross National Product (GNP) per head is approximately $1,200; income distribution is extremely uneven. According to World Bank estimates, the top 20 per cent of the population account for more than 60 per cent of income.2 A rough calculation suggests that the average income of 80 per cent of the population is in the region of $500 to $600 per annum. 3 The burden of debt service falls heavily on wage and salary earners who cannot escape income taxes deducted at source. As can be seen from Table 1, the ratio of external debt to GNP reached 259 per cent in 1987, and has declined somewhat in recent years to average 143 per cent; the ratio of external debt to export earnings was 203 per cent in 1985, and is now approximately 200 per cent. The burden of servicing this debt is far above that of the 17 countries identified by the World Bank as highly indebted 'middle income countries', whose debt to GNP ratio is only 61 per cent. It is substantially 110

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Table 1:

Jamaica: External Debts and Debt Service

Total External Long/Medium Term Debt

1975

1980

1985

1987

1988

1989

688

1,867

3,587

4,013

4,002

4,035

83 83

341 263

734 503

1,037 774

895 816

849 759

875 1,166 123

1,562 759 219

1,760 1,077 330

1,699 1,183 327

24.0 18.5 10.8 75 10.6

58.0 39.8 22.5 206 28.9

63.7 47.5 18.4 259 30.6

44.1 40.2 13 144 29.2

Debt Service US $M Accrued Actual Per Capita US $ Debt GNP TDS Ratios TDS/XGS accrual Actual Interest/XGS Debt/GDP TDS/GDP

7.4 7.4 4.0 31

40.5 36.4

N/A

Source: Bank of Jamaica, April 1990

higher than the debt to GNP ratio of low-income African countries (99 per cent). Because Jamaica is such a highly open economy, with a ratio of exports to GNP now in excess of 65 per cent, external creditors are better able to collect debt service from Jamaica than from some of the larger debtors with a relatively smaller export sector. For this reason, Jamaica is not considered as problematic as other 'severely indebted middle-income countries', and has recently been reclassified by the World Bank as only 'moderately indebted'. In Jamaican reality, however, the burden of debt service on the country and its population, as indicated by the ratio of debt service to GNP of 30 per cent is among the heaviest in the world. Jamaica is a small country and critically dependent on the import of essential food, fuel, raw materials and capital goods. While

The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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the recent increase in exports earnings has assisted Jamaica to service external debt, the large transfer of real resources in the form of debt service would have been impossible without continued external borrowing. Access to balance of payments support in the form of loans and grants from official agencies is available only on condition of strict compliance with the financial targets and policy prescriptions of the Fund and the Bank. Without a critical minimum of foreign exchange to purchase essential imports of fuel, basic food and industrial goods, the Jamaican economy would collapse. For as long as debt service remains a priority on the foreign exchange resources of the country, the government of Jamaica will remain dependent on external balance of payments support and the Fund and the Bank will continue to programme and direct the economic policy of Jamaica, with supporting finance from bilateral donors. The growth rate of three per cent projected for the next number of years is low and critically dependent on continued favourable external terms of trade, specifically for the purchase of oil and the sale of bauxite/alumina. Table 2: Medium and Long-Term External Public Debt of Jamaica by Borrower Category (us$ millions) Total External Debt1

(End of vYear) ,.\ Government Direct Government Guaranteed Bank of Jamaica

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1,451

1,867

2,293

2,740

3,267

3,262

3,587

3,576

4,013

4,009

4,035

754

865

1,019

1,447

1,643

1,777

1,977

2,217

2,581

2,703

2,745

317

322

307

295

269

295

283

287

458

452

430

380

679

895

998

1,354

1,190

1,327

1,071

974

847

860

Source: World Bank, Bank of Jamaica, March 1990

The government of Jamaica is in de facto receivership to the multilateral agencies which have monitored and supervised the affairs of this country throughout the 1980s — and are, to a considerable measure, responsible for the excessive level of official indebtedness contracted in the opening years of the decade. Table 2 shows the rapid

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increase in external borrowing by the central government. Over 90 per cent of the medium and long term debt of Jamaica is now owed to official creditors. Neither the IMF nor the World Bank permits the rescheduling of loans. Debt swaps and similar such schemes have little to offer, because a mere nine per cent of Jamaica's debt is owed to commercial banks. The stock of debt by creditor is recorded in Table 3. (See Appendix Table 3, for more detail). Debt service amounts to some $900 million per annum on an accruals basis; after large annual rescheduling, actual debt service of more than $700 million has been in excess of 40 per cent of export earnings, and almost 30 per cent of GNP. This last figure is the most significant single measure of the burden of debt service because it implies that over one quarter of the annual value of goods and services produced in Jamaica is privileged to external debt service. Table 3 records the extraordinary magnitude of multilateral and bilateral injections of official loans in the early 1980s. In the first four years of the Seaga government, these flows amounted to $2,125 million. Taking into account repayments due to these agencies, the net resource flows — and thus the increased indebtedness of Jamaica — amounted to $1,711 million in four years. Jamaica is a small country. Official external finance (net of repayments) averaged 20 per cent of GNP in 1981-84; financed 45 per cent of Jamaica's commodity imports, and was equivalent to 40 per cent of export earnings of goods and service. The contrast with the subsequent four years (1985-88) is striking. Since 1986, the multilaterals and bilaterals have been receiving more in repayment of principal than they have been disbursing in new loans. The section of table 4 which shows 'Net Transfers', that is, the excess of repayment and interest over new disbursements records large negative net transfers for recent years, amounting to $874 million from 198688. This represents 11 per cent to 12 per cent of GNP; a sacrifice of 25 per cent to 31 per cent of commodity imports; and a claim of 17 per cent to 18 per cent on foreign exchange earnings from the export of goods and services. The IMF and the World Bank — as well as the bilaterals — are all now taking more money out of Jamaica than they are disbursing in new loans. Net transfers to all creditors (official and private) have been considerably larger. For 1988 the excess of repayments over new loans and credits of $130 million, together with interest payments of $276 million, resulted in a transfer of $406 million from the government of The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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Table 3: Debt Transactions with Official Creditors 1981-1988 1981

1982

1983

Multilateral (LT) -IBRD -Other IMF Multilateral(LMT) Bilateral Total Official % GNP % Imports % Exports

90 43 47 240 330 285 615 24 47 39

156 121 35 182 338 296 634 23 52 44

98 60 38 120 218 260 478 15 43 35

Multilateral (LT) -IBRD -Other IMF Multilateral(LMT) Bilateral Total Official % GNP % Imports % Exports

79 36 43 181 260 256 516 20 40 33

142 110 32 131 273 256 529 19 44 37

80 46 34 76 156 225 381 12 34 28

Multilateral (LT) -IBRD -Other IMF Multilateral(LMT) Bilateral Total Official %GNP % Imports % Exports

18 14 4 28 46 39 85 3 7 5

24 18 6 44 68 43 111 4 9 8

33 26 7 51 84 41 125 4 11 9

Multilateral (LT) -IBRD -Other IMF Multilateral(LMT) Bilateral Total Official

61 22 39 153 214 217 431

117 92 25 87 204 212 416

47 21 26 25 72 184 256

1984 1981-1984 Disbursements 76 420 49 273 27 147 103 645 179 1065 219 1060 398 2125 19 20 38 46 29 37 Net Resources Flows 50 351 31 223 19 128 43 431 93 782 192 929 285 1711 13 16 27 37 21 33 Interest 50 117 89 31 28 11 184 61 103 301 62 185 165 486 4 7 16 10 12 8 Net Transfers 8 233 0 135 98 8 -18 247 -10 480 130 743 120 1223

1985

1986

1987

1988

1985-1988

126 75 51 52 178 199 377 22 38 28

69 23 46 31 100 101 201 9 24 14

139 64 75 126 267 45 310 12 29 18

91 55 36 59 150 82 232 8 19 13

425 217 208 268 693 427 1120 13 27 18

99 57 42 -10 89 79 168 10 17 12

31 -7 38 -90 -59 3 -56 -3 -7 -4

76 23 53 -99 -23 -28 -52 -2 5 -3

17 2 15 -160 -143 7 -136 -5 -11 8

223 75 148 -359 -136 61 -75 -19 -2 -1

46 34 12 55 101 84 185 11 18 17

63 48 15 53 116 87 203 9 24 14

83 56 27 62 145 75 220 5 21 13

85 61 24 42 127 79 206 7 17 12

277 199 78 212 489 325 814 9 20 13

53 23 30 -65 -12 -5 -17

-33 -55 22 -143 -176 -84 -260

-7 -34 27 -161 -168 103 -271

-69 -59 -10 -202 -27 -72 -343

-56 -125 69 -571 -627 -264 -891

Source: World Debt Tables 1989/1990

Jamaica to external creditors, equivalent to 14.5 per cent of GNP; 21 per cent of export earnings; and 33 per cent of the value of commodity imports (Table 4). The bilateral donors, whose grants and rescheduling have been crucial in sustaining Jamaica's capacity to service debt, are now under pressure for 'additionally.' It is highly unlikely that they will be willing and able to increase the annual (cash) flow of assistance in the form of grants and rescheduling over (high) levels of recent years. The largest single bilateral donor — the United States Agency for International

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Development (USAID) — has already announced large cuts in development assistance to Jamaica, in the form of greatly reduced Economic Support Funds (ESF) funding. It should be noted that the grant element in bilateral assistance is now subsidising Jamaica's net transfers to bilateral agencies. The claws of the debt trap are biting deep into the already depleted resources of the country — and are programmed to continue to do so. According to the most recently available financial projections of the government of Jamaica and the World Bank, net official capital disbursements of grants and loans have been declining from an annual average of $450 million in 1981-85 to a present estimated annual flow of $92 million in 1986-90. If interest payments are also taken into account, Jamaica has transferred $795 million in the three fiscal years 1986/87-1988/89, equivalent to nine per cent of the country's GDP in that period. Another $355 million, equivalent to 5 per cent of GDP, is programmed to be transferred out in years 1989/90-1990/91. The shift from (large) positive to (large) negative net transfers has been abrupt. Thus, in the first half of the 1980s, (1981/82-1985/86) there was a positive net transfer of nearly $900 million (6.4 per cent of GDP); from 1986/87-1990/91 there will be an estimated negative net transfer of $1,150 million.4 The burden of debt service will continue to be heavy for the next three years. Thus, according to official projections for the three fiscal years 1990/91-1992/3, the sum of interest payments due ($794 million) and scheduled repayments ($1,158 million) will exceed programmed disbursements ($1,196 million) and official grants ($176 million) by $580 million. Additionally, the government is committed to replenish the (large negative) foreign exchange reserves of the Bank of Jamaica, starting with the clearing of some $220 million of arrears contracted in 1989/90. The 'financial gap' for the three subsequent years to come is $490 million. On optimistic assumptions concerning Paris Club rescheduling, and additional balance of payments support, the threeyear gap of $490 million might be reduced to a range of $100-$ 150 million. The IMF, the World Bank, and the Inter-American Development Bank (IDB) — all now benefiting from net resource transfers from Jamaica — are positioned to impose ever more onerous policy prescriptions in exchange for balance of payments support.

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Table 4: Debt Transactions with All Creditors 1980-1988 (US$ millions)

Disbursements % GNP % Imports % Exports Repayments % GNP % Imports % Exports Interest Repayments % GNP % Imports % Exports Net Resource Flows Total Net Transfers % GNP % Imports % Exoorts

1980 351 14.1 33.8 23.8 121 4.8 11.6 8.2 159 4.8 15.3 10.8 230 71 2.8 6.8 4.8

1981 705 27.2 54.3 45.1 231 8.9 17.8 14.8 151 5.8 11.6 9.7 474 323 12.5 24.9 20.7

1982 739 26.3 61.1 51.1 166 5.9 13.7 11.5 195 6.9 16.1 13.5 573 378 13.5 31.2 26.1

1983 530 16.9 47.1 38.6 167 5.3 14.8 12.1 225 7.1 20 16.4 363 138 4.4 12.3 10

1984 471 21.9 62.6 51.1 150 7 14.4 11 279 13 26.9 20.5 320 41 1.9 3.9 3

1985 471 27 46.9 34.7 317 18.2 31.5 23.3 289 16.5 28.8 21.3 154 -135 -7.7 13.4 -9.9

1986 255 11.9 30.4 17.1 371 17.3 44.3 25.3 284 13.2 33.9 19.4 -116 -400 -18.6 -47.8 -27.3

1987 470 18.6 44.1 27 8 418 16.5 39.2 293 11.5 27.5 17.4 52 -242 -9.6 -22.7 -14.3

1988 296 10.6 24.1 16.7 427 15.3 34.8 24 276 9.9 22.4 15.5 -130 -406 -14.5 -33.1 -22.9

2488

2590

2803

3137

2144

1742

2747

2528

2793

1038

1297

1209

1124

1037

1004

837

1065

1228

1472

1562

1446

1374

1361

1358

1465

1688

1776

Memo Notes: GNP U.S. $1038 Imports M$ (commodity imports) Exports $M (goods and nonfactor services)

Source: Appendix Table 2

The 1980s have witnessed substantial structural changes in the Jamaican economy under pressure of foreign exchange shortfalls in meeting expenditures, including debt service. Government expenditure has been severely reduced in favour of the private sector, and the capacity of the country to service external debt has increased because production for export has been privileged over production for the domestic market. The export ratio of Jamaica has increased significantly from the early 1980s, when it averaged 55 per cent to recent years when it rose to an average of 66 per cent. Service exports now exceed the export of goods. The economy is more open than ever before, and more vulnerable to external shocks. The structural adjustment programmes have unquestionably facilitated the net transfers of real resources required to

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service external debt. They have not, however, established a viable regime of accumulation and growth, and some of the measures which the government has been forced to accept, under threat of withdrawal of balance of payments support, will have negative effects on production and income distribution. A principal assumption underlying the structural adjustment programmes is that government is a drain on the resources of the private sector, and that the private sector has the capacity to act as the 'engine of growth' of the economy. The external managers of the domestic economy are systematically dismantling the policy instruments of the state and eroding the capacity of the government to stimulate production for the domestic market. Equally disturbing is the impotence of the government to regulate a critical minimum of distributional equity, without which the political system will not be able to maintain its legitimacy. In the 1980s, the poor have become poorer and more numerous. Real wages have declined and income distribution has shifted in favour of commercial and entrepreneurial income. Although Jamaica has traditionally been a highly class-structured society, with a level of income inequality unequalled anywhere in the Commonwealth Caribbean, the societal model which is now taking shape is new to Jamaica. Never in the postwar history of this country has there been a persistent trend of the enrichment of a relatively small element of the population accompanied by the sustained impoverishment of the majority of the population. Income inequality is now significantly greater than it was at the end of the 1960s, prior to the upsurge of social protest which swept the PNP into office in 1972 to ameliorate economic and social inequality between the 'haves' and the 'have nots' at that time. The standard of living of the great majority of Jamaicans is today far below levels of the early 1970s. This is visibly not the case for the professional and commercial upper middle classes. While the economic upturn in recent years has been greeted as a positive development in government reports and by the media, Jamaicans from a wide stratum of society are seeking escape by migration in ever increasing numbers, and at historically unprecedented rates. In the late 1980s, net migration was of the order of 30,000 to 40,000 per annum, or over 80 per cent of the natural population increase. The country is precariously perched on a mountain of external debt; its fragile economic stability is dependent on the continued inflow of external official balance of payments support — which falls far short of

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Jamaica's annual debt service obligations to these same agencies; official loans and grants are highly conditionalised on the implementation of policies of deregulation, privatisation and economic liberalisation which are designed to further open the economy to external trade, without regard to the impact on the incentives for business and labour to increase domestic production for the domestic market. The assessment of Jamaicans from all walks of life concerning their prospects of economic improvement is reflected in an unprecedented rate of migration, which is now eroding the capacity of both the public and the private sector to mobilise the energy required to set the economy on a path of stability and growth. Historical Overview: Two Decades of Decline

Prior to the 1950s, Jamaica was a typical plantation economy, exporting principally sugar, bananas, and other agricultural commodities. Then came the bauxite boom, which projected Jamaica into the position of the world's leading exporter of bauxite (mostly in crude, but also in processed form as alumina) from the mid 1950s to the mid 1970s. The massive inflow of capital associated with the bauxite-alumina industry, tourism, and the import-substituting industries established with the assistance of governmental incentives (tax holidays) to serve the expanding domestic market, sustained two decades of rapid economic growth, averaging 7.5 per cent per annum from the 1950s to the independence year of 1962; 5.1 per cent from 1962 to 1968; and 6.1 per cent from 1968 to 1973. By 1972, the last of the alumina plants was completed. Jamaica's production of bauxite reached its maximum of 15 million tonnes in 1974. The bauxite-alumina boom of Jamaica was, however, coming to an end. International developments in the aluminium industry and the rise in the cost of energy after 1973 favoured other sources of raw material supply. In 1973, the GNP of Jamaica reached a high of US$2,376 million (or $1,200 (current) US dollars) per capita, placing Jamaica in the upper ranks of developing countries, and foremost among the countries of the Commonwealth Caribbean at that time. In Table 5, key economic and social indicators which track the performance of the Jamaican economy over the past 20 years are presented.

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Table 5: Facing the External Resource Gap by Five-Year Periods 1970-1989 (US$ millions)

Current Account Balance (Net of Official Grants (NOG)) Official Grants O/w Grants Net MTL Loans Private Finance Total Finance Change in Reserves (+decrease. - increase)

1970-74

1975-79

1980-1984

1985-89

-917

-882

-1,737

-1,041

140 33 173 817 957 -40

492 35 457 -188 304

1.642 73 1.575 -32 1617 +120

1.081 374 707 112 1193 -152

+578

Sources of Finance- Percentages Current Account Balance (Net of Official Grants (NOG)) Official Grants O/w Grants Net MTL Loans Private Finance Total Finance Change in Reserves (-Kiecrease. - increase)

917

882

1.737

1.041

100 15 -4 89 104 -4

100 56 4 -21 35 65

100 95 4 -2 95 7

100 104 36 11 115 -15

8.5

6.0

12.5

.7

1

3.5

.1 7.5

12 .5

3.5

11.5

-1.5

.7 2.5 4.5 .1 1

Percentage of GDP Current Account Balance (Net of Official Grants (NOG)) Official Grants O/w Grants Net MTL Loans Private Finance Change in Reserves (+decrease. - increase)

4.0

1

Source: Bank of Jamaica

When the PNP was elected in 1972, there was a widely held opinion that the long period of economic growth from the mid 1950s had not adequately benefited the masses of the population. Unemployment stood at 23.2 per cent. In 1972, there was an upsurge in movements of political and social protest, and heavy net migration, principally to North America. The assessment by Jamaicans of the state of affairs in the country is remarkably well reflected in migration rates. The annual migration rate is probably the best single socioeconomic indicator of the national perception of the state of the economy. It is also a very democratic one, because Jamaicans of all classes and walks of life migrate. For this reason

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annual net migration has been tabulated and calculated as a percentage of annual natural population increase. This rate has been called the 'dissatisfaction index'. On that measure, dissatisfaction, as measured by net migration, was averaging 54 per cent in the first three years preceding the change of government in 1972. From 1973 the Jamaican economy declined almost continuously until the end of 1980. The cumulative decline of GDP from 1973 to 1980 was 22 per cent; in terms of GDP per capita the decline was 35 per cent. The Manley government engaged in reformist and redistributive policies designed to benefit the masses of the people and to correct the highly unequal distribution of income. The first oil shock of 1973/74 was countered by measures to extract a greater share of rents from the transnational bauxite/alumina companies by means of a unilaterally imposed levy. The failure to use the windfall gain from the bauxite levy to increase real investment in productive capacity; a rate of increase in government expenditure far in excess of the growth of revenues, resulting in fiscal deficits of the order of 15 per cent of GDP in the mid 1970s, financed largely by central bank credit; the reluctance to impose tighter controls over foreign exchange transactions prior to the depletion of the country's exchange reserves in 1976; and the rhetoric of socialism and 'anti-imperialism' in the context of an economy dependent on private sector confidence for investment and growth, all contributed to the economic crisis, which manifested itself in the mid 1970s.

The Manley Government of 1972-80 In the first years of the Manley government Jamaicans enjoyed the highest standard of living in the history of the country. As already mentioned, Gross Domestic Product (GDP) reached its highest level ever in 1973, as did per capita GDP. Public health and education expenditures as a percentage of government expenditures were running at 24 per cent prior to the election of the PNP government, and rose to 27 per cent before the economy began to contract. Standards of public health and education facilities were rapidly improving. The infant mortality rate declined from 32.5 per cent in 1970 to 11.3 per cent in 1980. The distributive share of wage and salary incomes was 61 per cent in the last years of the JLP administration, and increased year by year to reach 69 per cent in the election year of 1976, in response to minimum wage legislation, large wage increases and employment creating projects. A 120

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significant socioeconomic indicator is provided by the percentage of private consumption accounted for by wages and salaries. Note the consistently high participation of wage and salary earners in private consumption, from the end of the JLP administration of the 1960s, throughout the entire era of the PNP government, declining only marginally in the first two years of the Seaga-JLP government, dropping from 60 per cent in 1971, to 21 per cent in the first year after the election of the PNP government in 1972, and remaining low at an average of 25 percent until 1976, when it jumped to 48 per cent and conducted high rates to reach a maximum of 53 per cent in the election year of 1980. The electoral mandate received by the PNP in 1976 was obtained at the cost of depleted foreign exchange reserves, and led to the decision to negotiate Jamaica's first Standby Agreement with the IMF in 1977. By that time the government had neither the financial resources, nor the necessary level of political support to put in place a 'non-IMF' programme of self-reliance. The first IMF agreement was suspended in 1977. In May 1978 Jamaica obtained a three-year Extended Fund Facility (EFF), which required a heavy devaluation and a commitment to reduce the fiscal deficit. The decline in the economy was temporarily halted. The share of labour income fell from 67 per cent in 1977 to 62 per cent in 1978, illustrating the effectiveness of devaluation in a highly open economy in shifting distributive shares in favour of profits. The agreement broke down late in 1979. The rhetoric of a 'non-IMF' path was revived, but was by then politically unrealistic. In retrospect, the verdict is that the Manley government 'blew it'. By the end of their turn in office, the standard of living of the Jamaican working people had fallen by some 45 per cent below levels prevailing in the mid 1970s and the economy was burdened by a total long and medium-term debt of $1,867 million. The index of real median weekly incomes of employees in large establishments fell by 42 per cent for males and 55 per cent for females from 1976 to 1980. Most of this decline occurred between 1977 and 1979, as a direct result of the IMF adjustment programme, described in detail in the next section of this chapter. The Seaga Government of 1980-88

The JLP Seaga government, which assumed office late in 1980, was riding a tide of external and domestic popularity and was massively The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

121

financed by multilateral and bilateral loans, principally from the IMF, World Bank, IDE and USAID. A three-year Extended Fund Facility (Special Drawing Rights [SDR] 236 million) was put in place by April 1981. In June 1981, the EFF was raised to SDR 478 million, 430 per cent of Jamaica's quota with the IMF, one of the highest in the world. Conditionalities were minimal. Import controls were lifted and there was a surge of consumer goods and raw material imports, creating an artificial 'import-led, debt-fed' expansion. GDP increased by an average of 2 per cent per annum from 1981 to 1983, GDP per capita ceased its decline, and even showed a small increase. Average real wages and salaries recovered from their low of 1980, and had increased by 10 per cent by 1983. Export earnings weakened in 1982 and subsequently collapsed due to a severe fall in the demand for bauxite/alumina in international markets. Two Compensatory Fund Facilities (CFFs) of SDR 66.5 million and massive amounts of bilateral loans were made available in 1982. During the first years of the Seaga administration, all sections of the population experienced relief from the severe economic pressures of the last few years of the Manley government. Notwithstanding the official rhetoric of 'free enterprise', distributive shares shifted significantly in favour of wage and salary earners, and government spending increased substantially, financed by the large external inflow of loans. Our 'dissatisfaction index' in the form of the migration rate, responded by a dramatic decline from 52.9 per cent in 1980 to 12.8 per cent in the first year of the JLP government, and remained at historically low levels (average 14 per cent) until the mid 1980s, when the structural adjustment programmes began to take their toll on living standards. By 1983, the honeymoon was over. In 1984 the government was forced to undertake severe deflationary measures, including devaluations, tax increases, expenditure cuts, large layoffs and monetary restraint, in order to obtain a one year IMF Standby Agreement (SDR 64 million) and a third CFF (SDR 72.6 million). As a result, real GNP contracted in 1984 by 2.5 per cent and in 1985 by 5.9 per cent, wiping out the gains of the previous three years. The shock was harsh and brutal. Real wages fell by 17 percent from 1983 to 1985. The distributional share of wage and salary incomes fell from 62 per cent in 1983 to 57 per cent in 1984, and 54 per cent in 1985 — and has remained at these historically unprecedented levels ever since. We recall that in the JLP days prior to the PNP government of 1972-80, the distributional share of wages and salaries in relation to entrepreneurial income averaged 61 per cent, and 122

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wage and salary earners accounted for over 80 per cent of personal consumption; during the PNP government, wage and salary earners maintained a similar share in total private consumption, averaging some 80 per cent. The break came after 1982: by 1985, the share of working people in total private consumption had fallen to 63 per cent. While it has recovered somewhat, it remains at a low of 70 per cent. The above indicators, derived from Jamaica's national accounts, provide conclusive evidence of the shift in income and in personal consumption, from wage and salary earners to persons engaged in commercial and entrepreneurial activity. Summary

In summary, the Jamaican economy has been on a secular path of decline in the years which have passed since the end of the long bauxite boom, from the mid 1950s to the mid 1970s. The Manley government of 1972-80 was insensitive to the degree to which the Jamaican economy is vulnerable to changes in the external economic environment. 'Socialist' redistributive measures and costly social reforms were implemented — appropriate in the years of high growth but fairly hazardous when the traditional engines of growth began to fail and the external environment became turbulent and hostile. External Eurodollar borrowing and domestic credit creation maintained the appearance of normalcy for a brief period in the mid 1970s. After 1976 the economy went into a tailspin, as the necessary inputs of foreign exchange dried up. In the first two or three years of the Seaga administration large injections of official (debt-creating) loans pumped up the economy and negative growth was reversed. The economy, however, had no engine of growth. As bauxite/ alumina exports collapsed, and official external creditors slowed the inflow of funds, heavy devaluations accompanied by severe demand management in 1984 and 1985 wiped out the gains of the previous years. From the mid 1980s, Jamaica has been firmly in the grip of the debt trap. Structural adjustment became the order of the day, as IMF and World Bank balance of payments support was biased to favour profit and entrepreneurial income over the private and public consumption of wage and salary earners. Income inequality is now significantly greater than it was in the 1960s. Since 1986, the economy has shown signs of recovery. The IFIs have claimed success for their policies; an alternative explanation is to The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

123

be found in favourable external factors including a steep fall in the price of oil, and strong markets for Jamaica's traditional exports of bauxite/ alumina, tourism, sugar, bananas and coffee. Meanwhile, Jamaica is in the grip of a deep social crisis, which manifests itself in declining confidence in political and social solutions, and an intensified search for personal escape. The unprecedented rate of external migration, now running at 30,000 to 40,000 persons per year, equivalent to some 80 per cent of annual natural increase is a grave cause for concern. Development is ultimately about people, and their motivation to strive to better their condition and that of their children. When people lose hope, there is no energy for development. Somewhere down the road to the future, there is a point of no return beyond which no amount of external assistance — if even it were to be available, which is highly unlikely — can prevent a free fall into societal disintegration in the form of corruption, violence, crime and migration. Early in 1989, the Seaga government was decisively defeated at the polls. The PNP was returned to office, and proclaimed its intention of continuity of policy with the outgoing JLP administration. By the end of Seaga's turn in office, the external debt had increased by $2.4 billion in eight years and the burden of debt service was cutting deeply into government expenditures. Negative net transfers now severely diminish the resources available to Jamaica's public and private sectors to generate investment and growth. The high level of debt service is crowding out both the public and the private sector. In the 20 years which have passed since the end of the model of dependent growth based on autonomous foreign direct investment with (complementary) import substituting industrialisation, Jamaica has not been able to construct a viable alternative. The challenge of an alternative model of capital accumulation and growth remains on the agenda. The external managers of the Jamaican economy may believe that the structural adjustments they are imposing are laying the basis for renewed growth and development. A more cynical observer can well draw the conclusion that the primary objective of the IFIs is the repayment of principal to protect their financial and political credit ratings in the money markets and the corridors of power of the leading creditor countries.

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Origin and Evolution of the Debt In the years of rapid economic growth from the mid 1950s to early 1970s, the deficit on the balance of payments was financed by private autonomous capital inflows. The Jamaican economy and society became locked into a pattern of production and consumption, which required a level of imports substantially in excess of export earnings. The deficit in the balance of payments was, as we have seen, covered by autonomous private capital inflows, largely in the form of direct investment. From the mid 1970s these inflows dried up and repatriated and flight capital greatly exceeded capital inflows. Since the mid 1980s there have again been modest net private inflows. Confidence, however, is fragile. In the crisis years of 1983 and 1989, substantial amounts of private capital were transferred out of the country. Throughout the 1980s the deficit on the balance of payments has been covered by large flows of official loans and grants from multilateral and bilateral sources, which now account for 90 per cent of Jamaica's medium and long-term external debt. The debt was largely contracted between the mid 1970s and the mid 1980s. In the last five years of the Manley administration (1975-80), Jamaica's long and medium term external debt increased by $1.2 billion dollars to $1,867 million. In the first five years of the Seaga administration (1980-85), the external debt increased by a further $1.7 billion dollars to $3,587 million. By the end of 1988, the stock of long and medium term external debt stood at $4,009 million. Including shortterm debt and arrears, official external debt was $4,304 million at the end of 1988; debt to GNP was 154 per cent; debt to export earnings 242 per cent. The debt service ratio was 40 per cent.

Financing the Current Account Deficit of the Balance of Payments For convenience of comparison we have divided the last 20 years into four sub-periods of five years. The balance of payments account of Jamaica from 1970 to 1989 is presented in Appendix Table 1. A summary of the capital account for each of these five-year periods is presented in table 6.5 The first half of the 1970s covers the final years of dependent growth, including the first two years of the PNP Manley government, which assumed office in 1972. Eighty-nine per cent of the 5-year cumulative The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

12S

Table 6: Debt and Adjustment in the 1980s The First Half of the Decade Overall Public Sector Deficit as % of GDP External Current Account Deficit as % of GDP Net Resource Flows from Official Creditors US$ millions Net Transfers to/from official Creditors Debt Service Ratio

1981/2

1982/3

1983/4

1984/5

1985/6

-15.9

-15.7

-19.6

-15.1

-13.2

-14.6

-15.7

-9.1

-10.6

-11.9

516

529

381

285

168

431

416

256

120

-17

29.2

29.3

27.9

28.6

39.8

1275 1255 415

1375 1463 392

Total Debt US Millions Multilateral Bilateral Commercial Banks

853 717 413

1102 1037 421

1223 1246 396

The Second Half of the Decade Overall Public Sector Deficit as % of GDP External Current Account Deficit as % of GDP Net Resource Flows from Official Creditors US$ millions Net Transfers to/from official Creditors Debt Service Ratio

1986/7

1987/8

1988/9

1989/90

1990/91

-5.6

-5.4

13.3

-7.7

-4.4*

-3.3

-4.8

-1.3

-9

-3.5*

-56

-51

-136

-260

-271

-243

43.8

47.5

40.2

36.4

27.04*

Total Debt US Millions Multilateral Bilateral Commercial Banks

1499 1568 389

1734 1686 393

1606 1766 385

Sources: Bank of Jamaica, World Debt Tables 1989/90 ^Targets of IMF Agreement, effective January 1990

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1541 1857 373

current account deficit of $917 million, or 8.5 per cent of GDP was financed by direct investment and official borrowing from commercial banks; official sources of finance covered only 15 per cent of the resource gap, and there was an increase in foreign exchange reserves. By 1975, the stock of external debt stood at $688 million and was manageable at 24 per cent of GNP and 61 per cent of export earnings. Debt service ratios of three per cent GNP and seven per cent export earnings were not problematic. The second half of the 1970s covers the turbulent years of the Manley administration, when the Jamaican economy was buffeted by two oil shocks and the negative reaction of the private sector (both local and foreign) to the rhetoric of socialism and the realities of redistributive populist policies financed by domestic credit creation, resulting in the flight of capital and a large draw down of foreign exchange reserves. The cumulative current account deficit in these five years was $882 million or 6 per cent of GNP. The smaller deficit was a result of the absence of sources of external finance to cover it — until the government obtained a three-year IMF extended fund facility in 1978 which was terminated late in 1979 on account of failure to meet requirements to effect a large reduction of the fiscal deficit. The fiscal burden of the debt service in terms of devalued Jamaican dollars contributed to the breakdown of the agreement. Commercial banks refused to reschedule debts contracted in 1973-75, and the Manley government was defeated at the polls late in 1980. The climate of violence which accompanied the election campaign further speeded capital flight and emigration. In the five years 1975-79, 65 per cent of the cumulative balance of payments deficit was financed by the draw down of foreign exchange reserves, which turned negative in 1975 and have remained so to this day. By the end of 1980, the external debt had increased to $1,867 million, of which 22 per cent was owed to commercial banks, 29 per cent to multilateral agencies; 25 per cent to bilateral donors; and 25 per cent to suppliers and other private sources. The ratio of debt to GNP now stood at 77 per cent, debt to export earnings was 129 per cent, and debt service ratios were 11 per cent of GNP and 19 per cent of export earnings. By 1980, Jamaica's debt had increased by $1.2 billion dollars from its level in 1975. The first half of the 1980s covers the years of massive multilateral and bilateral capital inflows in the form of loans and grants, as the Seaga administration benefited from its special relationship with the Reagan White House. United States bilateral assistance in the first four The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

127

fiscal years of the Seaga government amounted to $648 million. The IMF, World Bank and the IADB disbursed over $1 billion in the same five years. By 1984 the honeymoon was over, and the government was forced into a heavy devaluation and deflationary adjustments which sent the economy into a sharp decline, wiping out the modest gains made in the first two years of the administration. Imports and consumption increased, while exports declined. The cumulative deficit on the balance of payments of $1,737 million or 12.5 per cent of GNP in the first five years of the 1980s was almost totally financed by official loans (91 per cent) and to a much lesser degree, by official grants (four per cent). A further seven per cent was covered by the draw down of reserves, while private capital flows were negative (two per cent). By 1985 Jamaica's external debt stood at $3,587 million; the ratio of debt to GNP reached 222 per cent, and debt to export earnings, 286 per cent. Debt service was 35 per cent of GNP and 32 per cent of export earnings. The debt profile had changed significantly: 38 per cent of debt owed to multilateral agencies; 41 per cent to bilateral donors; and 11 per cent to commercial banks. The second half of the 1980s saw a reduction in net multilateral resource flows, a further increase in reliance on bilateral donors, and a rapidly escalating burden of debt service, with large negative net transfers to official agencies in recent years. This is the period in which serious pressure for structural adjustment was applied by the external agencies in the form of structural adjustment programmes. In 1986 and 1987 the economy experienced a modest upturn, aided by favourable developments in external markets. In 1988 instability returned even prior to the serious hurricane of September 1988. The developments subsequent to the hurricane and the defeat of the Seaga government in February 1989 will be analysed in detail later in this chapter. In the five years 1984-88, the cumulative five-year balance of payments deficit was severely reduced and amounted to only $1,041 million, or seven per cent of GNP. Under a stricter regime of structural adjustment programmes, multilateral and bilateral loans financed 68 per cent of this (smaller) resource gap, while (bilateral) grants now covered a substantially larger share (36 per cent). Net commercial bank loans contributed 10 per cent of the capital inflows, and foreign exchange reserves increased. By 1988, bilateral donors accounted for 46 per cent of Jamaica's long and medium-term debt; multilateral 39 per cent, and commercial banks 10 per cent (Table 1). As already mentioned, total external debt stood at $4,009 million at the end of 1988; and debt service was 25 per cent of GNP and 40 per cent of export earnings. 128

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From Positive to Negative Net Transfers in the 1980s In Table 3 and Appendix Table 2, we record disbursements, repayments, and interest and net flows of Jamaica with official creditors. As already stated, in 1981 and 1982, extraordinary quantities of official loans were poured into Jamaica in support of the new Seaga administration. In 1981 official disbursements of $615 million accounted for 24 per cent of GNP and financed 47 per cent of the import bill. In 1982, an additional $634 million was made available, amounting to 23 per cent of GNP and 52 per cent of the import bill. By 1984, the cumulative total of official disbursements for the first four years of the JLP administration amounted to $2,125 million, (averaging 20 per cent of the GNP; 46 per cent of the import bill). Bilateral ($1,060 million) and multilateral ($1,065) creditors divided the cost of this political gift to Jamaica equally, almost to the last dollar. The IMF ($645 million) and the World Bank ($273 million) led the parade, as far as the multilaterals were concerned. In the years of the worst recession experienced in North America since the 1930's, when Latin American and other major debtor countries were forced to make painful contractionary adjustments, Jamaica was floating on a cushion of official externally financed loans. Imports were liberalised and they increased, as did consumption. Merchandise exports declined, and did not recover 1981 levels until 1989. Total export earnings did not recover 1981 levels until 1986. The trade deficit reached unprecedented magnitudes. Perhaps the most remarkable aspect of the macroeconomic management of Jamaica in the first years of the 1980s was the growth in the government deficit. The overall government deficit, programmed by the IMF to be reduced from 17 per cent of GDP in 1980/81 to 10 per cent by 1983, was permitted to attain 19.6 per cent of GDP by 1983, before pressure began to be applied. Even so, bilateral and multilateral loan disbursements continued at very high levels in 1983 (15 per cent of GNP; 43 per cent of imports) and 1984 (19 per cent of GNP; 38 per cent of imports). In the first years of the Seaga government, the debt burden was small in relation to the magnitude of official resource inflows. From Table 3 we note that the gross disbursements of official loans for the four years (1981-84) of $2,125 million were only marginally reduced to $1.711 million, when repayments on previous loans are subtracted, from disbursements. If interest on previous loans is subtracted, this gives the net transfers from Jamaica to official creditors. In the four years The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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1981-84, these transfers were large and positive, amounting to 11 per cent of GNP and 27 per cent of the import bill. The contribution of bilateral creditors to positive net transfers was substantially greater than that of the multilaterals, reflecting softer terms of bilateral loans and rescheduling of amortisation. By the mid 1980s, Jamaica was firmly locked into the debt trap. Total official long and medium-term debt had increased by $1.7 billion from the start of the Seaga regime, to reach a level of $3.6 billion by 1985. Since 1985, net transfers to official creditors have turned negative. Over the four years 1985-88, the excess of repayments and interest over the disbursement of new loans amounted to $891 million, and Jamaica's long and medium-term debt had increased by another $400 million to $4 billion by the end of 1988. Since 1986, negative net transfers to official creditors have averaged 12 per cent of GNP, 30 per cent of the value of imports, and 17 per cent of export earnings. Seventy per cent of net transfers from Jamaica to official creditors in the four-year period 1985-88 accrued to the multilaterals, principally to the IMF. Jamaica's official debt continued to rise, as the government was under increasing pressure to obtain new official loans to service previously contracted debt to official creditors. While repayments (repurchases) to the IMF exceeded new borrowing (purchases) from the Fund in every year since 1985, the World Bank maintained new disbursements in the form of sector adjustment loans at levels modestly exceeding repayments. The Fund and the Bank effectively cross conditionalise their operations, and the (now highly indebted) government of Jamaica is little more then an executing agency for the Washington based multilaterals. The above paragraphs deal exclusively with Jamaican debt transactions (disbursements, repayments, interest charges) with official creditors. When official transactions with private creditors (commercial banks, suppliers) are added, the total debt service and total net transfers are reflected. Note from Table 3 that total net transfers in recent years have been of the order of -$400 million in 1986; -$242 million in 1987; and -$406 million in 1988. The cumulative total of net transfers for these three years (-$1,048 million) accounted for 14 per cent of GNP and 21 per cent of total export earnings of goods and services. The share of multilaterals in these negative net transfers was IMF 48 per cent; World Bank 14 per cent; other multilaterals -5 per cent. The share of bilateral creditors was 28 per cent and the share of private creditors 15 per cent. A detailed tabulation of debt-related transactions with all creditors is found in Appendix Table 2. 130

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Bilateral creditors are now receiving more in repayments and interest from Jamaica than they are disbursing in new credits. Bilateral grants, which have increased substantially in recent years, are of smaller orders of magnitude than net transfers to bilateral creditors. Thus, for the three years 1986-88, net transfers to bilateral donors amounted to $259 million, while bilateral grants, (as recorded in balance of payments) amounted to $161 million. The difference in favour of the bilaterals was $98 million. It is to be noted that net transfers to bilaterals would have been very much larger if it were not for the annual Paris Club rescheduling, which have become the principal contribution of the bilaterals to the containment of debt service to the levels reported in this chapter. These reschedulings, however, have stretched Jamaica's debt service obligations far into the 1990s. The rapid growth of Jamaica's external debt has taken place since 1977, when Jamaica entered into its first agreement with the IMF. Whereas the 1970s gave rise to a large body of literature on Jamaica's relationship with the IMF, the 1980s have received less attention. In the 1980s, the structural adjustment measures, which form the core of FundBank programmes, did not really take effect until the fiscal year 19847 85. The socioeconomic model which is now taking shape in Jamaica, under the guidance of policy reforms embedded in the conditionalities of Fund-Bank programmes is the subject of the next section of this chapter.

The Structural Adjustment Programmes of the Fund and the Bank On March 23, 1990, the executive board of the IMF approved the eighth programme negotiated with Jamaica in the 13 years which have passed since Jamaica first entered into a relationship with the Fund in 1977. None of the previous programmes have been completed without waivers or renegotiations. The new 15-month agreement became effective in January 1990, and terminated at the end of the fiscal year in March 1991. The agreement is a tough one, described by the Prime Minister as a necessary 'shock treatment'. In addition to the measures which Jamaica was required to take in the first three months of 1990, as preconditions to the presentation of the programme to the executive board of the Fund for formal approval, the programme demands clearing of arrears, curtailment of public expenditures and replenishment of foreign exchange

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reserves, all to be implemented within the fiscal year 1990-91. The IMF programme is cross-conditionalised with respect to balance of payments support provided by the World Bank and other multilateral and bilateral agencies. The implementation of policy reform measures of deregulation, privatisation and economic liberalisation are required as a condition of balance of payments support. Some of these measures are highly controversial, and have been accepted by the government under duress. As is well known, the Fund does not approve an agreement until the government of the recipient country has lined up multilateral and bilateral loans to fill the programmed resource gap. The conditionalities of the World Bank become part of the total package of structural adjustment. Other multilaterals piggyback on World Bank conditions, and may add further conditions of their own. This is now the case with the InterAmerican Development Bank, which is politically indebted to the United States for the recently approved Seventh Replenishment. Bilateral6 donors conditionalise balance of payments support on successful negotiations with the Fund and the Bank, and add their own particular conditions, which normally require the recipient to purchase goods or services from the donor country.

The Macroeconomics of IMF Programmes The immediate objective of an IMF programme is the improvement of a country's balance of payments. In the case of chronic debtors, the clearing of arrears, the servicing of debt and the replenishment of exchange reserves are accorded priority over other objectives, including the resumption of economic growth. An IMF programme essentially consists of demand management measures designed to reduce domestic absorption, with special emphasis on the reduction of the overall deficit of the public sector, including the Central Bank. The principal assumption which underlies an IMF adjustment programme is that the private sector has the capacity to respond to supply-side incentives: thus, resources released by the public sector are assumed to be put to efficient use by the private sector. In particular, it is assumed that devaluation will shift resources from non-tradeable to tradeable goods and services, thus strengthening the balance of payments. Three key prices govern the macroeconomics of an IMF programme: the price of foreign exchange, the price of credit, and the price of labour. 132

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The last is controlled by wage guidelines. A high rate of interest and a high rate of return on capital are supposed to attract resources into the country, which — if they materialise — will strengthen the balance of payments. The principal instruments used are monetary targeting, to limit access of the public sector to domestic credit, and devaluations, to reduce expenditure on imports and increase the profitability of exports. The Fund also believes that the rate of interest affects domestic savings. On this assumption, an increase in interest rates, combined with measures to restrict public sector expenditures, would shift resources from public and private consumption to private investment. However, high interest rates and credit ceilings are likely to constrain private investment in productive activities, and thus may reduce savings by depressing the level of aggregate economic activity. In countries highly dependent on imports for industrial and agricultural inputs and capital equipment, stringent credit policies will improve the balance of payments at the expense of economic growth. This is appropriately termed 'import strangulation'. Devaluation is always complemented by demand management measures designed to reduce the government deficit and release resources for use by the private sector. As a result, government is obliged to reduce payroll by reducing employment and capital expenditures on economic and most particularly on social infrastructure. IMF programmes impact adversely on the majority of the population in the form of reduced real wages and salaries, and reduced access to public services. The adverse impact is modified to the extent that the private sector is able to respond to increased potential profits by increasing employment and production. The deflationary measures are, however, both swifter and more effective than the response of the private sector to supply-side incentives. Thus, Fund and Bank programmes typically embody unrealistic projections of private investment and real output growth. The single most powerful instrument in the armoury of adjustment programmes in small open economies is the exchange rate. In such an economy, critically dependent on the import of basic foods, fuel, medicines and essential inputs to agriculture, industry, and construction, devaluation is a powerful instrument of economic policy, with strong recessionary and redistributive impact. Its effects are immediately felt by the entire community, in the form of an increase in the prices of essential goods and a reduction in the real purchasing power of wage The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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and salary earners and other persons on fixed incomes. Combined with a reduction in government expenditures, there is a sharp shift in the distribution of income from wage and salary earners to entrepreneurial incomes. Personal consumption declines by less than the wage bill, and import volumes tend to be insensitive to devaluation, provided finance is available to sustain them. Exporters gain in terms of local currency earnings; these gains may be partially offset by the higher cost of imported inputs. Foreign investors benefit, especially if they produce for the export market, because all cost items are reduced in terms of foreign exchange. Producers for the domestic market are likely to suffer from the contraction in purchasing power the high cost of credit and the rise in the cost of imported inputs. The fiscal situation of the government deteriorates in so far as the local currency cost of servicing external debt rises by more than receipts accruing in foreign exchange. The capacity of the public sector to deliver public goods is severely reduced. Among the first expenditures to be eliminated are subsidies on food and public utilities. In order to finance its essential functions within strict guidelines, which accompany IMF programmes, the government is obliged to increase taxes and charges for public utilities. The burden of these increases falls disproportionately on wage and salary earners and on others with low or no incomes. 'Supply-side' incentives require a reduction of the tax burden on the private sector which, moreover, is largely able to escape income taxes by virtue of creative accounting and inefficiency in revenue collection. When the government is highly indebted, the combined effects of devaluation, demand management and liberalisation result in a reduction of the role of the government in the economy, and the partial internationalisation of the price structure. There is a redistribution of incomes in favour of the 'internationalised' elites, accompanied by deterioration in the living standards of the general population. Asset owners may gain; wage and salary earners lose. When assets are initially maldistributed, the effect is magnified. The market in assets is an international one; thus, upper-middle-class Jamaicans generally have foreign bank accounts, and have largely been able to maintain the US dollar value of their incomes in the face of devaluations. Domestic prices of internationally traded goods are as high or higher in US dollars than they are in the United States, while wages and salaries have lagged far behind their purchasing power in the mid 1970s. Real property values in urban and tourist areas have been driven up by the cycle of devaluation 134

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and inflation, and by the riskiness of alternative investments, and are roughly equal, in US dollar terms, with comparable North American property. High level managerial salaries in the private sector equal North American levels in terms of real purchasing power, because they command an opportunity cost price. Whoever had access to cash or credit has benefited from opportunities for speculative activity. The Microeconomics of World Bank Structural Adjustment Loans While IMF programmes govern macroeconomic variables, with special emphasis on reducing the availability of domestic credit to the public sectors, the structural adjustment programmes of the World Bank address 'economic efficiency' at the microeconomic level. Public enterprises are subjected to profitability criteria: public utilities supplying water, electricity and transportation are required fully to recover costs and show profits; where they are unable to do so, they are to be privatised. Where government enterprise is profitable, government should divest. In other words, government should not be engaged in directly productive activity, whether profitable, or not. Additionally, emphasis has increasingly shifted to measures of deregulation and liberalisation, with special attention to the import regime, by abolition of quantitative restrictions and import licensing, and the progressive lowering of tariffs. Among the most recent requirements of the Fund and the Bank are interest rate policies which prohibit discrimination in favour of particular productive sectors — such as small business or small farmers. The principal thrust of the microeconomics of the Bank is toward the liberalisation of the regime of trade and payments. For reasons of cross-conditionality already explained, the Bank has a lot of leverage to impose policy reforms even when the recipient government is plainly opposed to them. Failure to agree can unravel a whole negotiation, which has taken months to complete, and will guarantee failure of the next set of IMF tests — a prospect no government wishes to entertain. Whereas the IMF permits considerable discretion concerning the measures taken to meet programme targets, World Bank structural adjustment lending is more strongly conditionalised by textbook criteria of microeconomic allocative efficiency, applied with a degree of arrogance equalled only by their studied ignorance of the specific institutional characteristics of the 57 countries which have received structural adjustment loans (SALs). The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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The structural adjustment loans have been widely criticised for their preoccupation with 'getting prices right', their ideological bias in favour of private enterprise, their effective bias in favour of industrialised country exporters, and their general antidevelopmental impact. The intention behind these policies is the desire to dismantle domestic industry and agriculture in favour of external trade. World Bank sectoral adjustment loans are extended as quick-disbursing balance of payments support in exchange for commitments by the receiving country to undertake policy reforms in a specific sector of the economy. The reforms are spelled out in great detail in a 'policy action matrix', which is a sort of checklist of preconditions for disbursement of the first tranche of the loan. The second tranche is withheld until such time as the government has implemented a further set of policy actions. The policy reforms associated with World Bank sector loans commit the government to the policies they have agreed to, regardless of the source of funds. Thus, donors who may not like the policies of the World Bank are nevertheless constrained by the commitment of the recipient government to observe such policies. This economic model has favoured trading and financial services over productive activity. Banks and insurance companies have done very well, while the mass of the population has suffered a substantial decline in real income. The growth of the 'high income' economy has largely excluded the rest of the population. The structural transformation associated with adjustment has widened the disjuncture within the national economy and the society: the social effects are described in detail later in this chapter. Among the economic effects are powerful disincentives to agricultural and industrial production for the local market. The small hillside farmer who is the backbone of rural Jamaica and supplies the urban population with root crops, vegetables and fruit is now faced with unrestricted competition from imports; the small and medium size manufacturer is faced by interest rates close to 30 per cent, a flood of cheap manufactured imports — including substantial quantities of 'uncustumed' goods from the barrel trade of the higglers. The high dependence of Jamaica on imported food — some of it unavoidable, as in the case of basic cereals which cannot be cultivated there — has been the 'Achilles heel' of Jamaican governments in efforts to maintain some degree of independence in economic decision making vis-a-vis the forces of international capital and the IFIs.

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While exports have increased substantially since the mid 1980s, the increase is not attributable to 'cheap labour', but to a revival of Jamaica's traditional exports: bauxite/alumina, tourism, and select agricultural commodities produced on a large-scale commercial basis, such as coffee and bananas. Cheap labour manufactured exports (principally garments) are dangerously dependent on negotiated access to the US market and competition from other Caribbean low-wage locations, such as the Dominican Republic. While Jamaica has achieved a precarious degree of stability, none of the prerequisites for genuine economic growth are in place.

The First IMF Adjustment Programmes: The 1970s Jamaica's experience with the IMF started in July 1977, when the first Standby agreement came into effect. In the election year of 1976, the fiscal deficit had reached 15 per cent of GDP, growth was negative at 6.5 per cent, and exchange reserves were depleted. Credit was unobtainable without an IMF agreement. The terms of this first agreement were remarkably soft, in so far as Jamaica was permitted to retain a dual exchange rate whereby devaluation was applied only to 'non-basic' imports. Government transactions and the import of basic foods and medicines were favoured by the retention of the 'basic' (overvalued) exchange rate. The basic rate applied also to bauxite/ alumina exports, thus effecting an implicit transfer from bauxite/alumina earnings to basic imports. The trade balance improved because Jamaica was permitted to maintain strict import controls. The agreement broke down in December 1977, when a performance test was failed. Four months of intensive negotiations preceded the three-year EFF which came into effect in May 1978. Jamaica was now forced to implement a serious package of adjustment measures: the dual exchange rate was abolished; the new rate was devalued, and further crawling peg devaluations effected a total devaluation of approximately 45 per cent in one year. Wage ceilings were imposed, and many price controls which had alleviated the effect of inflation on the poor were removed. Jamaica was, however, permitted to retain a regime of import controls. Estimated labour income per employee fell by 48 per cent between 1977 and 1979, distributive shares shifted from 67 per cent in 1977 to 62 per cent in 1978, and remained at that low level until 1981. The economy failed to respond to the adjustment measures, and continued to decline, with The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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sustained capital flight, rising violence, and deteriorating conditions for the majority of the population. The agreement was suspended by the Fund late in 1979, and the Manley government was forced to call an election, in which the IMF featured as a major issue. The government was massively defeated at the polls in October 1980. The entry of the IMF marked a turning point in the economic management of the country: from this point on, and up to the present, adjustment has taken priority over development; the government is increasingly transformed into the local executing authority of programmes designed by the Washington-based agencies. A senior planning officer of the government of Jamaica has provided us with a succinct description of the change in economic management subsequent to the introduction of the first IMF programmes to Jamaica. The description is equally valid today: Every action of significance it [the government] took over the period was influenced by the anticipated reactions of the IMF or the perceived impact which it could have on the conditions of the Agreement in force. Government actions were guided only by what would seem to be the most relevant section of the current agreement. As such, the idea of long term economic planning became more and more remote as senior State technicians were fully occupied either in implementing and monitoring the current programme or involved in negotiating a future agreement. The official socioeconomic plan produced in the period was published late in 1978 and was never used in guiding policies at any stage. The EFF provided the guidelines for all socioeconomic decision making. Concern with long term policies became a virtually pointless exercise; the IMF programmes had a far more important effect in that they required a decreasing role for the government in the economy, both in terms of active participation, and in regulatory activity.7

IMF Programmes in the 1980s The JLP government, which took office in October 1980, obtained a three-year extended fund facility of SDR 477.7 million in April 1981. As already mentioned, this EFF represented 430 per cent of Jamaica's quota with the Fund, one of the highest ever granted to any country. The terms were relatively mild and the programme was based on the expectation that Jamaica's exports, traditional and non-traditional,

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would respond to the change in the political climate by large inflows of private direct investment and a surge of growth. No further devaluation was demanded, because the exchange rate was considered to be competitive. Nor was the Seaga government required to implement the reductions in public sector employment which had been demanded by the Fund in 1979. The remarkably mild terms of the Fund programme of 1981 were justified by grossly inflated export projections — whether by incompetence, or political pressure from the White House, remains a question for historians to explore. Thus bauxite production, which accounted for 76 per cent of Jamaica's merchandise exports in 1980, was projected to increase to 18 million tons by 1983. In reality, the production levels of 11 to 12 million tons of 1976-81 declined steadily to 7.7 million tons by 1983 — and have remained at these low levels ever since. Trends in industry markets were well known to analysts, and were further accentuated by the major recession of the early 1980s. Sugar production, which has experienced a long secular decline, was projected to increase from 242,000 tons in 1980 to 330,000 tons by 1983. In reality, production continued its downward trend and, like bauxite, has not recovered levels prevailing in the late 1970s. The fantasy continued with bananas, which were projected to experience a 500 per cent increase from 1980 to 1983. In reality, as in the case of bauxite and sugar, production fell and has only very recently recovered its 1980 level. The Fund also showed uncharacteristic tolerance with respect to increased government expenditures and fiscal deficits. Expenditures were targeted to decline from a level in excess of 40 per cent of GDP to 30 per cent by 1983/84, and the overall fiscal deficit was programmed to decline from 15 per cent of GDP in 1981/82 to 10 per cent by 1983/84. Although the government received very large injections of official loans and grants, amounting to over $2 billion in the first four years of the Seaga administration (see Table 4), the fiscal deficit failed to decline, and had reached 19 per cent by 1983/84. Notwithstanding a decline in export earnings, large balance of payments deficits and the fiscal deficit referred to above, the programme was judged 'on target' up to December 1982. By that time a flourishing black market had developed and the government legitimated it by the establishment of a parallel foreign exchange market operated by the commercial banks. This created a dual exchange rate — a device which had been disallowed by the Fund in its relations with the previous government. The value of the Jamaica dollar on the parallel market continued to fall and in March 1983, and again The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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in September 1983, Jamaica failed IMF tests. The Fund now demanded unification of the exchange rate, and devaluation, as preconditions for the signing of a new agreement. The honeymoon was over. Jamaica had acquired a large increase in indebtedness, as we have already shown, and a painful adjustment was now facing the country. In June 1984 the fourth agreement between Jamaica and the Fund came into effect as a one year Standby for SDR 64 million. The preconditions included a large tax increase, the lay-off of some 20,000 government employees, and a large formal devaluation. A flexible exchange rate was to be instituted by means of a twice-weekly auction at which all foreign exchange receipts would be offered to bidders, after debt service and oil imports had been cleared. Additionally the government was now required to reduce the overall fiscal deficit from 19 per cent of GDP in 1983/84 to 7.5 per cent in 1984/85, and to eliminate the import restriction which had been included in the 1981 agreement, but had not been implemented. The monetary regime was tightened, liquidity in the banking system was reduced, and interest rates rose significantly. The economic squeeze was programmed to continue in 1985, when a successor 21-month Standby for SDR 115 million came into effect in July 1985, with similar provisions. By this time Jamaica's export earnings had collapsed due to a down-turn in the aluminium industry, and three IMF tests were failed in September 1985, resulting in the suspension of the agreement by the Fund. The large devaluation had failed to increase exports, and failed also to reduce imports. By October 1985, the exchange rate had fallen to J$6.40, and devaluation was widely expected. The severe cuts in government expenditure required by the Fund programme of 1984, and fully implemented by the government, combined with the collapse of bauxite export earnings, projected the economy into negative growth in 1984, and most particularly in 1985, wiping out the gains of the previous three years. The inflationary impact of the devaluation was felt most severely by wage and salary earners, whose real incomes fell by 15 per cent from 1983 to 1985. Average weekly earnings of workers employed in large establishments declined by 25 per cent for males and 14 per cent for females in the same two years. The distributional shift from labour to capital noted with respect to the adjustment programme of 1978 manifested itself with equal force in 1984, when the share of labour incomes fell from 62 per cent in 1983 to 57 per cent in 1984. The drastic reductions in government expenditures 140

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required by the Fund impacted primarily on social expenditures, thus further punishing the poor and the vulnerable. The deterioration in the maldistribution of income in Jamaica referred to earlier in this chapter was the direct result of the shock treatment of 1984-85 — now increasingly onerous on account of the rapidly rising burden of servicing debt owing to the IMF and other official creditors. As could be expected, the popularity of the government declined dramatically, not only with wage and salary earners, but also with the private sector, which was adversely affected by the severe credit restrictions, and the declining purchasing power of wage and salary earners. In October 1985, in response to mounting popular discontent, the government used the opportunity of the suspension of the IMF agreement in September 1985 to intervene unilaterally in the auction to revalue the Jamaica dollar upward to J$5.50, from the low of J$6.40 to which it had fallen. The intervention in the foreign exchange market was financed by the use of funds which had been committed to clearing arrears under the — now suspended — IMF agreement of July 1985. At the same time, the government of Jamaica launched a public attack on IMF programmes at the 1985 Annual Bank Fund meetings, on the grounds that they were inappropriate and did not assist in restarting economic growth. Mr Seaga declared that Jamaica had done as much adjusting as was necessary to establish a competitive exchange rate, and further devaluations would not be undertaken. He then requested that the IMF, the World Bank and USAID send a joint mission to Jamaica to review the adjustment programmes. This tripartite team became known as the 'freshlook' mission. Their recommendations endorsed the Fund/ Bank position on the need for a market-determined exchange rate; further reductions in the overall deficit of the public sector to 2.5 per cent of GDP; continued tight credit policies; and modifications to the regime of incentives to eliminate their alleged anti-export and anti-agriculture bias. A switch to a high growth path was rejected as inappropriate and further adjustment was recommended. The rejection by the government of Jamaica of these findings precipitated a low point in the relationship with the Fund and the Bank. In an attempt to save the 1985 agreement, the Fund renegotiated performance tests and reluctantly agreed to accept the position of the government of Jamaica in the matter of the exchange rate. However, most of the renegotiated performance tests were failed in March 1986, including targets for the current account of the balance of payments and public sector deficits — the latter caused by losses of the Bank of The Origins and Conseauences of Jamaica's Debt Crisis. 1970-199G

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Jamaica due to the increase in the local currency cost of servicing external debt on account of the large devaluation. This was the context in which Jamaica complained that the country had become ensnared in a 'Catch 22' cross-conditionality trap. The government charged that the reason for failure of the tests was the non-disbursement of two World Bank sector adjustment loans. Had these been received on time, the tests would have been met, and IMF negotiations for a successor Standby would have been completed, thereby assuring the funds necessary to meet external obligations. The government protested the action of the Bank in tying the disbursement of the loans to acceptance of the Tripartite Report — a condition that did not exist at the time when the agreements had originally been negotiated. The position of the Bank was that since Jamaica had rejected the 'fresh look' mission report, no medium term macroeconomic framework was in place within which the disbursements could have been made.

Jamaica says 'No' to Further Devaluations In 1986, Jamaica asserted its independence in refusing to undertake further devaluations. Jamaica's case rested on the argument that the auction system was destabilising; that speculation and hoarding created self-fulfilling expectations of continuing decline in the value of the currency; that the large devaluations of 1984/85 had created underutilised capacity and an adverse business climate; that experience had shown that in the Jamaican context devaluations fail to affect either the demand for imports or the country's export earnings. The fiscal budget for 1986/87 was presented outside the framework of an IMF agreement, and without prior approval by the Fund. The budget reflected a change in priorities: subsidies on a wide range of imported items were restored, and capital expenditures on social programmes were increased. Jamaica was fortunate in so far as the fall in oil prices in 1986 created a 46 per cent windfall gain in the cost of fuel imports, equal to 2.5 per cent of GDP. The government decided that the price reductions would not be passed on to consumers, but would be used to stabilise prices on a large range of consumer goods to moderate the adverse effects of inflation on the population. The fall in oil prices enabled the government to hang tough in negotiation with the Fund; Jamaica's stronger bargaining position was reflected in the terms of the sixth IMF agreement which came into effect in March 1987, as a 15-month Standby for SDR 88 million, accompanied by an OFF for SDR 40 142

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million. Throughout the protracted negotiations with the Fund, Jamaica continued to manage the auction, incurring arrears where necessary to protect the exchange rate — including $70 million of repayments due to the IMF, which threatened to declare the country ineligible for further loans. In a major victory for Jamaica, the Fund consented to the continuation of the managed auction system, subject to the ability of Jamaica to contain the inflation rate to 7 per cent, and the increase in the wage bill to 10 per cent. As a result, in 1987 average real wages and salaries rose for the first time since 1985, but were still well below levels preceding the adjustment crunch of 1984 and 1985. The government agreed to tie the real effective exchange rate to a December 1986 base, and committed itself to withdraw foreign exchange from the auction if reserve targets were missed. Other terms of the agreement included divestment of public enterprises and new incentives for hardcurrency exporters. Since 1987, the World Bank has played an increasingly important role in the economic management of Jamaica's affairs. Prior to the break in the favoured treatment received by the Seaga government from the Washington based agencies, the Bank made little progress in its agenda of liberalisation. Although the Bank had negotiated three structural adjustment loans with the Seaga government for a total of $191 million dollars in the early 1980s, with per capita expenditures of Jamaica far in excess of Bank lending to any other country in Latin America or the Caribbean, the Bank was frustrated in its efforts to implement liberalisation policies prior to 1987. In a retrospective review of the three structural adjustment loans, the Bank complained that the balance of payments support given Jamaica in the early 1980s was excessive, and suggested the possibility that 'the massive lending was imposed by higher authorities acting on the basis of political rather than economic considerations'. The internal assessment of the Bank, quoted below, was also highly critical of the rapid pace of disbursement of the SALs, which speeded the buildup of the debt burden, resulting in the emergence of negative net transfers from the Bank to Jamaica. The easy availability of finance delayed the pressure for structural adjustment when adjustment became unavoidable; the pace of adjustment demanded by the Fund was too drastic and incompatible with the objectives of encouraging the resumption of private investment:

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In several important ways, the Jamaican economy — now burdened with a massive foreign debt — was in worse shape than it had been five years earlier at the start of the first SAL. Following completion of three SALs, the Jamaican economy was in a precarious condition: total output was lower in 1985 than it had been in 1979. On a per capita basis, GDP had dropped 14 per cent and private consumption by 3 per cent in 1979-85. Total gross fixed capital formation in real terms had declined by 14 per cent, and as a share of GDP from 13.7 per cent to 12.5 per cent, an investment ratio insufficient to replenish the capital stock. The external accounts had also worsened, as the current account deficit rose from 5 per cent of GDP to 15 per cent in 1979-85. The number of jobseekers unemployed had increased by almost one fourth in spite of massive emigration, the delivery of health and social services by government had been cut back, and living standards of the poor had worsened.8

After the termination of the third SAL in 1985, the Bank ceased to consider the country credit-worthy, and further Bank lending stopped for two years. In 1987, following the agreement with the IMF described above, World Bank lending resumed in the form of two policy-oriented sector adjustment loans directed toward liberalisation of the trade regime and privatisation of public enterprises. The World Bank, which does not entertain rescheduling of debt, accounted for 16 per cent of Jamaica's total external debt. Since 1986, repayments to the World Bank have been roughly equal to new disbursements, while net transfers, which include interest payments, have been negative, and amounted to $148 million for the three-year period 1986-88. In these same three years Jamaica's net transfers to the IMF amounted to $506 million. The two principal multilateral financial institutions thus received from Jamaica a surplus of $654 million over disbursements to Jamaica. The high level of Jamaica's indebtedness and the fragile nature of macroeconomic stability has critically reduced the ability of the government to resist demands from the IFIs for the liberalisation of the regimes of trade and credit, which effectively ties the hands of the government with respect to measures of assistance to small farmers, small business, or other sectors in need of subsidisation. The World Bank Agricultural Sector Adjustment Loan of 1990, described later in this chapter, illustrated the agonising position of the government, well and truly trapped between a rock and a hard place: quick-disbursing balance of payments support is urgently needed to meet the requirements of the IMF programme, while the policy conditions demanded as quid pro quo by the Bank are killing Jamaica's small hillside farmers with 144

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competition from (subsidised) food imports and prohibitively high interest rates.

From Gilbert to the IMF Agreement of March 1990 By 1986, the severe adjustments of the mid 1980s had reduced the overall public sector deficit from previous levels of 15 to 20 per cent of GDP to 5.6 per cent; the balance of payments gap was down to 3.3 per cent; and economic growth had resumed at 1.8 per cent. The degree of adjustment achieved since the mid 1980s is recorded in table 6 which shows the reduction in the external and the public sector deficits since the mid 1980s. In 1987, Jamaica registered real growth of 5.7 per cent, and the economy appeared to have regained stability, with public sector and external deficits maintaining acceptable magnitudes. In this connection, it should be noted that the overall deficit of the public sector was increasingly due to Bank of Jamaica losses incurred in stabilising the exchange rate. The turnaround in the economy after five years of stagnation is attributable to a dramatic improvement in the terms of trade, including a sharp fall in oil prices; the stabilisation of the exchange rate, which had a positive effect on Jamaica's confidence; and the closing of the fiscal gap. Prior to the hurricane of September 1988, real growth for 1988 was expected to be 4.7 per cent. By 1987, exports had recovered levels of 1983 and 1984 — principally on account of an improvement in traditional exports, including bauxite/alumina. Non-traditional exports, principally garments, also made a significant contribution to export earnings. However, the most important improvement in Jamaica's export performance has not been in merchandise trade, but in services. Service exports of $920 million contributed 57 per cent to Jamaica's total export earnings of $1.626 billion. The increase in service exports has proceeded steadily since 1980, when service exports of $399 million accounted for a mere 29 per cent of total export earnings. Two thirds of service exports are tourism; the remaining third is composed of air transport, farm workers' earnings, and rents and wages from the Free Zone. In 1985 tourism replaced bauxite/alumina as Jamaica's number one export earner, although bauxite/alumina experienced a very large increase in shipments in 1989, as idle capacity was reactivated in response to strong market demand. Although there were signs of trouble in the first half of 1988/89, in the form of rising inflation, fiscal imbalance, and loss of international The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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reserves, the major hurricane of September 1988 was a watershed event: it severely dislocated the Jamaican economy, and precipitated a series of adjustment measures which are continuing to this day. Economic growth in 1988 was a mere 1.6 per cent, instead of the expected 4.7 per cent. After Gilbert, IMF targets, which were already off track, were revised downward. These revisions were plainly unrealistic. The overall deficit of the public sector for the fiscal year 1988/89 was 13.3 per cent of GDP, instead of the (revised) target of 9 per cent, largely due to the destruction of the country's network of electricity and water supply — and consequent inability to collect charges for these utilities. Additionally, the Jamaica Commodity Trading Company purchased and distributed large quantities of building materials at subsidised prices, incurring large losses. The fiscal deficit was almost entirely covered by domestic financing. Following Gilbert, there was a surge of demand for foreign exchange, fed by a credit expansion to the private sector. Although the foreign exchange situation was assisted by an inflow of reinsurance funds, these funds proved to be smaller than had been anticipated, resulting in a failure to build up the foreign reserve position. Additionally, there was the run up to the general election of February 1989, resulting in a very tight fiscal bind for the incoming Manley administration, aggravated by the fact that the outgoing government had borrowed and spent future revenues. The Manley government assumed office in February 1989. At that time, the public sector deficit had widened to 15 per cent, there was an accumulation of external payments arrears of $55 million, and a shortfall in the IMF target on net international reserves of $109 million. The government undertook a severe programme of stabilisation for the fiscal year 1989/90: the programme included a reduction of the overall public sector deficit to 6.5 per cent; a sharp slowdown in the growth of the money supply, and in bank credit to the private sector; containment of the external current account deficit to about six per cent; wage guidelines of 10 per cent, and an improvement in net international reserves of US $195 million; tax increases, including a payroll tax for education; further divestment of government holdings (telephone company and hotels); current and capital expenditure cuts, price increases on basic foods up to 50 per cent; and, in October 1989, in response to a surge of demand for foreign exchange, a devaluation from J$5.50 to J$6.50 per US dollar. In January 1990, there was a further devaluation to J$7 representing a 146

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total devaluation of 27 per cent in less than a year — with resulting increases in the price of basic food. In so far as debt service represented 40 per cent of government revenues, the devaluation required another round of price increases for government services, in order to remain within the targeted fiscal guidelines. Throughout the year there was severe financial stringency with credit ceilings and high interest rates. Growth in 1989/90 was a surprising 4.7 per cent; the overall public sector deficit was contained at 7.7 per cent of GDP; the external current deficit widened to 9.0 per cent, and the Bank of Jamaica accumulated almost $200 million in arrears. The standard of living of the wage and salary earners fell significantly as the 17.7 per cent inflation rate bit deeply into earnings, resulting in an 8.4 per cent decline in real wages among private sector workers, and a marginally smaller decline of 7.5 per cent for government employees. The year 1990/91 was as difficult as the previous one — if not worse. A lengthy negotiation with the IMF resulted in a 15-month Standby Agreement for SDR 82 million, effective January 1990. This meant that all targets had to be met within the current fiscal year. The programme was one of strict demand management by fiscal and monetary measures with (hopefully) a stable exchange rate of J$7 to US$1 supported by Central Bank open market operations. In Jamaica it has been found that one dollar of domestic expenditure generates approximately one dollar of imports. Thus, exchange rate stability requires the compression of domestic demand, by means of stringent credit policies including the sale, by the Central Bank, of certificates of deposit at interest rates of approximately 30 per cent. This created losses for the Central Bank, which had to be offset by surpluses of public enterprises in order to stay within the guidelines for the programmed overall deficit of the public sector. The programme reflects the desire of the government to avoid further devaluations, which are politically costly, and distributionally regressive. The priorities of the government of Jamaica are clear and simple: to maintain the external value of the currency and to pass the next four quarterly IMF tests. The most difficult requirement pertained to the clearing of some US$200 million in arrears incurred in the latter part of 1989, while maintaining debt service payments on Jamaica's $4.5 billion dollar debt. If Jamaica was successful in completing this IMF programme without waivers and renegotiations, it would be the first time since the inception of IMF programmes in Jamaica that any government had succeeded in so doing. The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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The programme required the overall deficit of the public sector to be reduced from over 15 per cent in 1988/89, and 7.7 per cent of GDP in 1989/90 to 4.4 per cent of GDP in 1990/91. The external current deficit was targeted to be reduced from 9 per cent of GDP in 1989/90 to 3.5 per cent of GDP in 1990/91. As mentioned above, the first claim on Jamaica's foreign exchange earnings was the clearing of Bank of Jamaica arrears; the targeted improvement in net international reserves was $230 million. Inflation was projected at 14 per cent. Wage guidelines were set at 12.5 per cent to achieve the continued reduction in real wages. There was a trigger mechanism designed to maintain international competitiveness in terms of the real effective exchange rate. If domestic inflation exceeds a targeted differential with respect to external inflation rates, a devaluation will be triggered. The fiscal measures for 1990/91 included a 50 per cent increase on consumption tax; plans to introduce a general consumption tax (GCT) in October 1990 which was designed to raise an additional J$80 million; to increase contributions to the national insurance fund of J$95 million; to increase electricity rates of 27 per cent; to double retail sales tax on a large number of items to yield an additional J$103 million; to increase the price of gas; and to divest hotels and other public assets to yield J$274 million. The government also undertook to eliminate unprofitable routes of Air Jamaica. The fiscal measures which are an integral part of the new IMF programme have resulted in a substantial increase in the cost of living. The 21 major public enterprises are programmed to generate a net surplus of J$640 million, to offset the losses of the Bank of Jamaica resulting from the use of open market operations to contain the demand for foreign exchange and support the exchange rate in addition to the devaluation of January 1990 (from J$6.50), targeted by means of quarterly improvements in net international reserves, for a total of US$230 million within the fiscal year. In a further move to liberalisation, the exchange rate subsidy for exporters of manufactures was to be eliminated and replaced by the rebating of import duties on inputs. On the import side, continued rationalisation of import duties was the order of the day. Pressures applied by the Fund/Bank programme with respect to the liberalisation of the regime of trade and finance were the most painful conditions which the government had been forced to accept in order to continue to service debts to these same agencies. Bear in mind that 90 per cent of Jamaica's 148

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external debt of $4.5 billion is owed to official agencies; 36 per cent to the Fund and the Bank. The problem was illustrated by the terms of the World Bank Agricultural Sector Adjustment Loan of 1990.

The Agricultural Sector Adjustment Loan of 1990 The Agricultural Sector Adjustment Loan for $25 million was a quick-disbursing balance of payments support, released in two tranches of $12.5 million each. The agricultural sector did not receive any of these funds. As a precondition to the disbursement of the first tranche, the government was required to undertake a number of policy actions, as explained earlier in this chapter. The second tranche was withheld until such time as the government had implemented a second checklist of policy actions. The policy actions required pertained to the agricultural import regime; food subsidies; subsidised interest rates; marketing of export crops; land and enterprise divestment; and the use of chemical pesticides. Among the most odious of these measures was the requirement that all quantitative restrictions on the importation of agricultural products be removed; to be replaced with a tariff varying from 60 per cent to 150 per cent and a long schedule was appended detailing tariff rates for each of some 130 items. The tariff rate was ultimately to be reduced to the level of the Common External Tariff (GET) of CARICOM. Meanwhile, mountains of attractive imported onions have appeared in Jamaican markets, while local producers of onions cannot recover costs at the prices which prevail in the glutted market. The quantitative restrictions were intended to protect the local market for the benefit of the small farmer, whose life is sufficiently uncertain and difficult without being exposed to the prospect of competing with floods of imported potatoes, red beans, tomatoes, cabbages, carrots, or chicken and pork. The removal of 'American' apples from the negative list may not hurt local producers, but has a symbolic significance, in so far as this fruit is correctly perceived as a luxury item in a country abounding in local tropical fruits. Next on the hit list of 'market distortions' was the generalised food subsidy (GFS) operated through the Jamaica Commodity Trading Corporation (JCTC), which has monopoly importation rights on a range of food-stuffs, including important items in Canada's food aid programme to Jamaica, such as canned sardines and mackerel, and saltfish. These food commodities were sold to distributors below cost, The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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and were available to consumers at subsidised prices. The government was forced to introduce large price increases on these items of poor peoples' food in 1989, in order to cut the fiscal costs of the generalised food subsidies. It was committed to reduce the subsidy to the GFS programme to $130 million in the fiscal year 1990/91, and to remove it altogether in the fiscal year 1991/92. The Jamaica Commodity Trading Corporation itself was also on the hit list, and may well be sacrificed in the next set of negotiations with the World Bank for a Trade and Credit Sectoral Adjustment Loan. The most controversial of all the conditionalities of the Agricultural Sector Loan pertained to the position of the Bank that 'efficiency in the allocation of investment' requires the abolition of all concessional rates of interest — in this case, the rediscounting by the Agricultural Credit Bank at interest rates lower than market rate. In a painfully long and drawn-out set of negotiations, the government managed to wring a minor concession from the Bank, in that small farmers would be permitted to access credit at seven per cent below the market rate — which was about 30 per cent. This loan was to have been cofinanced by the IADB, which has now added policy-conditionalised balance of payments lending to its traditional role of providing project finance. Negotiations with the IADB broke down over the fact that the agency was determined to be even more hard-nosed than the Bank, and was unwilling to agree to the minor concession described above. The position of the IADB is that all borrowers should pay market rates of interest, with an additional fee to cover the costs of administration and the rediscounting of credit. The IADB pronounced that subsidised agricultural credit had been a failure, and that farmers should utilise informal rural financial markets or their formal counterparts. Because the IADB agricultural sector adjustment loan came as part of a $500 million package, it is unlikely that the government of Jamaica would have been able to hold out against the pressure of that agency with respect to agricultural credit. The IADB is now the only official agency with additional funds to disburse and $500 million is more than the total amount of $433 million, which the IADB has spent in Jamaica in the 20 years of its existence. The IADB loan for $25 million was to be cofinanced by the Japanese, for another $25 million. The IADB is firmly under the control of Americans, and that agency is moreover indebted to the United States for their recent replenishment of funds.

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While it is undeniable that there continues to be need for adjustment programmes to bring available resources into balance with domestic and external expenditures, and that Jamaica must increase its capacity to earn foreign exchange from the export of goods and services, the priorities which have been imposed on structural adjustment programmes by the IMF and most particularly by the World Bank since the mid 1980s are questionable in a number of respects. Specifically, these programmes have favoured debt service over growth, and trade over production. The assumption that income redistribution in favour of the private sector will stimulate investment in the expansion of productive capacity is simply not valid if the structure of prices and interest rates makes it more profitable for domestic savings to finance low-risk, highyield activities of trade and speculation. The internationalisation of the price structure by means of the progressive dismantling of protection of domestic industry and agriculture, and exposure of the domestic market to unrestricted international competition threatens the demise of Jamaica's manufacturing industry, with consequent decline in employment and regression in technological capacity. In an article in the Gleaner, the Honourable Robert Lightbourne, former minister of trade and industry and architect of Jamaica's industrialisation programmes of the 1960s, charged that the Private Sector Organisation of Jamaica (PSOJ) is merely a 'supra-Chamber of Commerce, espousing deregulation and the end of industry and of the Jamaica Manufacturers Association, as the previous government wished'. There is validity to his complaint of the 'strangulation of industry'. While the PSOJ and its principal spokesmen were urging the government to move faster toward a 'self-regulating real free market system', by getting rid of the 'expensive state bureaucracy' and removing the exchange control, the Jamaica Manufacturers Association was complaining that the former JLP government broke faith with the manufacturers by sacrificing Jamaican industry for large inflows of debt-creating loans from the international agencies. When licensing and quantitative restrictions were removed in compliance with Fund and Bank programmes in the mid 1980s, manufacturers were promised tariff remittance on materials and capital goods. Instead, they were faced with instant deregulation, a 60 per cent tariff on capital goods, a flood of imports, much of it unaccustomed, high cost of utilities and, in recent times, interest rates in excess of 20 per cent, projected to rise to 40 per cent. A spokesman for the Jamaica Manufacturers Association explained The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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that a typical return on a manufacturing operation is 25 per cent, compared with a typical return on trade of 50 per cent to 60 per cent. When certificates of deposit earn 28 to 30 per cent, how can manufacturing survive? Is there is no way that domestic industry can survive? The highly restrictive credit policies programmed for 1990/91, and the continued liberalisation of consumer goods imports did not hold out much hope for achieving the growth rate of three per cent; priority was plainly placed on the clearing of arrears and the servicing of debt at the cost of both living standards and economic growth. If the programme for 1990/91 was successfully implemented, much credit would have been due to the communications genius of Mr Manley, whose popularity stands far above that of any other politician in Jamaica today. However, more than Mr Manley's personal popularity was required to set the Jamaican economy on a path of self-reliant growth, while privileging 15 per cent of the nation's output to debt service. The fact is that the government is fully occupied in managing the precarious daily cash flow position of the country. No serious thought is being given to measures to stem the erosion of productive capacity without which the country cannot possibly meet the basic human needs of the population, without continued reliance on official external sources of finance. Deep in the third round of concretionary adjustment, in an external environment less favourable than that of the 1970s or the 1980s, Jamaica is in need of new initiatives and new ideas, which can effectively mobilise the under-utilised resources of its population and its natural endowments. High on the list of such initiatives is the urgent need to reduce the burden of debt service. The outlook for the future is not very good. In April 1990, there was a slide in Jamaica's credit rating position in global financial markets from position 82 to 84; more significantly, from position three to 12 in the rating of Caribbean and Latin American countries. Employment levels are declining although unemployment rates have also shown a decline; this appears to be due to a declining labour force, as migration is talking its toll. In recent times, there have been reports of increasing layoffs, as manufacturing firms struggle with high interest rates and exposure to international competition. The garment industry is fearful that it will lose its special quota access to the US market, and the Free Zone is failing to attract new investors, while older ones are winding their way into the formal banking system, or the Bank of Jamaica. The 152

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traders and an increasing number of financial analysts are demanding the abolition of exchange control, but the country does not have the foreign exchange resources to cope with the run on the US dollar which would result from liberalisation of the exchange regime. There is a lot of talk about 'knowledge-based' industry as the wave of the future, and a 'science and technology policy' but the evidence we present in the next section shows a very serious erosion of educational standards. In summary, there is, on the whole, goodwill toward the government's efforts to struggle to keep the economy afloat, but there is a well founded fear that a fragile measure of stability is being purchased at the expense of the dismantling of real productive capacity in industry and agriculture, the rapid deterioration of educational standards, and a frightening measure of income inequality and abject poverty.

Social Effects of Structural Adjustment Poverty and Maldistribution of Income Jamaica is a highly-class structured society, with a severely inequitable distribution of income. While this has always been so, the evidence indicates that income disparities have widened in the 1980s. The gracious homes and condominiums on the hills of upper St Andrew have multiplied significantly — as have the inhabitants of the ghetto areas of west and east Kingston and Spanish Town. The large majority of wage and salary earners have suffered a severe reduction in the standard of living, as a result of rising prices and taxes combined with reduced government expenditures on payroll and on public services. It has now become next to impossible for a wage or salary earner ever to own a home — or even a motorcar — even with two incomes per family, unless he or she is fortunate enough to inherit real property. The compression of living standards of the traditional middle class of civil servants, teachers and nurses is one of the most disturbing features of the socioeconomic model of the 1980s, with far-reaching implications affecting social norms and values. With the exception of upper level managerial salaries, only commercial and entrepreneurial incomes — often combined with salaried employment — can sustain the gracious lifestyle of the Jamaican upper middle classes. At the bottom of the economic and social pyramid there is now a very large number of very poor people — young and more The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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often than not, female. The social distance between the top 10 per cent or so and the rest of the population is probably greater than ever in the modern history of Jamaica: we may well speak of Disraeli's two nations. Income per capita fell by some 35 per cent in the 1970s. In the course of the 1980s, it had not increased: it was redistributed in favour of the privileged and the successful. In the course of the restructuring of Jamaican society, a very large external debt has been accumulated, which constitutes a first claim on the fiscal resources of the government and the foreign exchange resources of the country. As a result, the government is no longer able to perform its traditional functions of providing an acceptable level of public services in the areas of health care, education, low cost housing and transportation. These basic modal services are increasingly 'privatised', in the sense that access to quality service has become a function of income. A survey of living conditions conducted jointly by the statistical and planning agencies of Jamaica, with technical and financial assistance from the World Bank, found that the average consumption of the top ten per cent of the population is 17 times as great as that of the bottom 10 per cent. Thus, 10 per cent of the population accounted for 32 per cent, and 20 per cent of the population accounted for 49 per cent of total national consumption. The mean per capita consumption of the top 10 per cent was J$17,892. At the bottom end of the distributional pyramid, 10 per cent of the very poorest people accounted for a mere 1.9 per cent of total national consumption amounting to J$ 1,056 per capita. Twenty per cent consumed 5.1 per cent and 30 per cent of the population consumed 9.3 per cent of total national consumption. In this survey, consumption is taken as a proxy for income, because experience has shown that it is a more reliable source of information obtainable from household surveys. If the highest quintile consumes 49 per cent of total national consumption, it is likely that they earn at least 60 per cent of the income, as recorded in a recent World Bank report. This places Jamaica in a category with such notoriously inequitable societies as Ecuador, Peru, Mexico and Brazil. As previously stated, Jamaica suffers an income distribution comparable with the worst Latin American performers. To illustrate the increase in inequality of incomes in Jamaica in the 1980s, we may compare the income of workers employed at the minimum wage with the income of ministers of government. The minimum wage in the 1980s was J$84 per week or J$4,368 per annum. 154

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Ministers of government were earning 14 times that amount, that is, J$71,602 per annum. This degree of income differential between the lowest category of worker and government ministers reflects traditional social values, of what is right, proper and just in the relationship between the masses of the electorate, and those who represent them in government. The new socioeconomic model which has emerged in Jamaica as a result of the 'private sector' bias of the structural adjustment programmes carries a different set of values, best illustrated by the proposed new salary scales for government ministers and members of parliament. A task force composed of highly respected citizens proposed new salary scales, whereby ministers would be paid J$371,464 per annum, inclusive of allowances. This is an income 85 times larger than that of a worker fully employed at minimum wage; and 20 times as much as the salary of a nurse (J$18,751) or a primary school teacher. This, however, is not the end of the story, because the reason why it was felt necessary to raise the salaries of ministers and members of parliament was that they had fallen so far behind the salary increases granted to permanent secretaries (deputy ministers in the Canadian scheme of things). The salaries of senior civil servants were raised in accordance with an administrative reform programme funded by the World Bank. Thus, the basic salary of the top civil servant of a ministry is now J$280,000. At this level of salary, the top civil servant is, however, still far behind his or her counterpart in the private sector, where chief executive officers of large Jamaican companies may earn as much as J$l,000,000 in salary alone. When reference is made to a new socioeconomic model, in which ministers of government and senior civil servants earn 85 times as much as minimum wage-employed workers, and are still far behind top private sector managers who often carry a lesser degree of responsibility, it is not mere indulgence in extravagant exaggeration. What is clear is that the top civil servants and the ministers of government are now sharing a lifestyle and a commonality of values with those who are important in the new socioeconomic model: the large scale private sector and the managerial strata who serve it. It is hardly surprising that concern for social justice has gone out of style; the value system of the 1980s was centred on individual entrepreneurial seeking for material advantage. The poor are, of course, a problem; thus, the system of food stamps 'targeted' to the needy. The change from the values of the 1970s, and indeed the 1960s, is profound. The 'poor' are really not considered to be people. Thus, an editorialist in the Gleaner felt compelled to remind The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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his readers that 'ghetto people' are also people, that the ghetto is also a human world, that ghetto folk are Jamaicans, kith and kin of all other Jamaicans: Hath not a ghetto youth eyes, hands, organs, dimensions, senses, affections, passions? If you prick a ghetto mother does she not bleed? If you poison a ghetto father does he not die? And if you wrong them shall they not take revenge?

Poverty and Malnutrition On the basis of this Survey, a study conducted by the Institute of Social and Economic Research of the University of the West Indies estimated that 766,000 individuals in 132,000 households were unable to access a basic low cost Jamaican menu of nutritionally adequate caloric content. Based on the cost of feeding a family of five, 24.5 per cent of households, and 32.7 per cent of individuals in Jamaica live in poverty. It was estimated that a weekly food budget of J$165.89 is needed to feed a family of five. On the assumption that 57 per cent of income is spent on food in urban and 62 per cent in rural areas, an urban/rural household requires a minimum of J$291.04 and J$267.56 respectively per week to feed a family of five. This means that annual household income must be at least $15,133.83 (US$216) in urban areas; and at least J$13,913 (US$199) in rural areas to stay above the poverty line. On the basis of these calculations, 10 per cent of the population of Kingston; 36 per cent of the population of other towns; and 41 per cent of rural populations live in poverty. In recognition of the deteriorating situation of a large percentage of households resulting from the 'shock treatment' of the 1983-85 adjustment measures (devaluations, removal of food subsidies, increased taxes), the Seaga government introduced a food security programme. The food for this programme was imported in the form of food aid from USAID, the EEC and the World Food Programme. Distribution is effected by means of food stamps. The study found that the total annual cost of food stamps required to meet the needs of the 766,000 persons living in poverty was J$425 million in 1989. The actual level of government expenditure on food stamps was J$45 million; a sum sufficient adequately to cover the 'food deficit' of only 76,000 of the total number of 317,000 registered persons eligible to receive food

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stamps. Although the budgetary allocation for the food stamp programme was to be doubled in 1990 over previous levels, the 'food deficit' remains enormous — and will increase as further price increases come into effect, and the last remaining general food subsidies are removed in compliance with the IMF programme. Since these calculations were made in mid 1989, the cost of living has risen as a result of devaluations in November 1989 and January 1990. The J$165.88 required to feed a family of five in June 1989, rose to J$207.04 by December 1989. In mid-1989, it required two persons each earning the minimum wage ofj$84.00 per week to feed this family. By December 1989, it required two and a half minimum wage incomes to meet the minimum food budget. Table 7 provided by the nutrition department of the Ministry of Health, records the deterioration from the situation of the working poor in mid 1979, when one minimum wage could purchase the food basket, to conditions prevailing in the 1980s when the same food basket required between two and three minimum wages.

Table 7: Food Costs And Minimum Wage 1979-1989 Period

June, 1979 September, 1983 December, 1983 August, 1984 July, 1985 September, 1986 June,1987 December, 1987 March, 1988 June, 1988 September, 1988 December, 1988 March, 1989 June, 1989 September, 1989 December, 1989

Cost of Feeding Family of Five for 1 week J$ 24.27 65.31 77.00 110.46 128.43 148.72 160.49 165.60 141.73 142.98 146.98 160.03 151.87 165.88 173.30 207.04

Minimum WageJ$ 26.00 30.00 30.00 40.00 52.00 52.00 52.00 52.00 52.00 72.00 72.00 72.00 84.00 84.00 84.00 84.00

% of cost

107.1 45.9 38.0 36.2 40.5 35.0 32.4 31.4 36.7 50.4 49.0 45.0 55.3 50.6 48.5 40.6

Nutrition Department, Ministry of Health.

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As indicated in this study, the situation of low wage earners was particularly difficult in the years of adjustment since 1983. Many households have only one breadwinner. In 35 per cent of Jamaican households, the principal breadwinner is a woman. Female incomes are substantially lower and very much less predictable than male incomes. Unemployment among women is very much higher than among men, and is distressingly high for young women — precisely the age group most likely to have the responsibility of rearing a young family. The nutritional status of the most vulnerable groups in society has declined since 1980, although it is likely that families have been able to offset the decline in wages by supplementing incomes with informal activities. Reduced nutritional intake directly affects young children under five, the elderly, and pregnant and lactating women, who are oftentimes heads of low-income households. Successive devaluations have had a crippling effect on these groups because, in Jamaica, the most basic components of the food basket of poor consumers are imported: flour, cornmeal, rice, chicken-backs and wings, cooking oil, canned fish and condensed milk, partly reconstituted from imported milk powder. Among basic non-food items of imported origin are kerosene oil, cooking gas, medicines, and the cost of transportation, in so far as it rises with the cost of petroleum fuel. Each devaluation instantly raises the local currency cost of these basic necessities.

The Food Stamp and School Feeding Programmes Both administrations have sought to cushion the impact of soaring food prices by a number of measures including general food subsidies in the 1970s and 1980s; and the Food Stamp and School Feeding Programme in the 1980s, both of which are aimed at approximately one million persons, or roughly one-half of the population. In response to IMF and World Bank dictates, the government has been forced to reduce or eliminate food subsidies. It was the declared intention of the present government to abolish all remaining general food subsidies over the next two years. The justification for the abolition of subsidies was that the rich benefit more than the poor, because the poor spend less on food than the rich, and thus receive a smaller share of the subsidy. This argument is not without foundation, as the 1988 Survey of Living Conditions (SLC) 158

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Table 8: Nutritional Status of Children Attending Public Health Clinics 1980-19879 Year

1980 1981 1982 1983 1984 1985 1986 1987

Normal and Gomez Gomez Above (%) I (%) n (%) 78.1 72.5 73.8 74.3 72.9 72.9 73.9 71.1

18.6 23.3 22.6 22.1 22.9 22.6 21.9 21.0

2.9 3.7 3.2 3.2 3.6 4.0 3.7 3.3

Gomez m* (%) 0.4 0.5 0.4 0.4 0.5 0.5 0.4 0.3

Source: Economic and Social Survey, 1980-87.

disclosed that the poorest quintile of the Jamaican population obtained about J$20 in direct consumption benefits per person per year, while the wealthiest quintile receives about J$36.80 per person per year. The national average is J$28.50. Nevertheless, while the rich benefit disproportionately, it is indisputable that the abolition of the food subsidies will hurt the poor more than the rich. Since one third of the Jamaican population is poor the subsidies are important in protecting the welfare of households vulnerable to poverty. The Food Stamp Programme was introduced in 1984 and was designed to provide support for those at nutritional risk. Up to July 1988 the programme disbursed allotments of J$20 (US$3.60 equivalent) worth of stamps every two months to purchase cornmeal, rice and dried skimmed milk at any retail outlet. The target number of eligible beneficiaries under the programme was initially set at 400,000 persons, to be allocated equally between two categories. The first category of recipients included pregnant and lactating women and children under five who received health care at public health clinics. Recipients are not subject to any test of financial need. Up to May 1989 food stamps were distributed to 133,000 children and 21,600 mothers.

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The second category of beneficiaries are given assistance after an assessment of their financial need. This group includes families whose household receives an income of less than J$50 per week equivalent; and the poor and elderly who, having registered under the public assistance programmes, automatically qualified for food stamps. Food stamps were issued to 50,300 old age pensioners and registered poor and 111,900 low-income household heads up to May 1989. In reality, however, a considerable number of eligible beneficiaries were excluded from the programme, while some ineligible persons were recipients under the programme. Data compiled by the Survey of Living Conditions (1988), revealed that only one-half of the households in the poorest quintile were recipients, while 6 per cent of those in the wealthiest quintile were also recipients. It is unfortunate also that the nominal aid given under the programme has been undermined by inflation. The increase on the allotment to J$40 every two months in July 1989, was eroded by price increases since late 1989 and early 1990. Moreover, the Manley government redesigned the food stamp programme, and reduced the number of eligible recipients to 230,000 individuals and 70,000 households. This represents one third of the number of persons estimated to be below the poverty line in the study referred to earlier in this chapter, and one half of the households. The food stamp programme is unsatisfactory in a number of respects, and is a poor substitute for the direct subsidisation of imported food staples. Food stamps are in effect a form of income supplement, that is, token money, accepted by most commercial interests as cash, and traded. Food stamps can be used, and are being used, to purchase any commodity the consumer may desire. The acceptability of the food stamps as cash also opened the possibility for these stamps to be used as instruments of political patronage. It is questionable, therefore, whether the objectives of the programme were being satisfactorily met. According to one study, 'the effectiveness of the Programme in containing malnutrition or improving the level of nutrition in the society does not appear to have been very significant.' The general food subsidies had the merit that they directly lowered the cost of essential foods purchased by poor people; administration was simpler, cheaper, and moreover more manageable in terms of the institutional mechanisms for receiving and distributing food aid from donors. As for the unintentional benefits accruing to highincome families, a more efficient system of collecting income tax from the corporate private sector would more than recover the 'wasted' subsidy 160

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accruing to the rich. It is hard to escape the conclusion that the substitution of food stamps for food subsidies on imported basic foods was associated with the ideological preferences of the principal donor countries for the 'free market' supplemented by a 'means test' approach to poverty. The School Feeding or 'nutrition' programme was instituted with assistance from the World Food Programme, and was designed to improve child nutrition, boost school attendance and performance in pre-primary and primary schools. Under the programme, a half pint of milk and one fortified bun is provided for each child in participating institutions. In 1987, an estimated 120-170,000 lunches were distributed daily. Institutions too remote to readily participate in the 'nutrition' programme provide a hot meal cooked on schools' premises. An estimated 96,000 children benefited from this aspect of the programme. Additionally, pre-primary (basic) schools receive a cash subsidy for nutrition, totalling roughly US$275,000 equivalent annually, aimed at assisting some 105,000 children. However, this allocation is inadequate, averaging out at an allowance of less than US$0.02 equivalent per child per school day. Overall, the School Feeding Programme is better managed than the Food Stamp Programme. However, the programme needs to focus more specifically on poor children, particularly at the primary and pre-primary levels. According to the 1988 Survey of Living Conditions, about 44 per cent of children in the survey sample received school meals. This included 54 per cent of children in the poorest quintile and 32 per cent of children in the wealthiest quintile. With improved targeting of poor children and closer supervision, the programme will be better able to utilise its resources and provide greater coverage to those genuinely in need. In April 1990, the government announced an increase in the School Feeding programme, which will now provide a nutribun and milk to 150,000 school children, and a cooked lunch to a further 130,000, with emphasis on children in pre-primary (basic) schools.

Impact on Women and Children The social costs of structural adjustment are not only severe but are also inequitably distributed. They impact most heavily on the poor and elderly, women and children. Women in general, and poor women in particular, suffer disproportionately more than men. The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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The Commonwealth Expert Group on Women and Structural Adjustment observes that The economic crisis of the 1980s, and the types of stabilisation and adjustment measures taken in response to it, have halted and even reversed the progress in health, nutrition, education and incomes which women had enjoyed in the developing countries during the previous decades ... most women have suffered disproportionately during the widespread economic and social disruption that has occurred in much of the developing world.10

A full comprehension of the impact of structural adjustment on women must be set within the context of a brief discussion of the role of women in Jamaican society. In addition to their role as producers and income earners, women bear the prime responsibility for parenting, caring for the elderly and generally managing community and domestic affairs, often without regular male support. Consequently, women work longer hours than men, usually with more limited resources and fewer rewards. The economic and social pressures facing the population in the 1980s have forced many women to assume an even greater role in the economic and social survival of their families. In many households women are the major breadwinners. Approximately 35 per cent of households in the island are headed by women and in urban Kingston the proportion of households headed by women is even higher, at 45 per cent. Yet women, especially poor women, encounter persistent and pervasive disadvantages in the labour market. Women have to contend with fewer job opportunities, obtaining adequate employment only within a narrow range of occupations, most of which are low-wage and unstable. Even where women have similar qualifications, perform similar tasks and have the same level of productivity, their remuneration is usually significantly lower than that of their male counterparts. The lot of working women may be illustrated by the conditions of workers in the Free Zone. A study of one hundred Free Zone workers living in the community surrounding St Peter Claver church in West Kingston revealed that almost all the workers are women. The study was made in mid 1987, and their average salary at that time was J$100.52, twice the minimum wage which was then J$52 per week. After deduction of workrelated expenses of travel and childcare, the available income of these women was J$42.33 per worker. It has already been observed that in 162

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1987 it would take three pay packets at minimum wage to adequately feed a family of five. All of the women worked very hard: 57 of the 100 worked six days a week, 20 worked 8 to 10 hours per day, while 32 worked an eight-hour day. A lot of overtime was worked, some by choice, some because they were required to do so. The majority of these women are young — 87 per cent under 30 — and are supporting children. Less then a fifth of the workers have no family responsibilities. Due to the expansion of secondary education in Jamaica in the 1970s, these workers are relatively well educated, 46 per cent having reached as far as grade 11. Post secondary education was reported by 4 per cent.

Female Unemployment Female unemployment is very much higher than male unemployment. The situation is most punitive in the case of young women, who experience unemployment rates of 60 to 70 per cent. Table 9 records male and female unemployment rates. We note that female unemployment rates are more than twice as high as male rates. The decline in unemployment rates since 1986 is due to a decline in the labour force, on account of the very high rates of emigration in 1987 and 1988 noted earlier in this chapter.

Table 9: Unemployment Rates by Sex (April) Year

Total

Male

Female

Female as Ratio of Male Rates

1980 1981 1982 1983 1984 1985 1986 1987 1988

27.9 26.2 27.0 25.9 25.5 24.4 25.0 21.2 18.4

17.4 15.1 15.3 15.7 15.8 15.3 16.6 12.8 11.8

39.9 38.7 40.5 37.7 36.6 35.3 34.9 31.2 26.2

2.3 2.6 2.6 2.4 2.3 2.3 2.1 2.4 2.2

Source: Statistical Abstracts, 1981-88.

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Table 10 records unemployment rates for heads of households. Here the horrible situation of working women is noted. These women also carry the full responsibility of caring for children. Female heads of households are three times more likely to be unable to find employment than male heads.

Table 10: Unemployment Rates by Head of Household Year

1984 1985 1986 1987 1988

Head Male Female 7.3 7.9 8.4 5.9 5.2

% Household headed by Women

21.9 17.9 22.0 17.9 13.5

34.8 31.8 35.0 32.9 34.1

Source: Labour Force Survey, 1986-88.

From Table 11 the particularly difficult situation of young women, many of whom have the primary responsibility of caring for young children, is noted. Thus, in the age group 14-19, female unemployment rates reached 79 per cent in 1984; 74 per cent in 1985-86; declining to 68 per cent in 1987, and 62 per cent in 1988. Female unemployment rates in the 20-24 age group were only marginally lower, declining from levels of 59 per cent in 1984-85 to 42 per cent in 1988. Moreover, in times of recession women are more likely to be made redundant or forced into jobs which pay very low wages, often below the legal minimum, and into jobs where the working conditions are harsh. Those who choose or are forced into self-employment have to work very long hours, sometimes seven days per week, and have to contend with meagre and unpredictable earnings/returns. To make matters worse, many women — and men and schoolchildren — rely on public transportation to get to and from work. This may take up to two hours in each direction. The ills which afflict the transport sector — poorly maintained vehicles, inadequately served routes, poor driving, overcrowded buses, poor interpersonal relationship between commuters

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Table 11: Unemployment Rates by Selected Age Groups Age Groups 1984 1985 1986 1987 1988

14-19 M 38.4 35.2 38.8 32.2 31.2

20-24 F

78.8 73.9 74.0 68.0 61.9

M 28.1 24.4 24.7 21.7 20.9

25-34 F

58.8 58.7 56.5 49.8 42.1

M 11.9 12.3 14.5 10.6 9.7

F 36.5 33.1 35.0 31.3 26.7

Source: Labour Force Survey, 1984-88.

and transport workers, among other things — are problems which women and school children have to confront on a daily basis. The multiplicity of occupational roles with which women are burdened require an exhausting expenditure of time and effort to maintain, improve or prevent further erosion in the standard of living of their families. The reduction and abolition of subsidies on food and other basic goods, and the cuts in public health and education services have placed added stress on women as they seek to grapple with the problems of providing adequate nutrition, education and health care for themselves and their children. All of this has serious implications for productivity, as well as the obviously detrimental effects on mental and physical health. The life of the Jamaican woman therefore is a continuous struggle for survival and self-actualisation, both at the productive and reproductive level; a struggle which has been made more difficult by the implementation of structural adjustment programmes. The bitter irony of women's situation under structural adjustment is summed up by the Commonwealth Expert Group: Women have been at the epicentre of the crisis and have borne the brunt of the adjustment efforts. They have been the most affected by the deteriorating balance between incomes and prices; by cuts in the social services .... It is women who have had to work longer and harder. Yet they have had no role in the design of adjustment programmes, which have in consequence ignored their needs and concerns. Adjustment policies which fail to incorporate women's concerns fully are not only unjust and the cause of unnecessary hardship but also imperil the effectiveness of the policies themselves.11

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The severe economic pressures experienced by many women with inadequate income to cope with their family responsibilities directly affect the environment in which the children grow up. Children who go to school hungry cannot concentrate on learning; when there is no lunch money for the children, they cannot go to school at all. In some cases they can be found on the street selling or begging; in the extreme, there are cases of girls who prostitute themselves to assist with family income. When the mother is out working, sometimes for long hours and far from home, there is no proper care for the younger children. Grinding poverty is the ultimate cause of sickness, illiteracy, and juvenile crime.

The Health and Education Sector Among countries of comparable income, Jamaica has long enjoyed an enviable record in the provision of public health and educational services. Life expectancy had reached 73 by 1980, and infant mortality was in the region of 12 to 15 per thousand. For reasons which are unclear, information on infant mortality is not available for the 1980s. The implementation of stabilisation and structural adjustment programmes in the late 1970s and the mid 1980s have constrained the government's ability to sustain acceptable levels of basic social and community services. The deterioration in the provision of quality public health and education services over the past 20 years, and particularly since the implementation of the adjustment measures of the mid 1980s, is directly attributable to the deep cuts in government expenditures on all social sectors. Real per capita outlays on health declined from US$44 per capita in 1982/83 to US$25.60 by 1986/87, a reduction of 42 per cent; while per capita public expenditure on education declined from US$84 in 1981/82 to US$58 by 1986/87 — a reduction of 32 per cent.12 Expressed as a percentage of GDP, public expenditures on health and education declined from 10.4 per cent in 1982/83 to 7.2 per cent in 1986/87. The World Bank Social Sector Development Project of $30 million, to be disbursed over the next five years, acknowledged that 'real public expenditures for education, health and other social services fell sharply and social well-being was adversely affected.' Capital expenditures on schools, health centres and hospitals were virtually suspended, and recurrent expenditures were inadequate to maintain basic public services (Table 12). 166

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Table 12: Real Per Capita Outlay on Health and Education, 1979-1987 (US$ millions)

1979 11980 [1981 |1982 1198311984 [1985 [1986[1987 Real Per Capita Expenditure 42.1 Health Education 80.2

40.0 82.4

42.2 84.7

44.0 83.5

39.5 30.4 75.6 62.8

27.9 64.4

25.6 57.8

32.2 63.6

2.5 4.8 7.3

2.2 5.0 7.2

2.7 5.4 8.1

As Percentage of GDP

Health Education Total

3.3 6.3 9.6

3.3 6.8 10.1

3.4 6.9 10.3

3.6 6.8 10.4

3.2 6.2 9.4

2.6 5.3 7.9

Capital Expenditure as % of Total Expenditureturea

Health Education Total

5.5 10.6 16.1

8.9 8.6 17.5

10.4 5.5 15.9

9.2 6.9 16.1

4.0 8.2 12.2

5.0 7.4 12.4

3.7 10.6 14.3

6.9 8.8 15.7

15.1 21.3 36.4

Source. World Bank: Social Sectors Development Report, June 1989 and Economic and Social Survey, 1980-87

The downgrading of human resource development in the interests of adjustment and debt service is apparent from Table 13 which shows expenditures on education and health as a proportion of the government's total budget from 1969/70 to 1987/88. Education and health expenditures peaked at 27 per cent of the government's budget in the first years of the Manley government (1972-74), declining to an average of 20 per cent in the last three years (1978-80). In the first four years of the Seaga government (1981-84) social expenditures maintained the 20 per cent share of the budget; the fiscal squeeze of the mid 1980s is clearly observable, particularly with respect to cuts in the education budget. By the later 1980s, education and health expenditures had declined to 17 per cent of public expenditures.

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Table 13: Percentage of Public Expenditure on Health and Education Year

Health

Education

Total

1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88

10 9 10 10 9 9 8 7 8 6 6 6 7 7 6 6 6 7 6

16 12 14 17 18 18 18 14 16 15 14 13 14 14 13 15 11 11 11

26 21 24 27 27 27 26 21 24 21 20 19 21 21 19 21 17 18 17

Source: Statistical Abstract, various issues.

Public Health Services In Jamaica, the bulk of health care services are provided by the public sector. The government, through the Ministry of Health, manages 24 public hospitals and over 350 health clinics. Each parish has at least one public hospital and several health centres, bringing the service within reasonable distance of most citizens. Capital expenditures for health declined from 10.4 per cent of total public health expenditure in 1981/82 to an all time low of 3.7 per cent in 1985/86. In 1987/88 there was an increase to 15.1 per cent, but the continued decline in the intervening years implied much neglect of routine maintenance and rehabilitation. If the 15 per cent ratio could be sustained over the long run, perhaps some of the rot which has set in might be alleviated. Reductions in current expenditures tended to fall disproportionately on supplies and maintenance, negatively affecting the quality of the capital stock and the availability of equipment and 168

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supplies, including medications. The regular devaluations of the Jamaican currency and the removal of some subsidies have also occasioned steep escalations in the cost of imported drugs and medical supplies. To compound the problem, the public health sector has been severely handicapped by the mass exodus of medical personnel, including nurses, into private practice or non-medical occupations, locally and abroad. In 1971, there was one physician in the public sector for every 2,678 persons; in 1980, the situation had deteriorated to one physician for every 3,035 persons; and by 1988 the physician to population ratio was one to 5,240. The ratio of nursing personnel to population in 1975 was one nurse for 540 persons; by 1980 it was one nurse for every 646 persons; and by 1985 the nurse to population ratio was one to 1,172. The wide-scale retrenchment of health workers and the abolition of several posts in 1985 further exacerbated the situation. We now have a situation where there are posts which the Ministry is unable to fill and areas where there are not enough posts to accommodate all the available personnel. The Ministry itself is deficient in human resources, particularly in planning, evaluation and supervision, because it is unable to attract and retain suitably qualified and technically competent personnel. The deterioration in the health service has undermined the capacity of the sector to provide quality health care and has adversely affected the poor, who are the main users of public health facilities. In an attempt to address the problems of the health service, the Seaga administration implemented a 'rationalisation' programme whereby several clinics and hospital wards were closed or downgraded, while the remaining facilities were ostensibly upgraded. In this process total hospital beds in the public sector declined from 6,408 in 1984 to 5,753 in 1985, a five per cent reduction. Since 1979 there has been an almost uninterrupted decline in the number of beds in the public hospital system, declining from 6,350 in 1979 to 5,463 in 1987, a 14 per cent reduction. The rationalisation programme was implemented without sufficient warning and forward planning. The remaining facilities, whether upgraded or not, frequently lacked the most basic supplies and many were still poorly staffed. Since 1984, new fees were imposed and some existing ones increased at all public health facilities. The government is now reviewing the fee structure and is committed by the terms of the World Bank loan to increase revenues by increasing fees in order to achieve 'a more efficient delivery of services, and optimum utilization of health facilities'. While The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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the rise in fees may be economically necessary, it must be stressed that the fee structure should seek above all to safeguard the health of the poor, who invariably are less able to cope with the increases in service costs. The fee requirement is likely to act as a disincentive to sick people who should seek medical care, but do not have the money to do so. The announcement that exemption from fees has been extended to food aid beneficiaries, pensioners, women with high risk pregnancies, those who visit for family planning purposes, and to children in school uniform is a welcome one. The critical shortage of manpower in almost every aspect of public health care has been addressed by the government. The Minister of Health reported that there were now 76 vacancies for doctors in an establishment of 440; 17 vacancies for dentists in an establishment of 69; 190 vacancies for public health inspectors; 35 for radiographers; 70 for medical technologists; and a monumental shortage of 1,500 registered nurses. In an effort to stem the haemorrhage of nurses to other occupations or to overseas destinations, the government doubled salaries from J$ 18,751 to J$40,753, plus allowances. Additionally hourly rates have been increased to J$109 for four hours for nurses outside or inside the system who wish to work part-time. The shortage of nurses has had a devastating effect on Jamaica's public hospitals. The University Hospital of the West Indies is hardest hit with 270 vacancies, and was threatened with loss of status as a teaching hospital on account of critical shortages of supporting personnel. Other major hospitals were in equally dire straits. Kingston Public Hospital needed 117 nurses; Cornwall Regional, serving the Montego Bay area, had 113 vacancies, Spanish Town hospital needed 69 nurses; Mandeville 22; St Ann's Bay 21. Newspaper accounts of patients writhing in pain and bawling for help in the hopelessly understaffed outpatient department of Kingston Public Hospital make sickening reading. A doctor reported that he did work that normally three doctors would have done. A nurse working in the casualty department was quoted as saying: 'I feel so sorry for the patients; some of them are here all day, all night. Those admitted have to suffer the agony of the heat in the place', referring to the malfunctioning of the air conditioning unit, which had broken down, she said, 'sometime in 1989'. According to press reports, the Kingston Public Hospital was actually better off than some other hospitals, in so far as 57 per cent of nursing posts were filled; this compares with Cornwall Regional Hospital where only 24 per cent of nursing posts are filled. The senior medical officer 170

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Table 14: Admissions of Children 0-59 Months with Malnutrition and Malnutrition-Gastroenteritis at Bustamante Children's Hospital, 1978-1985 Malnutrition Year

Nos.

1978 1979 1980 1981 1982 1983 1984 1985

68 91 98 110 86 98 110 124

%of Admissions 1.9

MalnutritionGastroenteritis %of Nos. Admissions 55 69 58 90 75 95 122 160

2.2 1.7 2.8 2.2 2.1 2.4 3.7

1.6 1.7 1.0 2.3 1.9 2.0 2.7 4.7

Source: Critical Poverty Study.

Table 15: Poverty-Related Illnesses 1980-1987 Year

1980 1981 1982 1983 1h 1985 1986 1987

Gastroenteritis Febrile Illness Leptospirosis 14,748 14,454 16,861 19,687 19,208 17,739 14,339 16,835

13,161 17,225 19.000 16,526 15,072 13,611 14,833 18,845

84 268 273 183 385 317 623 577

Source: Economic and Social Survey 1980-88.

for the county of Cornwall reported that 'figures for our county public health services show that between 1982 and 1989 we moved from having 53 public health nurses to 35; and from 429 community health aides to 200 now'. A reflection of the deteriorating health status of the population is the high rate of stillbirths at 9.4 per cent, and the decline in The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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breastfeeding. In the parish of St James, in Western Jamaica, it was reported that only 55.1 per cent of women attending postnatal clinics were fully breastfeeding their babies six weeks after birth. This figure had dropped further to 36.1 per cent by 1989. It is the poor who have to suffer the deterioration of public health care facilities. The Survey of Living conditions shows that 55 per cent of the population went to private doctors' offices where they pay an average of J$54 per visit, while 42 per cent used the deteriorating and understaffed public facilities (out-patient clinics and public health centres) where the cost per visit was only J$4. The situation was so bad that 40 per cent of the very poorest quintile of the population used private doctors, and paid more than they could properly afford, to get better quality medical care. This is indeed a sorry state of affairs, when compared with Jamaica's excellent public health facilities in previous years. The health status of the population has shown signs of deterioration. At the Bustamante Children's Hospital, data on admission for malnutrition and malnutrition-gastroenteritis between 1978 and 1985 underscored this situation. In both cases, the number and percentage of admissions at the hospital were highest in 1985, when the harsh effects of structural adjustment programmes impacted most severely. The high incidence of gastroenteritis among children also continued unabated throughout the 1980s. In 1980, there were 14,748 reported cases of gastroenteritis; by 1983 it peaked to 19,208 reported cases, a 33.5 per cent increase. Overall there was a 14 per cent increase in the number of reported cases of gastroenteritis between 1980 and 1987. A similar scenario holds true for febrile illness and leptospirosis.

Education Services Like the health services, the provision of education is largely a public sector responsibility. The 'Golden Era' of educational expansion occurred between 1955 and 1975 with increases in enrolment at the primary level, and an islandwide campaign to eradicate illiteracy. In 1973 free education up to the tertiary level was afforded to all eligible citizens. Between 1975 and 1982, there was a 37 per cent increase in capacity at the primary level, which marginally improved the teacher-pupil ratio in primary schools from 1:45 in 1972 to 1:41 in 1980 and 1:40 in 1984. With the continual drift of teachers away from the classroom, there has been a deterioration in this ratio which frustrated long-standing plans to reduce the ratio to 1:30. 172

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The marked decline in the quality of education and the grave implications for human resource development began to emerge in the late 1970s and accelerated in the 1980s. The nexus of high student attrition, absenteeism and grade repetition resulted in low overall completion rates. The trend since 1982 reveals that a large percentage of students who finish grade six, possibly as many as 50 per cent may be considered functionally illiterate, in so far as they read simple texts with extreme difficulty. A particularly disturbing aspect of student attrition revealed by the Survey of Living Conditions is the fact that ten per cent more boys than girls dropped out of school by the time they had reached 19 years of age. It was found that two thirds of the dropouts at primary level are boys, and half of the males who leave school do so in the first half of secondary school, while only 45 per cent of females leave so early. This phenomenon was described as 'highly unusual compared to most other countries in the world'. The evidence suggests that the poor and declining achievement levels derive from inadequate physical facilities accompanied by generalised overcrowding; inadequate and irregular provision of utility services; shortages/lack of equipment, instructional material and textbooks; inadequate maintenance, exacerbated by vandalism; high staff attrition, low morale and absenteeism prompted by low salaries. This appalling state of affairs was exacerbated by the continued reduction in government expenditures on education. Annual real per capita expenditures on education (in constant 1987 US$) declined from US$85 in 1981/82 to US$54 in 1985/86, a 36 per cent reduction. In 1987/88 real per capita expenditures recovered to US$64, which is still far below the 1981/82 level. For the age group 14 years and under, expenditure on educational services in real terms (1974 J$) declined by 40 per cent from J$361 in 1981/82 to J$218 in 1985/86. Most of the decline occurred in the two fiscal years when adjustment impacts were harshest, with real recurrent expenditure on education declining by an average of 21 per cent in 1985 and again in 1986. Overall, capital outlays for education were larger than for health. Capital expenditures for education ranged from 10.6 per cent of the education budget in 1979/80, to a low of 5.5 per cent in 1981/82. It recovered the 1979/80 levels in 1985/86 and reached a high of 21 per cent in 1987/88. The disturbing manifestation of the effects of the reduction in expenditure is seen at the secondary and post-secondary levels of the education system. Increasingly, more schools have had to rely on The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

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extracurricular commercial events to raise funds for maintenance, purchasing vital equipment and teaching materials, and 'topping up' teachers' salaries. While these attempts at self-help are commendable, they divert considerable time and effort from the education process. Reductions in government expenditure and the non-provision of significant capital budgets over the years have resulted in a stagnation of capacity at the secondary level. Every year, approximately 49,000 children up to age 12 compete fiercely in the Common Entrance Examinations for roughly 10,000 places in the traditional high schools. Of significance also, was the fact that output from tertiary level institutions would decline in the long run. In 1984, output from these institutions was 15 per cent less than in 1981. The introduction of a cess (fee) on tertiary education in 1986 had implications for the supply of professional, technical and managerial manpower, critical for national and regional development. In 1980, the output of graduates in these occupational categories was roughly 2 per 1,000 population. By 1985 there was a decline to 1.4 per 1,000 population. A task force appointed by the government in 1986, to examine the economic conditions of Jamaican students at the College of Arts, Science and Technology (CAST) and the University of the West Indies (UWI), underscored the precarious financial position faced by many students. The study revealed that 45 per cent of the students attending the university were from families with annual incomes of J$ 15,000 and less, and that there was a high level of malnutrition among university students within the 20-24 age group. It concluded that the cost of university education had surpassed the reach of a large proportion of Jamaican students despite the availability of increased student loans. Between 1984/85 and 1986/87 there was a ten per cent decline in the number of Jamaican students enrolled at the University of the West Indies. Since 1987/ 88, the decline has been halted and reversed. Like the health services, the provision of high quality education is also constrained by the inability to attract and retain suitably qualified and technically competent personnel in the areas of planning, evaluation and administration. It was obvious that there was an urgent need for increased and sustained budgetary allocation for both the health and the education sectors to mitigate some of the serious social costs incurred as a result of expenditure cuts required by adjustment programmes for debt service.

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Housing and Transportation A Stone poll asked citizens which were the biggest problems facing communities across the country. Unemployment topped the list with 63 per cent, followed by high prices (41 per cent). Next in importance as a pressing problem was inadequate housing (29 per cent), and poor transportation (21 per cent). There was a housing crisis in Jamaica. Hundreds of desperate house hunters turned up at five in the morning with cheques in hand for the required down payment of J$22,000 on a low cost home; only 20 units were for sale. The director of Jamaica's largest housing development company stated that the country would need 15,000 houses per year to the year 2006. Real estate values in middle-class areas were on par with values in Montreal; rents for two bedroom townhouses or flats were higher. Young couples could no longer hope to own a home, unless they were fortunate enough to have real property in the family. The cost of land was prohibitive, having been driven up by speculation fed by devaluation and inflation. Interest rates were at 30 per cent. Meanwhile insurance companies afloat with funds were building multimillion luxury office towers, with theatres, and upscale shopping facilities for the well-to-do. The government was no longer in a position to finance low cost housing, and was also constrained by the drive by multilateral lenders to eliminate subsidised credit. Public transportation was a daily nightmare faced by tens of thousands of working people and schoolchildren. Vehicles were overcrowded, and in bad condition. Many routes were poorly serviced. The roads were filled with potholes, and irresponsible and inexperienced drivers. It was common knowledge that driving permits and automobile fitness certificates could be purchased from employees of the relevant authorities with minimal trouble and expense. It was not unusual to see school children waiting in the rain for buses, which passed them by — or walking long distances. The time and energy consumed in getting to and from work was a prime cause of low productivity and low morale of working people dependent on public transport. The professional and commercial classes did not use public transport; they and their children rode exclusively in private automobiles. Some middle-class Jamaicans have never, ever, used public transport.

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The Erosion of Traditional Values and Social Norms To appreciate the capacity for social cohesion which still obtains in this country, in the context of the abrupt deterioration of the standard of living of the masses of people since the mid 1970s, thanks must go to a historical heritage which endowed Jamaica with a high level of social and administrative development, and a tradition of public service and social responsibility. The traditional political culture of Jamaica is respectful of government as an institution. It is respectful also of individual effort and enterprise. However, the rampant 'market philosophy' which has served as the ideology of the structural adjustment programmes in recent years was alien to traditional Jamaican values because it lacks a sense of social justice, legitimises self-serving behaviour, denigrates the role of government, and has no place for national dignity or national pride. There is a view that these traditional values are out of date — that economic pressures have rendered them an expendable luxury. Such a view is extremely simple minded, and ignores the fact that development is ultimately not about physical capital or about foreign exchange availability, or about passing IMF tests. It is a social process rooted in the cultural sphere. The combination of chronic unemployment, declining living standards, deteriorating real incomes and reduced ability to purchase both necessities and comforts, has changed patterns of behaviour. It is no longer possible for a man or a woman dependent solely on a wage or salary income to hope ever to own a home. Hence, the increase in hustling, higglering and reliance on multiple sources of income. There is a decreased sense of loyalty to the employer, who is increasingly regarded as an exploiter, as profits and prices run ahead of wage and salary increases; motivation is high for income gained outside regular employment, but increasingly workers exert minimal effort at their place of work while saving energy and initiative for personal enterprise, including higglering during office hours. Theft and pilfering at the workplace as well as corrupt business practices and white-collar crime appear to be on the increase. While employees cannot escape income tax, as it is deducted at source, cheating the taxman is the norm among businesses and selfemployed professionals, and is socially sanctioned. Corruption in the public service is widespread. More than a decade of downward 'adjustment' under both JLP and PNP administrations has made people increasingly cynical about 176

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politicians and governments. Professor Carl Stone of polling fame stated that 'peoples' faith in political parties and leaders is currently lower than it has ever been since Independence in 1962'.13People seek private solutions and private salvation — as witnessed by the rise of religious organisations of all kinds, including the evangelical charismatic. The ultimate escape is, of course, migration. The remarkably high rates of migration in recent years have been noted. And there are many more who have their green cards or Canadian papers in readiness for whenever they judge the time has come to make the move northward. A veteran Jamaican columnist drew attention to the development of a new trend in emigration: the new wave of emigrants is concentrated between the ages of 22 and 30, that is, young people who have benefited from the expansion of free secondary education in the 1970s. They are the people Jamaica can least afford to lose. Perhaps the most disturbing aspect of the deteriorating social situation is the fact that life has become so cheap — and so uncertain. Grilles, guard dogs, locked doors, are now a normal part of life in Jamaica, as are guns and violent crime. The society has reached the point where the average decent citizen is afraid to help a stranger in need, and with reason — because there have been an increasing number of incidents of violence. The police force is quite unable to deal with the situation, and is increasingly riddled with corruption. Hardly a day goes by without reports of police brutality and murder. The death toll of police killings for 1990 stood at 30 by mid February. Commenting on the rise in juvenile crime, including murder, wounding, rape, and carnal abuse, a senior psychologist at the Bellevue Psychiatric Hospital commented that the lack of respect for human life and human values in the society caused young people to 'imitate adult behaviour'. He commented that 'every time we devalue the dollar, we are just giving a stamp to the fact that we are simultaneously devaluing people. The devaluation of the dollar is just a symbol of the continued devaluation of the Jamaican people.' The medical doctor was no economist, but the comment displays a greater perception of Jamaican reality than volumes of official reports on the state of the economy. The harsh reality of the new socioeconomic model of unrestricted competition was that its 'logic of accumulation' had no need for poor people, either as producers, or as consumers. From an economic point of view, they were expendable.

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Adjustment without End? Jamaica was in the position of a drowning man, treading water to stay afloat, but slowly drifting further offshore. Cries for help were in the form of annual begging missions to bilateral donors, and acceptance of new loans from multilaterals, carrying conditions of the kind already described, produced just enough assistance to keep the country afloat, and able to service debt, for a few months or a year. The bilaterals, whose loans were, on the whole, softer than those of the Fund and the Bank, were effectively subsidising the capacity of Jamaica to continue to service multilateral debt, which as was well known, could not be rescheduled or refinanced. Table 6 provides a summary of the situation. In the early 1980s, the Seaga government received very large inflows of official development assistance from the IMF, World Bank and USAID, resulting in a rapid increase in indebtedness to multilateral agencies. The special relationship of the Seaga government with the Reagan White House enabled the country to postpone adjustment, as illustrated by the large fiscal and external payments deficits during the years of plentiful external finance. By the mid 1980s, the country was well and truly locked into a debt trap. A cynical observer might be tempted to conclude that Washington had 'invested' some two billion dollars in assuring that Jamaica would be dependent on official goodwill in perpetuity. From the mid 1980s onward, net resource flows from official agencies have hovered between zero and negative amounts, while interest paid to these agencies runs in excess of $200 million per annum (see Table 4). The severe adjustment of the mid 1980s closed the fiscal and external payments gaps, at the cost of declining GDP for two years, but the hurricane of 1988 destabilised the economy, resulting in a 13.3 per cent public sector deficit. The external account remained in balance on account of foreign exchange inflows from reinsurance, special hurricane assistance, and favourable terms of trade for traditional exports. In 1989/90, the public sector deficit was reduced, but nevertheless remained unacceptably large, while the external account went into deficit, resulting in two devaluations — and consequent increases in the cost of living. The latter were further fed by large increases in taxation and public utility prices, as a consequence of adjustment measures, which are continuing in the current fiscal year.

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Table 16: The Fiscal Burden of Debt Service, 1990 (j$ millions) Total Revenue Total expenditure Interest Principal Debt Service Expenditure net of DS Current Capital Deficits Total Overall Net of Interest Ratios: Debt Service as % of: Expenditure Revenue Gov. Expenditure as % of GDP Gov. Expenditure Net of Interest as % of GDP Overall Surplus or Deficit as % GDP

1982/83 1985/86 1986/87 1987/88 1988/89 1,750 3,669 5,446 6,020 5,446 2,707 6,509 4,671 5,631 8,199 527 1,397 1,468 1,604 1,790 1,157 1,473 173 671 902 700 3,263 2,068 2,370 2,761 2,007 2,603 3,748 3,261 4,936 1,354 2,240 2,586 3,201 1,961 673 642 1,020 1,163 1,735 -957 -430

-1,003 394

-1,164 304

-1,063 540

-2,179 -388

25.8 30.1 44

44.3 56.3 38.9

42.1 53.1 41.3

42.2 50.7 37.5

39.8 54.2 41.1

32.7

21.7

23.9

21.6

24.7

-15.5

-8.3

-8.5

-6.1

-10.9

Source: Economic and Social Survey, various issues Note: This table pertains to Revenue and Expenditure of the Central Government

Table 16 illustrates the burden on debt repayment and adjustment measures on the fiscal account. The burden of debt service as a percentage of government expenditure (approximately 40 per cent), and government revenue (in excess of 50 per cent) are noted. This implies that over 50 cents of every dollar collected in taxes was privileged to debt service. Government expenditure, net of interest payment declined from 33 per cent of GDP in the early 1980s to a level of 20 to 25 per cent in recent years. Thus the public was paying more taxes, while receiving fewer public services, at higher cost. Not surprisingly, the public drew the conclusion that government was inefficient and wasteful. Meanwhile, the government was obliged to continue to service debt, almost exclusively to official agencies. While multilateral debt could not be rescheduled, it was effectively refinanced on conditions progressively more onerous, in terms of liberalisation measures designed to strip the government of its few remaining instruments of policy. Jamaica was thus deep in the third round of severe adjustment, following the first round in the late 1970s,

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and the second in the mid 1980s. The difference, however, lay in the volume of debt to the multilaterals accumulated in the early 1980s. There did not appear to be any light at the end of this tunnel: the prospect was adjustment without end. Jamaica's debt to commercial banks stood at $383 million at the end of 1989, of which $332 million was rescheduled. Debt conversions reduced the stock of debt by US$48 million. Eighty per cent of this debt ($39 million) was convened during the fiscal year 1989/90. Debt conversion did not, however, bring in fresh money, unless the investor was required to do so as a condition of approval of his project. The total amount of fresh money obtained by Jamaica since the inception of debt conversion was a mere $15 million. The existence of the debt conversion scheme meant that foreign direct investment would not bring any fresh financial resources into the country; a small amount of interest which would otherwise have been due to commercial banks would have been saved, principal repayment having been pushed into the future by rescheduling. Investors showed interest in tourism, export agriculture (bananas, horticulture), and housing. There was very little interest in manufacturing, and none in the Free Zone. An interesting aspect of debt conversion was the fact that over half of the investors who have shown interest in this scheme had been resident Jamaican citizens and companies with access to foreign exchange resources; they used the scheme to buy up properties, principally in the tourist areas. IMF/World Bank programmes under discussion with the government of Jamaica envisaged a further reduction of the overall deficit of the public sector to two per cent of GDP, and an external current account position approximately in balance. This implied negative net transfers of approximately $200 million per annum, principally interest paid out to official agencies. Export earnings from goods and services would have to cover debt service as well as provide a minimum level of commodity imports, without which the country could not survive for one week. Such a prospect required a rapid rate of real growth to build productive capacity both for export and for the substitution of imports. Jamaica would have to generate a surplus of exports of goods and services over essential imports of goods and non-factor services of at least $200 million per annum. As mentioned earlier in this chapter, Jamaica had experienced net capital inflows throughout the post war period; there was no evidence to suggest that Jamaica had the capacity to generate the level of exports necessary to sustain programmed three per cent 180

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growth and continue to service debt to the multilaterals. In so far as the bilaterals were unlikely to be willing to pour additional funds into Jamaica, and the multilaterals were unwilling to reschedule or refinance on softer terms, the medium to long-term prospect was one of zero growth — more likely negative, in so far as continued instability, including increased poverty and violence, was likely to invite a resumption of capital flight and migration of skilled workers. It was estimated that exports would have to increase by some 12 per cent to 15 per cent per annum to enable Jamaica to achieve a three per cent growth rate, in conditions of zero net capital inflows. Table 9 presents data on export earnings. The 16 per cent increase in export earnings in 1989 which was due principally to an increase in shipments of alumina has been noted. While this was a welcome development, it was in the nature of a once for all increase. Tourism was programmed to increase, but there were serious limits to the environmental carrying capacity of the prime tourist areas — requiring substantial infrastructural expenditures. Non-traditional exports were disappointing: they contributed nothing to the 16 per cent increase of exports in 1989. Moreover, there was a large increase in imports in 1989, resulting in a deterioration of the foreign exchange situation. The liberalisation measures forced upon the government, combined with a large and growing informal economy resulted in increasing difficulties experienced by the Bank of Jamaica in accessing foreign exchange earnings. In these circumstances it is hardly surprising that the Government of Jamaica has added its voice to the growing call for measures to ease the burden imposed on heavily indebted countries by the multilateral agencies. Specifically, Jamaica proposed that the multilaterals either be permitted to restructure or defer debt service, or that a refinancing fund be created to prevent developing countries from becoming net transferors of resources to the IFIs. Jamaica also registered its protest concerning the operating practices of the multilaterals. In an address to the Special Session of the General Assembly of the United Nations, Jamaica's Minister of Foreign Affairs and Foreign Trade complained that the multilaterals were using their controlling power over the detailed microeconomic management of developing countries to enforce, often in the most extreme form, a specific ideological model of economic management. This conflicts not only with the basic expectations of people, that their sovereign Governments have

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a responsibility for taking fundamental economic and social decisions, but is not necessarily relevant to the needs and capacities of all countries to the same extent. Under the general rubric of structural adjustment programmes, countries are being forced to follow policies of undifferential interest rates, non-protective tariffs, removal of subsidies from basic necessities, rigidly defined fiscal parameters and exchange control liberalization, among many others.14 It was clear that the time had come for a concerted attack on the policies of the Organisation for Economic Cooperation and Development (OECD) countries, which ultimately govern the programmes of the Fund and the Bank. It was hoped that Canada, which signalled its concern in these matters by the decision to write off the entire debt of the Commonwealth Caribbean to CIDA (some C$94 million in the case of Jamaica), would be willing to cooperate in initiatives to release small indebted countries from bondage to the Washington-based agencies.

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7

Debt, Adjustment and

Development:A Perspective on the 1990s1

There is an alarming poverty of ideas — and ideals — in the world today, as compared with the era of that first generation of Third World scholar/politicians who had a mission and a vision of leading their respective nations out of colonialism to political and economic independence. Eric Williams was of that generation. Perhaps the agendas were simpler in the era of decolonisation and the establishment of new nations; certainly, the international environment was less complex, more orderly, and very much more favourable in terms of opportunities for economic and social development. One cannot help wondering what Dr Williams would have said about a state of affairs where the budgets of scores of developing countries are effectively being written by the Washington-based international financial institutions (IFIs). It is reported that 59 countries received structural adjustment loans from the World Bank in 1980-88; these loans are only available within the framework of an IMF programme. Would Dr Williams have called it 'recolonisation'? Is it recolonisation? Has Africa not regressed to abject poverty and external economic dependence since the mid 1970s? And what of the total check of economic development in Latin America, associated with monumental indebtedness to private bank capital? In the region, we have the case of Jamaica, where income per head is some 30 per cent below levels of the mid 1970s, and which is virtually in receivership to the multilateral international agencies. Not to mention Guyana, which falls into the category of countries in societal disintegration. The question I wish to address is, What exactly are we 'adjusting' to? There is obviously a need for adjustment to changing external circumstances, but are the Fund/Bank packages really taking us closer to meaningful economic development, or are they taking us off course

towards a black hole of societal disintegration and dependence on begging scraps of favours from the so-called donor community? Is the donor community not the same set of industrialised country governments which control the IFIs which have taken over the management of indebted developing countries in the interests of private commercial banks? In the bad old days, creditors sent boats and marines to collect bad debts. As a matter of fact, in times gone by, creditors were forced to share losses with debtors because relations between creditors and debtorcountry governments were governed by the market. The system today is more civilised and also more effective because the banks have been able to operate as a creditor cartel, under the skirt of the International Monetary Fund (IMF). It is not colonialism in the old sense, but it is an effective mechanism for transferring real resources from poor debtor countries to the creditor banks of the industrialised world. But I am jumping ahead of my presentation, so let me return to the starting point. Every thinking person knows that we are living through a historic turning-point; the outlines are rapidly taking shape, although nobody knows exactly what lies ahead. The only thing we can say with certainty is that the world will look different ten or 15 years from now. The rate of change is tremendous and it is accelerating. Problems which today seem very important will soon have faded from memory — including the external debt of developing countries. Other problems will loom large. Some of these are already on the horizon: the hole in the ozone layer which threatens to melt the ice caps, flooding the low-lying areas of the continents, and possibly causing some of our islands to disappear; the new plagues of unknown origin, such as AIDS; the possible consequences of new bio-technologies, and the full consequences of the application of old technologies, in terms of the degradation of our natural habitat. We have to widen our perspective on our problems, so that we are not trapped by the immediate exigencies of the day, nor by theories and mental constructs which may or may not have been appropriate in other times and places, but cannot serve us today. We urgently need to free up the mind, because it is clear that the ideological categories to which we have become accustomed have lost their relevance. It is now fashionable to advocate pragmatism. This is a reasonable reaction to the failures of ill-conceived and unrealistic social experiments — whether of the neo-liberal or populist-cum-socialist varieties. But it is not sufficient,

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because there is great danger in simply reacting on a day-to-day basis to the agendas and prescriptions of the industrial powers, or in accepting their criteria of 'efficiency', which are likely to be inappropriate at best, and self-serving at worst. Societies and nations which do not have the capacity to chart a coherent strategy of survival, in the very difficult years to come, will not survive. They will disintegrate. That is a process which is already far advanced in a number of Third World countries. The remarkable and historic initiatives of President Gorbachev have altered the world order as we have known it since 1945. The superpower conflict has been terminated. The Berlin Wall is down, the 'iron curtain' is already a bad memory, Germany will be reunified, and Europe will extend to the Urals — and beyond, to the shores of the Pacific Ocean. The United States will be forced to withdraw most of its military presence from Europe, thus continuing its decline from the hegemonic status it enjoyed in the quarter century following the end of World War Two. The Americans are consolidating their control over the North American continent, starting with the Canada-US Free Trade Agreement. Their sphere of domination will be contracted to neighboring countries: Canada, Mexico, Central America and the Caribbean. East Asia has become the growing point of the world in terms of economic dynamism and potential. Tokyo is the world's strongest financial centre, and Japan is the most dynamic and successful industrialised country in the world. China's billion or more people are becoming a market of increasing interest to business; China has experienced a phenomenal growth rate of 10.4 per cent per annum throughout the 1980s, following a very high and sustained average annual growth rate of 6.4 per cent from 1965-80. The success of the Tigers is legendary and a number of other East and South East Asian countries are also experiencing strong economic growth. The total population of this vast region — excluding Japan — is 1,510 million, close to one third of the world's population. In the worst years of crisis in Africa, Latin America and the Caribbean, and zero growth in the poorer countries of Southern and Eastern Europe, North Africa and the Middle East, the poor countries of East and South East Asia have recorded an average annual increase in GNP per capita of 6.4 per cent in 1980 to 1985. Only one of the 45 countries classified by the World Bank as severely indebted is located in East or South East Asia — and I have always considered the Phillipines to be more Latin American than Asian.

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Geographically and culturally distinct from East and South East Asia is the Indian subcontinent including Sri Lanka. Although not as spectacular as the growth momentum of China (10.4 per cent) or Korea (8.6 per cent), the countries of South Asia, with a combined population of 1,080 million have all achieved annual GDP growth in excess of population growth in 1980 to 1985: India (4.6 per cent); Pakistan (6.6 per cent); Sri Lanka (4.6 per cent) and even Bangladesh (3.8 per cent). In every case, growth was stronger than in the previous 15 years. South Asia, as a region with growth in per capita GNP of 2.9 per cent in 1980 to 1985, together with East and South East Asia, stands in stark contrast to Africa, Latin America and the Caribbean. They have not been affected by the disorders of the international system of trade and payments and associated debt problems of the 1980s. Not a single country in South Asia is among the 45 severely indebted ones.

The Declining Importance of the Peripheries to the Industrialised World This invites two interesting questions. Firstly, how and why have the poor countries of Asia, including the giants of China and India succeeded in setting in motion a process of self-sustaining economic development, in spite of their very low income per capita, without significant external assistance and most certainly without a strategy of 'outward-looking' development? Secondly, is the reason for the crisis in Africa, in Latin America and the Caribbean not related to the special role of these regions in supplying Europe and North America with export commodities in the past and to this day? More specifically, have the fragile export economies of poor countries not lost their 'engines of growth', with the declining importance of agricultural and mineral commodities, to the production structures of the industrialised world? I suggest that this is true, not only for Africa, but also for many of the smaller countries of Latin America and the Caribbean. As a matter of fact, it is also a major factor in the larger indebted Latin American countries, in so far as sovereign lending by private banks in the 1970s to Mexico, Venezuela and Peru was attracted by the excellent prospects of the petroleum industry. Even large semi-industrialised countries like Brazil have been adversely affected by falling commodity prices — in that instance, the price of coffee.

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Latin America, the Caribbean and Africa have historically been major sources of imported food and agricultural and mineral raw materials for European and, to a lesser degree, North American industry. Both of these regions are highly exposed to the risks of fluctuating commodity prices. In 24 countries of Africa and in 14 countries in the Latin American/ Caribbean region, commodities account for over 50 per cent of exports. In another 13 African and 10 Latin American or Caribbean countries they account for between 25 per cent and 50 per cent of exports. This high degree of dependence on primary commodity exports is unique to these two regions. It is well known that commodity prices have been falling since the early 1970s: the World Bank index of real prices of 33 nonfuel primary commodities has fallen from a high of 130 in the boom year of 1974 to 70 in 1988 (1979/81 = 100); a decline of 46 per cent. The metals and minerals component showed similar movement, from 140 in 1974 to a low of 65 in 1986, and a marginal improvement to 85 by 1988. Since 1982, the index of real petroleum prices has fallen through the floor, declining from 120 in 1982 to 40 by 1988, with the steepest decline registered from 1985 to 1986. It was generally agreed that declining commodity prices contributed to the adjustment problems of African and Latin American countries. It was not sufficient, however, to note the tendency for primary commodity prices to fluctuate, nor to ascribe currently adverse trends to conjunctural causes. The fact of the matter was that the Prebisch theory of adverse terms of trade for primary exporters was proven valid, and has been strongly re-inforced by technological trends. A study confirmed that for all 33 major non-oil commodities there was a decline in terms of trade from 1900 to 1988 at the overall rate of 0.57 per cent per annum, and for the basket of commodities important to developing countries the rate of decline was faster at 0.67 per cent per annum. They also found that if the basket is disaggregated to food, agricultural raw materials and minerals, the rate of decline of the latter two categories is substantially higher at 0.84 per cent and 0.82 per cent annually.2 If trends in the volume of trade in primary commodities are examined the following can be noted: (1)

The growth of world trade in agricultural products (in volume terms) declined from 4 per cent in the 1960s, to 3.5 per cent in the 1970s, to 1.5 per cent in the 1980s, and the growth of trade in minerals declined even more severely from 7 per cent to -1.5 per

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(2)

(3)

cent. Growth rates of trade in manufactured products were more than twice as high: 10.5 per cent; 7 per cent and 4.5 per cent respectively, for the three decades. World trade in agricultural raw materials such as cotton, (-0.8 per cent), sisal (-6.2 per cent), jute (-4.3 per cent), and wool (-2.5 per cent), has been declining in absolute volume since 1960; trade in timber declined by 0.9 per cent in 1981-85; trade in natural rubber grew slowly (1.3 per cent 1981-1985). As far as minerals are concerned, the consumption of all major metals in industrial countries declined in the 70s and 80s, by 5 to 10 per cent: the largest decline was for lead and zinc; there were more modest declines for iron and steel, and nickel.

The substitution of synthetic for natural products was principally responsible for the decline in demand for agricultural raw materials. Man-made products have also replaced metals, as in the case of PVC, fiberglass, and all sorts of new engineering plastics. Additionally, and more recently, there has been a technological trend to dematerialisation; many products have become lighter and smaller. This technological trend is likely to accelerate, as ecological pressures hasten the replacement of older mineral-intensive 'smokestack' industries with newer, cleaner, technologies. It is clear that the industrialised world has decreasing need for the raw materials of the developing world: Raul Prebisch and Joseph Schumpeter3 were right; Malthus, Ricardo and the Club of Rome were wrong; there are no scarcity rents accruing to natural resources. Rents accrue to those who innovate, and can collect monopolistic quasi-rents on their innovation. Two conclusions follow: the concentration on the export of primary commodities cannot be a long term strategy for development; at best it can serve only as a temporary means to access foreign exchange, at a high opportunity cost in terms of getting locked into a trap of export dependence. Secondly, downstream processing of minerals for export in order to increase retained value, has to be approached cautiously, in so far as markets in industrialised countries may be in decline. If the industrialised world has a diminishing need for the raw materials of the Third World which once were so necessary to its economic development, there will be a diminishing flow of foreign investment to commodity-producing countries. And this is precisely what in fact is happening; new foreign investment in primary commodities is

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in decline — with the exception of the Japanese, whose geographic limitations require the import of large quantities of mineral and agricultural products. It follows that a higher rate of growth of the Organisation for Economic Cooperation and Development (OECD) economies is unlikely to fire up the engines of growth of the primary export economies, and that 'a better investment climate' will not succeed in attracting investors if there are no interesting investment opportunities. If the peripheries have largely served their historic purposes as suppliers of raw materials, what then do the OECD countries need from the developing world? Do they need them as markets? Trends in world trade indicate that trade between industrialised countries was growing very much faster than trade between the industrialised and the developing world. Poor people in poor countries were not interesting from a marketing point of view: they had little purchasing power, and the difference in lifestyles between the average consumer in OECD countries and in developing countries was increasing at exponential rates. There is, of course, an upscale market for consumer goods among the middle classes, and a market for industrial producer goods, but there is no evidence that the organised business community in the OECD countries was sufficiently interested in markets in developing countries to bring pressure to bear on governments to release the Latin American economies from the debt burden, to restore their import capacity. Logical arguments about the mutual advantage of credits to developing countries in the service of expanded trade have fallen on resoundingly deaf ears — even in the United States, whose trade with developing countries is considerable. What then about cheap labour? Does the industrialised world need the Third World as a reservoir of cheap labour? — a belief shared by Marxists and neoclassical economists. Is cheap labour a significant resource, which can attract foreign investors, if massive devaluations can make it cheap enough? I suggest that cheap labour was important when the demand for agricultural and mineral products was strong, technologies were simple, and labour was more important as a cost item than it is today. Yes, there are export processing zones, but they cannot serve as more than marginal and transitory sources of employment and foreign exchange. Even in Jamaica, where wages were at the level of Haiti, the Free Zone was an unstable and marginal economic activity. If cheap labour could really attract capital, there would no longer be economic underdevelopment. Besides, in industrialised countries cheap Debt, Adjustment and Development

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labour is increasingly employed in service industries, and there seems to be no shortage of immigrants and 'guest workers', legal and illegal, employable and exploitable in this rapidly growing sector of the economies of OECD countries. The successes of Asia are not principally due to cheap labour, but to its organisation, management, work ethic, and the role of the state in enforcing labour discipline and rewarding successful capitalists. It can be concluded that economic and technological factors have combined to render poor people in poor countries redundant to the needs and requirements of the industrialised world. Herein lies the reason for the declining importance of private foreign investment flows to developing countries. The brutal truth is that the industrialised world has decreasing need for the countries of the periphery as sources of raw material, or as markets, or as cheap labour.

The End of the Era of International Development Assistance Prior to the termination of the Cold War, it suited the interests of the major powers to use development assistance as a geopolitical instrument of staking out areas of influence. From the late 1950s, when Washington decided to get into the business of development assistance, to the end of the 1970s, official funding to developing countries masked the declining role of foreign direct investment. Other major powers also contributed to development assistance, principally in areas and regions where they had traditional ties, including former colonial territories. In the 1970s, a large volume of commercial bank loans to a select number of developing countries financed increased public sector expenditures and import capacity, thus enabling semi-industrialised oil importing countries to sustain an artificially high level of economic growth. The 1970s also witnessed an expansion of the activities and scale of operations of the World Bank, under the presidency of McNamara. Other forces, however, were at work. The hegemonic position of the United States was slowly slipping. Europe reconstructed, and was emerging as a strong economic bloc. Japan offered increasing competition. Domestic pressures of the Civil Rights movement, combined with heavy outflows of direct investment — principally to other industrialised countries — and the claims of the Vietnam war put pressure on the US balance of payments and resulted in the suspension of convertibility of the dollar to gold. The Bretton Woods system came apart at the seams; floating exchange rates, inflationary pressures, the ballooning Eurodollar 190

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market outside official control, the Organisation for Petroleum Exporting Countries (OPEC) price hikes of the 1970s, and the political incapacity of the United States to adjust, as instanced by the failure to increase the price of gasoline, were among economic factors undermining the postwar economic order. This was the context within which the international commercial banks, awash with liquidity, sought to increase their profits by venturing into sovereign lending, principally to a handful of semiindustrialised countries, mostly in Latin America and some in Eastern Europe, all with apparently excellent prospects of servicing debt. The details of the origin of the debt crisis are by now well known. Briefly, the Volker Shock of 1979, which sent interest rates shooting up to the sky, and the major recession which it triggered, created a panic in the international banking community, and the banks pulled out all the money they could get out, thus aggravating the serious contraction of the debtor economies, setting back possibilities of restarting growth, and aggravating the crisis. For several years, there was fear of the collapse of the international banking system, and countries which had borrowed heavily from the private banks were forced into painful adjustment efforts, resulting in the transfer of billions to creditor countries by means of import contraction, and export surpluses. At the same time, the United States embarked on a highly unorthodox set of macroeconomic policies which consisted of large fiscal deficits combined with tight money policies. As a result, interest rates stayed high throughout the 1980s, and remain high — the United Sates became an importer of capital, and ultimately a debtor to the rest of the world. Meanwhile, the Germans and the Japanese were devising their own macroeconomic policies, which sustained the US dollar, because they were running up surpluses, in the service of containing inflation and improving their competitive position. The International Monetary Fund (IMF), established to supervise the orderly international system of payments, became increasingly irrelevant to the major OECD countries, who found new mechanisms for sorting out their affairs, such as the annual meetings of the Big Seven, and the operations of the Bank of International Settlements. The IMF was accorded a new role as debt collector and enforcer for the major commercial banks which had got themselves into serious trouble with respect to developing country debt. The design of the adjustment programmes of the Fund and the Bank have been critically influenced by the agendas of the major OECD players. Debt, Adjustment and Development

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International competition between the three major centres of economic power, including the use of macroeconomic policies for national purposes, without an international mechanism to force adjustment on the major actors, has been destabilising. It has resulted in inflationary pressures, which have in turn contributed to excessively high interest rates, a dangerous level of domestic debt-financed speculative activity, pressures to reduce fiscal deficits and the tax burden on the private sector, which is operating under increasing pressure from international competition. The domestic political climate in the OECD countries was unfavourable to budgetary allocations for development assistance, or to the perceived transfer of debt obligation of developing countries to taxpayers in creditor countries. Thus the interests of the banks and the pressures on the politicians coincided to favour policies which maintained the squeeze on Third World debtor countries. The disappearance of the Communist enemy will accelerate the trend towards a decline in US development assistance, because it has now lost its principal rationale — which was defined in Cold War terms from its beginnings with the Marshall Plan. During the entire Cold War period, from 1946 to 1988, the top ten recipients of US aid were all strategically located in terms of global geopolitical objectives. Initially, in the early post-war period, there were Britain, France and Greece; in the Middle East, Israel and Egypt; bordering the Soviet Union, Turkey, India and Pakistan; in the Far East, South Korea and Taiwan. By 1990, the top ten had changed somewhat, confirming the trend toward the regionalisation of US dominance. They now included Honduras and Panama, while maintaining Egypt and Israel at the top of the list. Defending his foreign aid budget for 1991, Secretary of State James Baker complained of the reluctance of the Senate Budget Committee to agree to his proposals: 'We get the question all the time: who is the enemy?' Americans who support a large aid budget are trapped in the Cold War logic: 'Having made the argument in Cold War terms, and the Cold War being over, we've actually made it more difficult to convince people of the need.' The statement was made by a historian of World Bank policy. It was moreover likely that US foreign aid allocations would increasingly be targeted at countries within the hemisphere, and on a small set of longstanding client states with political leverage in Washington. More rapidly than anybody could foresee, we are moving towards a world of three gigantic, economically powerful continental blocs: each 192

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endowed with cultural commonalities of shared values, beliefs and customs and shared historical experience, suggesting that ties of collective consciousness are ultimately stronger than ideological differences and national conflicts. Among the earliest to perceive the trend to what he called 'extended nationalism' was the late Dudley Seers.4 In fact, he predicted the end of international development assistance, for which he was posthumously ostracised by the 'development community',, within which he had distinguished himself as an eminent development economist. But he was correct in his reading of the trends. The emerging European condominium has its own 'South' — in Spain, Portugal, Greece, Yugoslavia. Sharing the Mediterranean with Europe, is Turkey, which considers itself to be a European country and desires entry into the Common Market, and the many countries of the Middle East and North Africa which have long historic relations with Europe. And now there are the countries of East Europe, whose populations are eager to strengthen ties with West Europe. These former socialist countries have a highly educated labour force, and briefcased prospective investors were already crawling all over the place, looking for opportunities. The World Bank has announced $5 billion5 for Poland and Hungary, but it was likely that the Europeans would create their own development agency for Eastern Europe and the Soviet Union. Additionally, the Europeans have the LOME Convention, whereby they channel a modest amount of assistance and preferential market access to the African, Caribbean and Pacific (ACP) countries composed mostly of their former colonies. In the 1980s, the IMF and the World Bank became the principal institutional mechanisms whereby developing countries unable to stabilise their external accounts have been forced to 'adjust' in conformity with the priorities of the industrialised countries. In the early 1980s, the overriding concern of the IMF was the threat to the stability of the international financial system arising from the exposure of hundreds of commercial banks, big and small, principally in Latin America, but also in Eastern Europe and Africa. The new phenomenon of large-scale private bank lending to developing country governments, on floating interest rates and short maturities, hailed as a creative initiative of the private sector in the 1970s, proved to be an all-round disaster, prolonging and deepening the adjustment of debtor countries to conditions of recession, falling commodity prices and rising interest rates. Adjustment replaced development, finance replaced sensible economics, exports replaced production for domestic use, and crisis management replaced economic and social planning. The human costs have been horrendous. Debt, Adjustment and Development

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Negative Net Transfers to Creditor Countries The reverse flow of funds, from developing to industrialised countries, started in the autumn of 1982 as a direct response of the commercial banks to the announcement that Mexico was unable to service its debt. In 1983, the commercial banks pulled out $10 billion; in 1984, $20 billion; in 1985, $30 billion; and in every year since then, another $30 billion. Other private creditors did likewise. By 1984, the industrialised world had recovered from the self-inflicted serious recession of the early 1980s, and the pundits declared that the debt crisis was resolving itself: the debtor countries could 'grow out' of their indebtedness. By 1985, the commercial banks had made sufficient adjustments to ensure the stability of the international financial system. In the words of a now famous headline in the New York Times: 'The Banks are out of the Woods.' The debtor countries, however, which had made heroic efforts at adjustment, were even deeper in trouble. Net transfers from all developing countries, which had reached $36 billion by 1985, have increased steadily, year by year, and have now stabilised at over $50 billion per annum, totaling $242 billion by 1988, most of it paid out to commercial banks ($160 billion). At the same time, developing country debt increased from $753 million in 1982 to $1,159 billion by 1988. In recent years, every major region, with the sole exceptions of Africa (South of the Sahara) and South Asia, has contributed to negative net transfers. The largest contribution to the transfer of real resources to creditors was made by the Latin American and Caribbean region, which was most heavily indebted to commercial banks. Net transfers are running at levels of $20 billion per annum, for a total of $111 billion since 1983, almost all of it to commercial banks ($101 billion). At the outset of the debt crisis in Latin America, where the private banks accounted for 71 per cent of long-term debt, private creditors took flight and pulled out all the funds they could. New commercial bank credit which was running at levels of $20 billion in 1982, diminished to $7 billion by 1985, and has remained at that level ever since; repayments to commercial banks have similarly diminished; net transfers are basically composed of interest; and indebtedness continues to rise. Arrears on interest are now in the billions — some $4 billion owed by Argentina alone. The IMF, which was only marginally active in the Latin American region prior to the debt crisis — because governments were able to access 194

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Eurodollar funds without the assistance of the Fund — moved into the region to shore up the capacity of governments to service debt. By 1985, $14.5 billion of IMF credit had been extended in the form of several country programmes. This represented 36 per cent of total use of IMF credit by all developing countries. By 1988, IMF involvement in Latin America had risen to 48 per cent of total IMF credits. Official creditors extended modest amounts of non-concessional credits to Latin American governments, to assist the authorities to transfer very large sums of debt service to private creditors. Thus, in 1985, and again in 1986, net transfers by official creditors were approximately $2 billion, while net transfers to private creditors were $15 and $16 billion respectively. By 1987, the World Bank and the bilaterals began pulling funds out of the region, in the form of negative net transfers and, in 1988, these became larger. It is not generally known that the IMF operates with relatively small resources. Thus total outstanding IMF credit of $35 billion in 1988, amounted to only 3 per cent of the total external debt of developing countries. While the Fund rapidly expanded the scale of its operations in the first years of the debt crisis, developing countries have been in a position of negative net transfers to the IMF in every year since 1985. This is true for all the major regions of the developing world, including Africa, south of the Sahara. Total net transfer to the IMF by all developing countries since 1985 amounts to $25 billion. While the operations of the World Bank are not as intimately related to debt collection as is the case with the Fund, there is a similar pattern of a substantial excess of new disbursements over repayment and interest up to 1985, after which net transfers diminish. By 1987, the International Bank for Reconstruction and Development (IBRD) was receiving more in interest and repayment than it was disbursing in new loans, and by 1988, the World Bank as a whole, including the International Development Association (IDA), was transferring funds out of the Third World. Negative net transfers in favour of the Bank started in East and South East Asia and Europe in 1986; in Latin America in 1987; and in North Africa and the Middle East in 1988. Africa, South of the Sahara, is in a negative net transfer position vis-a-vis the IBRD. South Asia is still receiving net assistance from the Bank. What about the bilaterals? As a matter of fact, here we find just about the same story: substantial net transfers prior to 1985, and a sudden decline to a standstill position thereafter. On a regional basis, the bilaterals received net transfer from Europe in 1982, from East Asia Debt, Adjustment and Development

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and North Africa from 1986; and from Latin America from 1987. In Africa, South of the Sahara there was a steep decline in positive transfers in 1985. The pattern which emerges is that official creditors, both multilateral and bilateral, moved funds into the crisis regions to assist in averting a collapse of the financial system. After 1985, when it became clear that the crisis was over and the US government invited the banks to share some of the burden of refinancing the debt (the Baker Plan), there seems to have been a concerted change of policy by creditor governments resulting in an absolute reduction in net resource flows to developing countries from official agencies. Meanwhile, some $50 billion per annum in debt service to private financial institutions continues to drain resources from debtor countries, year by year. This rather dismal picture confirms our impression that the ties of trade, investment and aid which characterised relations between industrial and developing countries in the post-war period are giving way to new constellations of economic and political power; in short, the 'centre' has no more need for a periphery, and the governments of Europe, the United States and Canada are not motivated to increase their commitments to developing countries. The severely indebted countries fall into two categories: middle income countries, mostly in Latin America; and low income countries almost exclusively in Africa, south of the Sahara. Specifically, 12 of the 19 countries classified by the World Bank as severely indebted middle income countries are in Latin America, while 24 of the 26 severely indebted low income countries are in Africa; one of the two exceptions is Guyana. In the poor countries of sub-Saharan Africa, per capita income declined by a disastrous 2.5 per cent per annum throughout the 1980s. There has been a significant deterioration of performance since the mid 1970s. It is to be noted that most of the countries of Africa have been under IMF and World Bank management in the form of structural adjustment programmes throughout the 1980s. The record is dismal, and hardly inspires confidence in these programmes. It is not surprising that African economists and intellectuals are concluding that Africa will have to find its own solutions, however difficult that may be, because the Fund/Bank approach of inducing an increase in the production and export of agricultural commodities by 'getting prices right' is not working. The current showpiece of Fund/Bank programmes in Africa is 196

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Ghana, where $3 billion was spent on reviving the cocoa economy — all went well until cocoa prices plummeted. In commenting on the decline in income per head in 1989, a World Bank report concluded that 'the overall poor performance of the region is related to the fact that most of its exports are primary commodities, many of whose prices have declined recently.' Quite so. The latest news to come out of Africa confirms the worst expectations: private investment has dropped nearly 25 per cent since 1980. Foreign banks are pulling out. In 1986 Nigeria devalued its currency to one tenth of its 1985 value. The new investment prospects in Eastern Europe and Africa's declining strategic importance are reinforcing the marginalisation of Africa. It seems that Africa does not have the purchasing power to be of interest to commercial banks. In Latin America, the crisis of the 1980s is as bad as ever. Net transfers amount to $20 to $30 billion per annum, and show no sign of declining: $25 billion was transferred in 1989. The total net transfers out of the Latin American/Caribbean region since the onset of the debt crisis in 1982 is now over $200 billion. These transfers have been squeezed out of more or less stagnant economies in the form of annual trade surpluses, increasing from $9 billion in 1982, to levels in excess of $30 billion in every year since 1983. They were achieved by an import volume reduction of ten per cent, an increase in export volumes of 50 per cent, while the region suffered a deterioration of export prices of approximately 20 per cent. The strain on the economies, (which have suffered a decline in per capita income of eight per cent in the decade of the 1980s) — has manifested itself in severe imbalances. Eight years of struggling to achieve adjustment, stability, growth and debt service, with little or no new finance, has resulted in inflation, now at 1,000 per cent for the region as a whole — mainly due to the inability of the fiscal system to discharge its essential functions, while keeping up payments on external debt. An increasing number of countries — including three of the four largest debtors (Brazil, Argentina, Venezuela) — have given up on full servicing of debt. In 1989, the inflation rate in Argentina was 4,000 per cent; Brazil close to 1,500 per cent. The social costs have been enormous, and the burden has fallen principally on poor people. The industrialised countries have overcome the effects of the recession of the early 1980s; the commercial banks have made their adjustments by increasing reserves against bad debts, but the haemmorage of the countries heavily indebted to them Debt, Adjustment and Development

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continues unabated. Recent proposals for commercial bank debt write down are to be welcomed, but they are marginal. Debt buy back and debt equity swaps are inflationary — and require serious interest by external investors, or the return of capital spirited out of the countries by nationals. An issue of the World Debt Tables notes that a two per cent increase in international interest rates would completely wipe out the maximum amount of debt and debt service reduction that can be achieved under the new (Brady Plan) strategy, while leaving the borrowing countries with additional debt burden of $30 billion to $35 billion resulting from loans in support of debt and debt service reductions.6

The fact is that private capital flows to all developing countries have declined dramatically from levels of $60-80 billion per annum prior to 1982, to current levels of merely $12 to $15 billion per annum. Net commercial bank lending to all developing countries is virtually at a standstill (net inflow of only $3.9 billion in 1988). Direct private investment has never been so small in the post-war period — a mere $5 to $10 billion per annum in the late 1980s. The share of net capital flows from official sources to all developing countries is now 63 per cent, up from 37 per cent in 1981. Total net capital flows (official and private) to all developing countries have declined from $133 billion in 1981 (the year before the debt crisis exploded) to $41 billion in 1988. In real terms, the decline is even greater. Some conclusions are emerging from this analysis: (1) (2) (3)

(4)

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Capital flows to developing countries, both private and official, are on a secular path of decline — a decline which predated the dramatic political changes in Europe — but will now accelerate. The three centres of the industrialised world have little need for the traditional peripheries of Africa and Latin America as sources of raw materials, markets and cheap labour. Self-reliance is squarely back on the agenda — not as an option, in the 1970s sense of voluntary 'delinking', but as a necessity of economic survival. For small countries, this implies the need to increase the role of domestic savings and to expand the scale and variety of export earning activities. We must take a close look at the policies embodied in the structural adjustment programmes of the Fund and the Bank to ensure that Post-Mortem on Debt and Adjustment

(5)

they are not taking us off course toward regression to simple exportimport economies without strong markets or significant external finance. We need to rethink development and, with it, economics. Development is ultimately not about finance, but about people: their motivation, aspirations, creativity and values. It is absurd that economic programmes for scores of countries are being drawn up by a small set of internationalised technocrats whose minds have been conditioned by corporate socialisation to conceive of countries in terms of models of financial flows, to be programmed to move within guidelines calculated to the last decimal point, and the last million dollars.

If the argument of this chapter has validity, if it is really true that the economies of Europe and North America have no significant need for their traditional peripheries, we must conclude that the policy prescriptions of the Fund and the Bank derive from the desire of the OECD countries to extricate themselves from further official involvement in indebted developing countries. The systematic pattern of negative net transfers to the IMF and the World Bank, and the stated declarations of bilateral donors that there will not be any increase in net assistance to developing countries is the writing on the wall for all to read who are not blinded by the illusion that the industrialised countries will continue to put finance into developing countries when it no longer profits them to do so.

What Are We 'Adjusting' To? It seems that we are being programmed to adjust to the fact that the 'rules of the game' have changed. The old order has passed; the old engines of growth of peripheral economies are obsolete; and the new ones offered in the form of 'outward-looking development' will, if we are not careful, pull us back to the status of export-import economies, but this time around with no external investment and no strong markets. Arthur Lewis said it some years ago in his Nobel Lecture on 'The Slowing Down of the Engines of Growth'. He was right. The changes in the international economic order, as they have affected the peripheral regions of Europe and North America are briefly summed up:

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(1)

(2)

(3)

(4)

(5)

(6)

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The Bretton Woods system has disintegrated. There is no single hegemonic power to manage the system which was designed as a more flexible version of the pre-1914 model of trade and payments. The United States, which inherited the role of manager from Britain, had significantly less need of peripheries to complement its industrial production structure, and lacked the instruments of political colonialisation which gave the old economic order its coherence. The historically unprecedented momentum of economic growth of the first quarter century of the post-war era enabled the Latin American/Caribbean and African peripheries to develop domestic industry on the basis of strong export demand and governmental policies of import substituting industrialisation. To varying degrees, production structures were diversified and significant progress was achieved in terms of the standard of living of the population. In the late 1960s, the United States, as hegemonic manager of the international system of payments, lost control over its external account and delinked the world's key currency from gold. Shortly thereafter, the currencies of the major industrial powers were floated in the belief that this would enable them to maintain internal equilibrium — full employment and price stability — without the need for painful adjustment. Monetary stability disintegrated and gave way to permanent i n f l a t i o n and uncontrollable international movement of capital. The effects of the breakdown of the monetary discipline of the Bretton Woods order were masked in the 1970s by the rise of a large private capital market. In many industrialised countries, governments greatly increased expenditures, financed by large budgetary deficits. Labour was able to make substantial gains in an environment of full employment, monetary expansion, and negative real interest rates. Profits went into decline, as did productivity. The dramatic success of OPEC in 1973/74 and the general commodity boom of the early 1970s raised hopes — and fears — that Third World countries could mobilise 'commodity power' to turn the terms of trade against consumers of primary products; hence the illusion that they could exercise bargaining power to bring about a fairer distribution of the gains from trade within the framework of a new international economic order. Private capital was freely available from commercial banks, and semiindustrialised countries, both oil-importing and non-oil importing, were able to sustain an artificially high rate of growth from the mid 1970s to 1982. The 'Volker Shock' of 1979/80 reversed US monetary policy, resulting in very high levels of international interest rates. High

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(7)

(8)

interest rates, exchange rate instability and volatile and adverse movements of commodity prices have greatly increased the risks of foreign investment in developing countries. Prospective investors are deterred from activities which do not directly yield returns in foreign exchange. There is thus a bias against investment for the domestic market, and a further bias against projects which have a long gestation period. Quick returns in hard currency are favoured — essentially because the 'rules of the game' governing the international monetary system have been transformed from stable exchange rates, low fixed long-term interest rates, and favourable commodity prices to flexible exchange rates, high and floating interest rates, and falling commodity prices. The reduction of external debt requires export surpluses. However, if the rate of increase of exports falls short of the rate of interest, indebted countries will become ever more indebted. Thus, the pressure on indebted countries to adopt 'outward-looking' policies is primarily directed toward debt service. It is essentially a shortterm policy having nothing to do either with static 'gains from trade', or with long-term strategies of development. The latter may indeed require an increase in export earnings in order to increase essential import capacity and provide expanding markets for non-traditional products and services, but will also require large domestic investment in infrastructure and human resource development. Unless there is effective write-down of debt, 'adjustment' could become a continuing process without end. The bias against production for the domestic market embodied in the liberalisation of external trade and payments could result in a situation whereby domestic industries with excellent future prospects are replaced by a flood of foreign imports.

Other multilaterals piggyback on World Bank conditions, and indeed may add further conditions of their own. This is the case with the Inter-American Development Bank (IADB) which was politically indebted to the United States for the Seventh Replenishment. The IADB will now also undertake structural sector lending with conditions even more hard-nosed than those of the World Bank. (Jamaica was to receive one of the first of these as part of a $500 million package of IADB funding). Bilateral 7 donors conditionalised balance of payments support on successful negotiations with the Fund and the Bank and added their own particular conditions which normally require the recipient to purchase goods or services from the donor.

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The Macroeconomics of an IMF Programme The immediate objective of an IMF programme is the improvement of a country's balance of payments. In the case of chronic debtors, the clearing of arrears, the servicing of debt, and the replenishment of exchange reserves are accorded priority over other objectives, including the resumption of economic growth. An IMF programme essentially consists of demand management measures designed to reduce domestic absorption, with special emphasis on the reduction of the overall deficit of the public sector, including the Central Bank. The principal assumption which underlies an IMF adjustment programme is that the private sector has the capacity to respond to supply-side incentives. Thus, resources released by the public sector are assumed to be put to efficient use by the private sector. In particular, it is assumed that a devaluation will shift resources from non-tradeables to tradeable goods and services, thus strengthening the balance of payments. Three key prices govern the macroeconomics of an IMF programme: the price of foreign exchange, the price of credit, and the price of labour. The last is controlled by wage guidelines. A high rate of interest and a high rate of return on capital are supposed to attract resources into the country, which — if they materialise — will strengthen the balance of payments. The principal instruments used are monetary targeting, to limit access of the public sector to domestic credit, and devaluations, to reduce expenditure on imports and increase the profitability of exports. The Fund also believes that the rate of interest affects domestic savings. On this assumption, an increase in interest rates, combined with measures to restrict public sector expenditures, would shift resources from public and private consumption to private investment. However, high interest rates and credit ceilings are likely to constrain private investment in productive activities, and thus may reduce savings by depressing the level of aggregate economic activity. In countries highly dependent on imports for industrial and agricultural inputs and capital equipment, stringent credit policies will improve the balance of payments at the expense of economic growth. This is appropriately termed 'import strangulation'. Devaluation is always complemented by demand management measures designed to reduce the government deficit and release resources for use by the private sector. As a result, government is obliged to reduce 202

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payroll by reducing employment and capital expenditures on economic and most particularly on social infrastructure. IMF programmes impact adversely on the majority of the population in the form of reduced real wages and salaries, and reduced access to public services. The adverse impact is modified to the extent that the private sector is able to respond to increased potential profits by increasing employment and production. The deflationary measures are, however, both swifter and more effective than the response of the private sector to supply-side incentives. Thus, Fund and Bank programmes typically embody unrealistic projections of private investment and real output growth. The single most powerful instrument in the armoury of adjustment programmes in small open economies is the exchange rate. In such an economy, critically dependent on the import of basic foods, fuel, medicines and essential inputs to agriculture, industry and construction, a devaluation is a powerful instrument of economic policy, with a strong recessionary and redistributive impact. Its effects are immediately felt by the entire community, in the form of an increase in the prices of essential goods and a reduction in the real purchasing power of wage and salary earners and other persons on fixed incomes. Combined with a reduction in government expenditures, there is a sharp shift in the distribution of income from wage and salary earners to entrepreneurial incomes. Personal consumption declines by less than the wage bill, and import volumes tend to be insensitive to devaluation, provided finance is available to sustain them. Exporters gain in terms of local currency earnings; these gains may be partially offset by the higher cost of imported inputs. Foreign investors benefit, especially if they produce for the export market, because all cost items are reduced in terms of foreign exchange. Producers for the domestic market are likely to suffer from the contraction in purchasing power, the high cost of credit and the rise in the cost of imported inputs. The fiscal situation of the government deteriorates in so far as the local currency cost of servicing external debt rises by more than receipts accruing in foreign exchange. The capacity of the public sector to deliver public goods is severely reduced. Among the first expenditures to be eliminated are subsidies on food and public utilities. In order to finance its essential functions within the strict guidelines which accompany IMF programmes, the government is obliged to increase taxes and charges for public utilities. The burden of these increases falls disproportionately on wage and salary earners and others with low or no incomes. 'Supply-side' incentives require a reduction of the tax Debt, Adjustment and Development

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burden on the private sector which, moreover, is largely able to escape income taxes by virtue of creative accounting and inefficiency in revenue collection. When the government is highly indebted, the combined effects of devaluation, demand management and liberalisation result in a reduction of the role of the government in the economy, and the partial internationalisation of the price structure. There is a redistribution of incomes in favour of the 'internationalised' elites, accompanied by a deterioration in the living standards of the general population. Asset owners may gain; wage-earners and salaried workers lose. When assets are initially maldistributed, the effect is magnified. The market in assets is an international one. Thus, upper-middle-class Jamaicans generally have foreign bank accounts and have largely been able to maintain the US dollar value of their incomes in the face of devaluations. Domestic prices of internationally traded goods are as high or higher in US dollars than they are in the United States, while wages and salaries have lagged far behind their purchasing power in the mid 1970s. Real property values in urban and tourist areas have been driven up by the cycle of devaluation and inflation, and by the riskiness of alternative investment, and are roughly equal, in US dollar terms, with comparable North American property. High level managerial salaries in the private sector equal North American levels in terms of real purchasing power, because they command an opportunity cost price. Whoever had access to cash or credit has benefited from opportunities for speculative activity.

The Microeconomics of World Bank Structural Adjustment Loans While IMF programmes govern macroeconomic variables, with special emphasis on reducing the availability of domestic credit to the public sector, the structural adjustment programmes of the World Bank address 'economic efficiency' at the microeconomic level. Public enterprises are subjected to profitability criteria: public utilities supplying water, electricity and transportation are fully required to recover costs and show profits; where they are unable to do so, they are to be privatised. Where government enterprise is profitable, governments should divest. In other words, government should not be directly engaged in productive activity, whether profitable or not. Additionally, emphasis has increasingly shifted to measuring deregulation and liberalisation, with special attention to the import regime, by the abolition of quantitative 204

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restrictions and import licensing, and the progressive lowering of tariffs. Among the most recent requirements of the Fund and the Bank are interest rate policies which prohibit discrimination in favour of particular productive sectors — such as small business or small farmers. The principal thrust of the microeconomics of the Bank is toward the liberalisation of the regime of trade and payments. For reasons of cross-conditionality already explained, the Bank has a lot of leverage to impose policy reforms even when the recipient government is plainly opposed to them. Failure to agree can unravel a whole negotiation which has taken months to complete, and will guarantee failure of the next set of IMF tests — a prospect no government wishes to entertain. Whereas the IMF permits considerable discretion concerning the measures taken to meet programme targets, World Bank structural adjustment lending is more strongly conditionalised by textbook criteria of microeconomic allocative efficiency, applied with a degree of arrogance equalled only by their studied ignorance of the specific institutional characteristics of the 57 countries which have received structural adjustment loans. The structural adjustment loans have been widely criticised for their preoccupation with 'getting prices right', their ideological bias in favour of private enterprise, their effective bias in favour of industrialised country exporters, and their general anti-developmental impact. In the light of the argument of this chapter, it would appear that the intention behind these policies is the desire to dismantle domestic industry and agriculture in favour of external trade. World Bank sectoral adjustment loans are extended as quickdisbursing balance of payments support in exchange for commitments by the receiving country to undertake policy reforms in a specific sector of the economy. The reforms are spelled out in great detail in a 'policy action matrix' which is a sort of checklist of preconditions for the disbursement of the first tranche of the loan. The second tranche is withheld until such time as the government has implemented a further list of policy actions. The policy reforms associated with the World Bank sectoral loans commit the government to the policies they have agreed to, regardless of the source of funds. Thus, donors who may not like the policies of the World Bank are nevertheless constrained by the commitment of the recipient government to observe such policies. The case of Jamaica's agricultural sector loan of $25 million, cofinanced by the Japanese and the Germans, illustrates the problem. In Debt, Adjustment and Development

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this case, policy actions pertained to the import regime for agricultural products, food subsidies, interest rates for agricultural credit, land and enterprise divestment, and the use of chemical pesticides. The first requirement was the removal of all quantitative restrictions on the importation of agricultural products, and their replacement by tariffs varying from 60 per cent to 150 per cent. A long schedule was appended detailing tariff rates for each of some 130 items. The tariff rate was ultimately to be reduced to the level of the CARICOM Common External Tariff (GET). Mountains of attractive imported onions soon appeared in Jamaican markets, while local producers of onions could not recover costs at the prices which prevailed in the glutted market. The quantitative restrictions were intended to protect the local market for the benefit of the small hillside farmer, whose life is sufficiently uncertain and difficult without being exposed to the prospect of competing with floods of imported potatoes, tomatoes, cabbages, carrots or chicken and pork. The removal of 'American' apples from the negative list may not hurt any producer, but has a symbolic significance, in so far as this fruit is correctly perceived as a luxury item in a country abounding in local tropical fruits. Next on the hit list of 'market distortions' was the generalised food subsidy (GFS) operated through the Jamaican Commodity Trading Corporation (JCTC), which has monopoly importation rights of a range of basic foodstuffs. These food commodities were sold to distributors below cost, and were available to consumers at subsidised prices. The government was forced to introduce large price increases on these items of poor peoples' food in 1989, in order to cut the fiscal costs of the generalised food subsidies. It was committed to reducing the subsidy to the GFS programme to J$130 million in the fiscal year 1990/91, and to removing it altogether in the fiscal year 1991/92. The Jamaica Commodity Trading Corporation itself was also on the hit list, and may well be sacrificed in negotiations with the World Bank for a trade and credit sectoral adjustment loan. The most controversial of all the conditionalities of the agricultural sector loan pertained to the position of the World Bank that 'efficiency in the allocation of investment' required the abolition of all concessional rates of interest — in this case, the rediscounting by the Agricultural Credit Bank at interest rates lower than market rate. In a painfully long and drawn-out negotiation, Jamaica managed to obtain a minor concession from the Bank, in that small farmers could access credit at 206

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seven per cent below the market rate — which was close to 30 per cent. This loan was to have been co-financed by the Inter-American Development Bank (IADB) which, as mentioned, had added policyconditionalised balance of payments lending to its traditional role of providing project finance. The position of the IADB was that all farmers must pay market rates of interest, with an additional fee to cover the costs of administration of the rediscounting of agricultural credit. The IADB declared that subsidised agricultural credit had been a failure, and that farmers should utilise informal rural financial markets or their formal counterparts. Because the IADB agricultural sector loan came as part of a $500 million package, it was unlikely that the government of Jamaica would be able to hold out against the pressure of that agency with respect to agricultural credit. Moreover, the IADB was the only official agency with additional funds to disburse and $500 million was more than the total amount of $433 million which the IADB spent in Jamaica in the 20 years of its existence. The IADB has been the principal source of funding for the Agricultural Credit Bank and the Industrial Development Bank (IDB), lending at 7.7 per cent to 8.5 per cent to these institutions. The money is passed through the commercial banks which on-lend to the private sector at 15 per cent to 17 per cent. But under the new dispensation, the government was obliged to ensure that the IADB lent at levels of 26 per cent to 31 per cent. The theory which now governs the policies of the IADB is that there must not be any discriminatory subsidy within the financial sector because this creates 'fundamental distortions' within the economy. The abolition of quantitative restrictions (QRs) on agricultural products, combined with excessively high interest rates, was obviously a strong disincentive to Jamaica's small farmers. The government is trapped in a fundamental contradiction between the need to seek balance of payments support to service debt, and the need to increase agricultural production. In an address to the Special Session of the United Nations on International Economic Cooperation, Jamaica's Minister of Foreign Affairs and Foreign Trade, David Coore appealed for more realistic and sensible policies by the multilateral institutions, which in his words, partly by design, partly by default have come to exercise a controlling power over even the detailed micro-management of the economies

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of the developing world and are using this power to enforce, often in the most extreme form, a specific ideological model of economic management, which not only conflicts with the basic expectations of people that their sovereign Governments have the responsibility for taking fundamental economic and social decisions, but is not necessarily relevant to the needs and capacities of all countries to the same extent.8

He explained that he was specially referring to policies of undifferentiated interest rates, non-protective tariffs, removal of subsidies from basic necessities, and rigidly defined fiscal parameters and exchange control liberalisation. Additionally, Coore referred to Jamaica's negative net transfers to the IMF and the World Bank, and to bilateral creditors, which amounted to $260, $172 and $343 million in 1986,1987 and 1988 respectively, some 10-12 per cent of GNP, and 14 -16 per cent of export earnings. Prime Minister Manley made similar protests in Washington. The third major issue raised by Jamaica at the special session of the UN pertained to the damaging effects of the structural adjustment programmes on human resources, which are, in the final analysis, the most important resources of any country. My study of the effects of structural adjustment on Jamaica has revealed a truly frightening picture. It has also led me to appreciate the prime importance of income distribution on the capacity of a society to adjust successfully to adverse external circumstances. The American economist, Jeffrey Sachs, has pointed to the contrast between East Asian and Latin American countries in that regard. What struck me in Jamaica is that the initial extreme inequality of income has been exacerbated by the dynamics of adjustment programmes, to the point where the society is truly fractured into two: the well-to-do middle and upper-middle classes who have maintained and in many cases even improved on their incomes in US dollar terms, and the rest of the population who have borne the brunt of the devaluations and the reduction of public expenditure on health and education. Trinidad and Tobago is fortunate in this respect in so far as the distribution of income is very much more equal than is the case in Jamaica. All the conclusions which are implied in this chapter on debt and adjustment cannot be given in detail. Briefly, however, they are as follows:

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1. 2.

3.

4.

5.

6.

7.

Adjustment is unavoidable, but the approach and prescription of the Fund and the Bank are not necessarily in the best interest of the countries which are increasingly in bondage to these agencies. While international action to deal with the most obvious injustices — including negative net transfers — is highly desirable, it will not be easy to attain in the present climate. However, there will come a time when an increasing number of countries will be unable to service debt to the multilateral agencies and will suggest a moratorium, perhaps in the form of a refinancing on very soft terms, in exchange for a reduction of new balance of payments support, thus diminishing the leverage of these agencies. The demands for liberalisation of the regime of trade and finance should be resisted. Most particularly, the eroison of the capacity of countries to increase domestic production of food, and pressures to accept the import of (highly subsidised) food products from industrialised countries must be resisted. One of the most fatal mistakes of development theory has been the notion that income inequality is beneficial to saving and thus to economic development. The reverse seems to be the case. It is essential to share the burden of adjustments more fairly between classes and sectors in society, and to create a national consensus regarding relations with international creditors, including the Fund and the Bank. The small countries of the Caribbean cannot afford to engage in partisan politics on these matters — because the result is to diminish the bargaining power of any government vis-a-vis the creditor agencies, by virtue of the capacity of an opposition party to destabilise the economy. There is need for open and frank discussion of these issues at all levels of society. Relations with the international financial institutions have become the most important single issue of external relations facing the regional movement. Although some countries of the Caribbean Community, including Trinidad and Tobago, have been more fortunate and successful so far than others in managing adjustments to an unfavourable external environment, it is important that CARICOM countries develop coordinated policies on the matter of indebtedness to multilateral and bilateral agencies. Ultimately, there is need to reconsider what development is all about. The approach of the international financial institutions is one which views development as financial flows to be programmed and targeted. But development is about people, and societies. That is the lesson to be learnt from the successes of the various Asian experiences. They do not pertain to economic liberalisation, but to societal coherence, literacy and education, balance of agriculture and industry, equitable income distribution, and symbiosis between state and private sector, combined with detailed Debt, Adjustment and Development

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governmental intervention and a degree of collective national consciousness which is essential to meaningful economic development.

Meaningful Economic Development I hope that one aspect of this question will be explored, as it merits more attention. I refer to the current popularity of the philosophy of unbridled individualism, selfishness and greed — otherwise known as the 'magic of the market place'. The 'market magic' paradigm has proven to be remarkably seductive because it combines the logical coherence of neoclassical economics with the structure of power in the real world. It is appealing because it appears to offer a personal and individual solution to economic pressure. This is a tragic illusion. In reality, it is an instrument whereby the rich and the powerful impose on whole societies a set of values and 'rules of the game' which reinforce inequality and injustice and dismantle the capacity for social solidarity. Governments are disempowered and become the unwilling debt collectors for international capital, while millions of people are condemned to misery without end. The 'market magic' paradigm will have to yield ideological pride of place to a vision of the world which takes account of our fundamental need to be rooted in society, to be sustained and supported by relations of solidarity, and to live in dignity and harmony with the physical environment. Any meaningful notion of sustainable development must begin with the recognition that the diversity of cultures which nourish human creativity is as precious an inheritance as the diversity of plant and animal life. It is the repository of collective wisdom from which springs the capacity of individuals and societies to survive adversity and renew the commitment to future generations. Development cannot be imposed from without. It is a creative social process and its central nervous system, the matrix which nourishes it, is located in the cultural sphere. Development is ultimately not a matter of money or physical capital, or foreign exchange, but of the capacity of a society to tap the root of popular creativity, to free up and empower people to exercise their intelligence and collective wisdom. It is the responsibility of those who aspire to exercise leadership, whether in government, or working in educational, cultural, trade union, religious or other non-governmental institutions or associations, to protect the cultural, social and political institutions of society from the disintegrating forces of 'winner takes all' market criteria. 210

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It is in this spirit that I have addressed my subject this evening. On another occasion, we could discuss, in more detail, a number of important aspects of a development strategy for the 1990s, including the role of exports, the importance of technological change, and the variety of proposals which have been put forward at the international level to relieve developing countries of the burden of external debt. I conclude this chaper by repeating what I said at the beginning. We need to stand back, to gain perspective, to resist being trapped into a mindset which begins and ends with financial criteria of profitability. We need to examine and debate and publicly discuss the issues. One of the more damaging aspects of the regime of economic administration by the Washington-based agencies is the secrecy which they impose on all aspects of negotiation — which ultimately works to the discredit of governments and politicians. It reinforces the thrust of these programmes to disempower governments by disallowing the instruments of policy without which no nation can pull itself out of indebtedness into development. It is a fact that ultimately each nation, each people, each society has to face and solve its own problems, and set its own agendas. Yes, the world economy is more interdependent, and small countries cannot afford to ignore the signals of international markets, but that does not mean that we should permit the forces of international capital to ravage societal relations and destroy support systems of 'caring and sharing' without which we ultimately cannot survive. This is now more difficult than it was when Eric Williams set out to lead Trinidad and Tobago to political and economic independence. But there is, in the end, no acceptable alternative.

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8

The 'Lost Decade' of the 1980s1

Perspectives on Adjustment-type Programmes and Economic Development in the Third World, with Special Reference to the Caribbean Prologue I think we are all conscious of the fact that we are being buffeted by economic and political forces which call for the greatest caution, lest we lose the gains which have been made in this region since the early 1960s, when Trinidad and Jamaica, followed by Guyana and Barbados acceded to independence. As somebody said, the region is passing through an economic minefield. We need a map to guide our steps. We cannot afford to fall into every pothole — to employ a less lethal metaphor — until we are too exhausted as individuals and as a society to care; until we lose the spirit and energy to resist integration into a low income service annex of the United States, as a tourist playground and source of unwanted emigration. Adjustment is inescapable. That is not the issue. Small open economies such as those of the region are critically vulnerable to balance of payments disequilibria, whether caused by external or internal shocks. External payments have to be met and, in the short run, there are only three ways to meet them: drawdown of reserves or running up of arrears; control of imports; or external borrowing. Where access to the capital market is blocked, there must, of necessity, be adjustment. For countries with payments problems, access to external finance is effectively conditional on IMF approval of the management of the economy, even where no standby agreement is in effect. On account of the neo-liberal policy bias prevailing in the Washington-based agencies, adjustment is conditioned to be implemented with minimal direct government control over the external commercial and payments regime, and maximal reliance

on market driven prices — of which the most important are the exchange rate and the interest rate. Although reduction of the overall deficit of the public sector is unavoidable, and constitutes the most important single component of an IMF type adjustment programme, the essential functions of the state in the economic and social spheres must continue to be financed, or there can be no resumption of growth, and ultimately there will be social breakdown. The issue is not whether adjustment is necessary, but rather how it is to be made. What lessons are to be learnt from the experience of other countries? How is the burden of adjustment to be distributed between classes and sectors of society, and between generations? By what process are policies determined? Whose interests are served? Who decides what is to be done?

Jamaica: Whatever happened to the 'Flagship of the Caribbean'? In the region, Jamaica has been adjusting to the end of bauxitedriven growth since the early 1970s. Trinidad and Tobago has been adjusting to the end of the oil boom since the early 1980s. Both countries are seriously indebted to external creditors. But this is where the similarity ends, because Trinidad borrowed from commercial banks and on the bond market, on the collateral of its petroleum sector, much like Venezuela and Mexico, while almost all of Jamaica's debt is owed to multilateral and bilateral official creditors, 'who poured two billion dollars into that country between 1980 and 1983 without requiring serious adjustment, largely as a political investment in geopolitical security.'2 By the mid 1980s, Jamaica's debt/export ratio had reached 273 per cent — among the highest in the world. Multilateral creditors alone now account for one third of Jamaica's external debt. Interest charges on the public debt, after rescheduling, amounted to 6.5 per cent of GNP in 1990/91, which increased to nine per cent on account of devaluations, and was estimated at ten per cent of GNP by the World Bank early in 1992. To this must be added repayments of principal to arrive at a total annual debt service of $540 million3 after Paris Club and commercial bank rescheduling, and after debt forgiveness of $217 million under the Enterprise of the Americas. Of this amount, well over half, that is, some $300 million, is debt service due to the IFIs; the remaining $240 million is due to bilateral donors and commercial banks. The 'Lost Decade' of the 1980s

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It was absolutely impossible for Jamaica to service its debt without continued further borrowing from multilateral and bilateral creditors. Hence the country was in a total debt trap, and has been forced to accept every imaginable liberalisation conditionality which could possibly have been required of any country. Jamaica is considered a 'success story' having liberalised to a degree matched only by Chile in the hemisphere — although it has not been publicised that Chile retains state ownership of its largest copper mines, which provide the government with an important source of hard currency earnings from this important export commodity. Nor has Jamaica experienced the 'miracle growth'. Under pressure from the local private sector, and as a conditionality required by the InterAmerican Development Bank, which has now become an important US policy instrument, and additionally as a conditionality required directly by the United States under the Enterprise of the Americas Initiative (EAI), Jamaica liberalised the exchange rate regime in September 1991 in order to qualify for the EAI debt forgiveness of the $217 million dollars mentioned above. The private sector persuaded the government that there would be no reduction in export earnings lodged with the local banking system. Jamaica was advised that a liberalised exchange regime would result in the return flow of dollars parked in foreign accounts, as happened in Costa Rica and some other Latin American countries. The pundits were mistaken. A speculative attack on the Jamaica currency brought the country to the brink of social and political breakdown early in April 1992, as the Jamaica dollar broke through the 30 to one barrier. At this point, Jamaica was saved from a free fall into the abyss by the private initiative of one of Jamaica's leading hoteliers, joined by thousands of small savers who descended into the market to assume responsibility for holding the exchange rate at a more realistic level. While highly popular with the public, and an undeserved political gift to the government, this intervention received a mixed reaction from Jamaica's economic commentators, some of whom complained that it was 'contrary to the laws of economies' voluntarily to sell dollars at a loss. This extraordinary episode underlines the dangers of premature exchange rate liberalisation, and the naivety of policy makers who believed that private sector exporters would put their dollars back into the banking system, once they were no longer obliged to do so. Jamaica has now reached the zenith of liberalisation, whereby the stability of the exchange rate depends on the fears of the private sector that their rampant 214

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speculation against the currency — and the consequent daily increases in the cost of living — could erupt in a social explosion, as in Venezuela. Under tutelage by the international financial institutions (IFIs) and the United States Agency for International Development (USAID) since the late 1970s, Jamaica had made adjustments which transformed the developmental model of the post-colonial era into a neo-liberal socioeconomic model which privileged speculators and traders. The mass of the people had been impoverished, including the middle classes. GNP per capita remained some 35 per cent below levels of the early 1970s. The government was increasingly unable to provide the most basic social services, including public education and health facilities. The budget of 1992 reduced the public service by another 8,000 persons, and budgetary allocations for social expenditures for 1992/93 were cut in half, compared with the previous year. Over the course of the 80s, the overall public sector deficit was reduced from a high of 19 per cent of GNP in 1983, to a programmed one per cent for the current year. This was composed of a surplus of some three per cent on account of central government and public enterprises, offset by large Bank of Jamaica losses due to the operation of restrictive monetary policies designed to protect foreign exchange reserves. The public sector was now programmed for negative domestic borrowing, matched by continued dependence on official external grants and loans. Jamaica was bound hand and foot to the Washington-based agencies, with no prospect of an end in sight. The government was emasculated. Patronage in the ghettos was increasingly dispensed by the dons from a 'trickle down' of earnings from the overseas distribution of ganja and South American cocaine, while rising expenditure on internal security was crowding out urgent social needs. Migration appeared to be the only earthly salvation to tens of thousands of poor Jamaicans. In 1980, Jamaica was greeted in Washington as the 'flagship of the Caribbean'. Today, that role seems to have been conferred on Trinidad. We have benefited from the experience of a decade and a half of structural adjustment programmes, in scores of countries. It was and is still urgent and important that we learn the lessons from these experiences, before we sell out our patrimony — our physical assets and our heritage of pride in country and independence of spirit which has been the contribution of political leaders who sought to take the Caribbean from political to economic independence and had the vision to pioneer the regional project. The regional project is today under siege The 'Lost Decade' of the 1980s

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as the liberalisation bulldozers threaten to smash down the fragile structures of Caribbean economic integration, just when the whole region is most in need of solidarity to defend and protect democracy and sovereignty. What assistance can we offer the people of Haiti who have been deprived of their democratic right to be governed by the president they have elected in the first free election in that country in living memory? And what happens when the economic pressures which are being brought to bear on Cuba produce another Panama? Or Grenada? Or Desert Storm in our backyard, here in the region? What has this to do with us, you might ask? On that question I bow to the late Dr Eric Williams. It is appropriate that we reread From Columbus To Castro4 — a book I treasure because he graciously sent me an autographed copy, with a handwritten note — in green ink — in exchange for a copy of Silent Surrender.5 Some may think that belongs to the past. Perhaps they agree with Mr Michael Manley that sovereignty is meaningless in a globalised world? That national economies do not exist any more? That Ronald Reagan was right, that all we can do is find a 'niche' in the global economy — and keep quiet, and forget about the ethics of inequality in North-South relations. It would follow that we should forget about colonialism, and neocolonialism, and lose whatever reservation we might have about the programming of our affairs by the IFIs, or, more directly, by the government of the United States. I disagree most profoundly. I believe we shall have to rediscover the nation, put country and community into circulation as respectable words in the vocabulary of political life. Where governments have bought into the neoliberal view that country and sovereignty fashioned ideas whose relevance has passed, people acting individually and collectively, churches, service clubs, professional associations, trade unions and all other kinds of nongovernmental organisations will have to reactivate the sense of community, country, and Caribbean identity. We need to reclaim control, take charge, maintain and protect our cultural and physical heritage, nourish the sense of individual and collective identity and self-esteem. We need a renewal of critical and independent thought directed toward self-reliance strategies appropriate to the conditions of the 1990s. Mr Manley was correct. Ford cars are being made in many locations. Yes, there was a strong trend toward the globalisation of production, and globalisation of fashions in consumption. All that is quite true. But 216

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that does not mean that we no longer need governments which can fulfil those functions which only governments can fulfil. There is a limit beyond which privatisation becomes the law of the jungle, a legitimation of social Darwinism, a dog-eat-dogism which is alien even to the animal world.

Adjustment to What? Why? How? for Whose Benefit? As the 'lost' decade of the 1980s yielded to the last decade of the century, the experience of the developing world with IMF/World Bank type structural adjustment programmes came into sharper focus. We may usefully take stock, with special reference to our situation in the Caribbean. In the Dr Eric Williams Memorial Lecture of May 1990,1 suggested that the 'adjustments' forced on indebted countries by the IFIs were adjustments to the 'new rules of the game' of the Bretton Woods order of deregulated global competition, fluctuating exchange rates, falling commodity prices, deteriorating terms of trade for primary producers, and high real interest rates. I presented evidence to the effect that the countries most seriously affected were the old peripheries of Europe and the United States, traditionally dependent on the export of primary commodities to metropolitan markets — essentially Latin America, the Caribbean and Africa. In this perspective, the IFIs were assigned the task of the neocolonial management of the traditional regions of Western power and influence. In Asia, the 1980s were far from a 'lost decade'. On the contrary, East, South East and South Asia witnessed extraordinary economic growth, and remarkable success in industrial development, including the export of manufactured products. We suggest that the successes of Asian regimes as diverse as Japan and China, Taiwan and Thailand, Korea and Hong Kong owe nothing to neo-liberal policies, which have their ideological roots deep in the political culture and the geo-political environment of the United States, with family affiliations in the United Kingdom (Thatcherism).Throughout the 1980s, the policies and agendas of the Fund and the Bank were directly influenced by the 'Washington Consensus' of senior policy-makers. Since 1980, the Fund and the Bank have worked in tandem, more or less harmoniously, in the management of the impact of global

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macroeconomic imbalances on developing countries. These first manifested themselves in the late 1960s, but were masked in the 1970s by an explosion of private credit on an international scale (Eurodollars), which sowed the seeds of the great debt crisis of the 1980s. The second oil shock (1979/80), the decision by the monetary authority of the United States to tighten the money supply to contain inflationary pressures in OECD countries (Volker shock, 1979/80), and perceptions in Washington of mounting political instability in the Third World (revolutions in Nicaragua, Grenada and Iran) directly accounted for the enlistment of the resources of the World Bank in structural adjustment lending, initiated in 1980. Prior to 1980, the International Bank for Reconstruction and Development (IBRD) was engaged exclusively in project lending. Since that time, one quarter of IBRD resources have been allocated to balance of payments support for stabilisation and structural adjustment. 6

A New Role for the International Monetary Fund It is useful to recall that by the opening of the decade of the 1980s, the IMF had reached a low point in its 35 years of existence. The Bretton Woods system of fixed exchange rates had disintegrated, and with it the principal role of the Fund, as envisaged in 1945, that is, to manage the orderly readjustment of (fixed) exchange rates by the extension of medium term balance of payments credit to facilitate non-deflationary adjustments to temporary balance of payments disequilibria. Although the majority of countries — including most of the developing countries — continued to peg their currencies either to a reserve currency — such as the dollar or the franc — or to Special Drawing Rights (SDRs) or some other currency baskets, the IMF was marginalised as a source of balance of payments support by competition from commercial banks. We cannot improve on the following authoritative and succinct summary of the departure of the Fund from its original mandate and its decline into an instrument for the management of the affairs of indebted Third World countries. We extract from an address by Jacques J. Polak, pioneer and architect of IMF adjustment programmes: In the 1970s, as memories of the inter-war debt crisis faded and tens of billions of OPEC deposits needed to be employed elsewhere, hordes of commercial banks stampeded into sovereign lending. The resulting

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supply of unconditional credit tended to deprive the Fund and, to a lesser degree, the World Bank of part of its clientele. Since 1976, no industrial country has had an arrangement with the Fund and, until 1982, when the debt crisis taught them otherwise, the major developing countries also believed they were better off taking noquestions-asked loans that consortia of banks pressed upon them than to make their access to balance of payments loans subject to the scrutiny and policy conditions of the Fund. The abundance of international credit also took away a large part of the rationale for SDR allocation. The Fund, having lost the clientele of its industrial countries, which until the mid 1970s accounted for half or more of its loan portfolio, began to tailor its credit facilities to the specific needs of developing countries, in sharp contrast to the universalistic approach it had cherished before. The Extended Fund Facility (EFF) created in 1974 — in part, as a consolation prize for the failure of the reform exercise to produce the 'link' between SDR allocations and development aid — was aimed at financing structural adjustment in developing countries. The most recent manifestation of this trend, the Enhanced Structural Adjustment Facility (ESAF 1987), specifically provides for loans to low income developing countries at near zero interest rates; almost a clone of the Bank's IDA.7

In its closing passages, the paper from which sections are quoted points the finger at unregulated competition and incoherent macroeconomic policies of the major industrial centres as the ultimate cause of the failures of adjustment policies: Unlike a few years ago, when there were many calls for 'a new Bretton Woods', reform of the system is not high on today's international agenda .... For reasons alluded to earlier, the influence of the Fund on the financial policies of its members has not in recent years been impressive — and neither have the attempts in the same direction of the Group of Seven. In any system suffering from indiscipline at the centre, one cannot expect a high degree of adjustment performance. 8

The Fund has been significantly more successful in its limited objective of rescuing the commercial banks from overexposure to nonperforming loans, than in its principal mandate of supervising an orderly and open system of international trade and payments. By inference from the experiences of the 1980s, the roles accorded to the Fund and the Bank would appear to be the following:

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a) b)

c)

d)

rescuing the commercial banks from exposure in middle income developing countries, principally but not exclusively, in Latin America, without burdening OECD taxpayers; pushing seriously indebted countries toward liberalisation, privatisation, deregulation, dollarisation of domestic prices and export promotion, by means of conditionalities attached to balance of payments support from the IFIs and bilateral donors; institutionalising 'policy dialogue' with senior technocrats of developing countries who have been effectively co-opted in the service of the execution of policies which accord with the priorities of the IFIs and the Washington policy Consensus — ultimately, budgets are unofficially negotiated and pre-approved in Washington; introducing and legitimating a new economic vocabulary in the service of replacing the developmental state by the play of market forces. Thus, price distortions, rent-seeking, cost effectiveness, financial repression, crowding-out, deregulation and the 'level playing field' have joined the traditional liberalisation agenda of low and non-discriminating tariffs, elimination of non-tariff barriers to trade, and the unimpeded remittance of profits.

The 'Washington Consensus' In indebted countries under the tutelage of the International Monetary Fund and the World Bank, the fiscal capacity and economic policy instruments of the state are being systematically dismantled by detailed policy conditionalities attached to structural adjustment loans. The ultimate purpose of this restructuring is to expose these countries to the full blast of international market forces, in conformity with neoliberal ideology and the national interest of the United States of America as perceived by the 'Washington Consensus'. Seen in this light, the policies of the IFIs are part and parcel of the policies of official Washington. We have John Williamson of the International Institute of Economics to thank for this concept, which he defines as comprising 'both the political Washington of Congress and senior members of the administration, and the technocratic Washington of the IFIs, the economic agencies of the US government, the Federal Reserve Bank, and the think-tanks'. This policy consensus was codified in an Institute publication setting out appropriate 'austerity' measures for Latin America for the 1980s, authored by Balassa and others. Although Washington frequently does not practice what it preaches, (as in the case of fiscal deficits or agricultural subsidies) the following policies comprise the 'Washington Consensus': 220

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a) b) c) d) e) f) g) h) i) j)

fiscal austerity/balanced budgets; elimination of all subsidies; low marginal income tax rates; market-determined and positive interest rates; competitive exchange rates and 'outward looking' commercial policies; import liberalisation; elimination of restrictions on foreign direct investment; debt swaps, especially for private acquisition of state-owned assets; deregulation; security of property rights.9

Interestingly, Williamson does not consider exchange regime and financial liberalisation as necessarily desirable. Financial deregulation and exchange rate liberalisation are, however, considered desirable by many Fund/Bank economists. Within the spectrum of the Washington Consensus, Williamson stands left of centre, distanced from the more rabid right-wing think-tanks. As we moved into the 1990s, the self-confident arrogance of the multilaterals began to fray somewhat. The failure of programmes to regenerate significant economic growth, most especially in the poor countries of sub-Saharan Africa; the failure of foreign capital, both foreign direct investment (FDI) and commercial bank finance to respond to the adjustment measures which privilege export industry at the expense of domestic purchasing power; the continued transfer of billions of dollars from poor to rich countries, including large net transfers to the IMF; the rise of poverty and the depletion of physical and social infrastructure in Fund/Bank programme countries; and the challenge to United States hegemony from competition from Japan, and more generally from East Asia, have resulted in a small measure of revisionism within the World Bank. Within the development community, both in the South and in the North, there is increasing impatience and disillusionment with the received wisdoms of Washington. Even some economists are finding the courage to raise dissenting voices.

The Multilaterals as Debt Collectors for the Commercial Banks At the onset of the debt crisis in 1982, the international banks were able to hide under the skirts of the International Monetary Fund, which orchestrated a remarkably effective creditor cartel. In the course of the 1980s, the Fund and the World Bank became the principal The 'Lost Decade' of the 1980s

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institutional mechanisms whereby the burden of adjustment to the debt crisis was squarely placed upon the populations of indebted Third World countries — who had neither directly contracted these debts, nor substantially benefited from the large volume of loans extended by private or official lenders for their pecuniary or political purposes. The principal beneficiaries of official capital flows to heavily indebted countries in the early 1980s were the international banks. In the two crisis years 1983-1984, the commercial banks repatriated $33.7 billion in net transfers, while the Fund, the Bank and bilateral donors covered their retreat by the injection of a (coincidentally) similar amount of $33.1 billion.10 By 1984, the industrialised world had recovered from the recession of the early 1980s. The experts declared that the debt crisis was resolving itself. Debtor countries could now 'grow out' of their indebtedness by hitching their wagons to the engine of world trade. Adjustment from 'inward' to 'outward' looking development and the 'elimination of price distortions' replaced 'basic human needs' as the policy core of programmes designed by official development agencies. In the make-believe world of Washington of the mid 1980s, the 'magic of the market' acquired the status of a New Age cosmology. Development was equated with economic liberalisation and — the ultimate absurdity — the success of the little dragons of the Far East was ascribed to their market-oriented, laissez-faire, neo-liberal policies. By 1985, the commercial banks had reorganised their portfolios. Fears for the stability of the world's financial system subsided, as the shadow of the self-inflicted deep recession of the early 1980s passed. Since that time, the banks have further increased reserves against losses, and have sold Third World debt in secondary markets. The debt problem vanished from the pages of our newspapers. Thanks to structural adjustment programmes, the commercial banks continued to withdraw funds from the developing world throughout the 1980s for a total net transfer of $175.7 billion from 1983-1989 (of which $118.3 billion was extracted from Latin America and the Caribbean). While the Fund expanded the scale of its operations in the early years of the debt crisis, all the major regions of the developing world, including the poorest regions of South Asia and Africa South of the Sahara have been in a situation of negative net transfers from the Fund since 1985. Since 1985 the IMF has collected net transfers from developing countries of 32.7 billion.11 222

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Even the poorest regions of the world have contributed to the reverse flow of resources from developing to developed countries in the 1980s. Thus, sub-Saharan Africa contributed a total of $7.5 billion in net transfers to commercial banks (1985-89), and $4 billion in net transfers to the IMF between 1984 and 1990. Positive net transfers into Africa have come exclusively from official sources: $11.5 billion from the World Bank's International Development Agency (IDA) and $8.6 billion from bilateral donors.12 Aside from IDA funds — which are available only to very poor countries — the World Bank (IBRD) has made no direct contribution to net resources of the developing world since 1983. In the late 1980s the Bank, like the Fund, was in receipt of net transfers — excess of repayments and interest charges over new loans extended. This is true for all the major regions of the Third World, including sub-Saharan Africa, with the single exception of South Asia.

Mounting Indebtedness to Multilateral Creditors Notwithstanding net capital flows of $150 billion from poor to rich countries between 1983 and 1990, an amount twice the value (in real terms) of the Marshall Plan for the reconstruction of Europe after the Second World War, Third World debt more than doubled in the decade of the 1980s from $573 million to $1,280 billion, principally as a result of the capitalisation of arrears of principal and interest. There was a significant change in the composition of debt and debt service, whereby the share of multilateral debt was accelerating, whereas private debt declined by $47 million since 1987, and bilateral debt peaked in 1990.13 Although the multilaterals increased their gross disbursements, they have to be repaid for past loans. Because of the short term nature of IMF credit facilities and heavy repayments on the non-concessional portion of multilateral bank lending, the multilaterals have contributed to the negative net transfer problem since 1985. Thus the positive net transfers from all the multilateral development banks (including concessional lending) amounting to $26.7 billion, fell short by $6.1 billion of net transfers to the IMF ($32.7 billion), making the whole set of multilateral banks, including the IMF, a destination rather than a source of finance during the climactic years of the debt crisis, from 1985-91.14 Why is this a problem? There are three reasons. First, because The 'Lost Decade' of the 1980s

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multilateral debt cannot be rescheduled, this makes it more rigid than any other form of debt. Second, because the multilaterals are lenders of last resort; arrears in servicing their debt can lead ultimately to ostracism from the world financial system. Third, because debtors to the multilaterals are in danger of falling into a total debt trap whereby debt can be serviced only by continued borrowing from the same multilateral, who can — and do — impose even more onerous conditionalities. This problem is particularly severe for the countries of the Caribbean who owe almost all their debt to official multi and bilateral creditors. Here market forces do not operate to ease the burden of debt service. Borrowers and lenders cannot sort out their affairs with the assistance of secondary market debt swaps, buybacks, or moratoria. Unlike the commercial banks, the IFIs are fully protected against the consequences of their bad judgement or their failed programmes. Their highly paid staff do not have to suffer the consequences of their mistakes. With the honourable exception of some individuals, they exhibit the arrogance and nonchalance of emissaries of a colonial power. The IFIs and USAID, and US controlled Inter-American Development Bank (IADB) are in a position to dictate the terms on which they will make available new loans with which Caribbean countries are able to repay these same institutions for past loans, with interest. Each new loan carries new policy conditionalities designed to further open the markets of Caribbean countries to unrestricted imports, and to prevent governments from subsidising industrial or agricultural production for the domestic market. Budgets are effectively negotiated with Washington. It is no exaggeration to characterise this relationship as neocolonial. In the light of the emerging American hemispheric trading bloc, Caribbean countries are increasingly under direct pressure from the United States, and the special influence which that country is able to bring to bear on small countries located in its backyard.

Bilateral Debt Reduction and Arrears While the bilaterals have written down some official development assistance (ODA) debt — most of it concessional and soft — and are likely to write down more in the years to come, OECD countries are not inclined to increase net f u n d i n g to developing countries (no additionality). There is no political enthusiasm in the industrialised world for increased development assistance. It is an open secret that Europe is 224

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no longer interested in black Africa as a source of raw materials or cheap labour. The continent has served the historical purposes of its colonisers, and has been 'written off in terms of economic opportunities. No developing country can hope to obtain the cancellation of half its bilateral debt of $29 billion, as was granted to Poland in March 1991. According to the Financial Times, this was the most generous debt cancellation ever afforded a debtor country by government creditors.15 The March 1990 Paris Club meetings had permitted Poland to reschedule virtually all of its bilateral debt service, with capitalisation of most of the moratorium interest. The total amount consolidated was $9.4 billion, the second largest in the history of the Paris Club.16 The most effective relief from the drain of debt service has been unilateral postponement in the form of arrears. The stock of arrears increased from $27 billion in 1985 to $79 billion in 1989, of which some $35 billion are arrears on interest. The World Bank Report on External Debt noted that 'without the financing implicitly provided by the accumulation of arrears, these countries would have had to run a much larger trade surplus than has been the case with a corresponding loss of export revenues to their industrialised and developing country suppliers'.17 The decision to run arrears is likely to become an increasingly attractive option in so far as the financial rewards of abiding by agreements with official creditors are elusive, and the policies and conditionalities of Fund-Bank programmes are excessively rigid and frequently inappropriate. Moreover, the multilaterals will be forced to invent instruments such as enhanced structural adjustment facilities (ESAFs) to eliminate or otherwise cover up arrears from the poorest countries.

How Successful Have the Adjustment Programmes Been? The 1980s witnessed the proliferation of Fund-supported adjustment programmes, enhanced by World Bank structural adjustment lending. The programmes have been extensively studied within both the Fund and the Bank, and by many independent scholars. Interestingly, these studies are inconclusive, concerning their effectiveness. The latest survey by senior Fund economist Mohsin Khan concludes that 'one would be hard pressed to extract from existing studies strong inferences about the effects of Fund-supported adjustment programmes on principal macroeconomic targets. There is some apparent consistency in results The 'Lost Decade' of the 1980s

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for the current account and overall balance of payments — with a small number of studies indicating that programmes led to an improvement in both these variables — but the picture for inflation and growth performance is very unclear. The evidence is fairly inconclusive.18 As for the World Bank, contradictory trends and opinions have manifested themselves within the agency since approximately 1987. While Caribbean countries have experienced a hardening of positions in negotiations with the Bank, especially with regard to conditionalities attached to sectoral adjustment loans, the failures of adjustment programmes in more than 30 African countries have lent credibility to the charges of critics that the underlying approach of Fund-Bank programmes is inappropriate and indeed damaging to the fragile economies of these countries. Under the auspices of the United National Economic Council for Africa, an African Accelerated Framework For Structural Adjustment Programmes For Socio-Economic Transformation was drawn up and adopted by ministers of finance and economic development in April 1989. This programme was based on extensive consultations both in Africa and in Washington, and was made with participation by the IFIs. Orthodox structural adjustment programmes were criticised on a number of counts, summarised in the following familiar list of charges: a) b) c) d) e)

f)

g)

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Restrictive credit policy leads to output contraction, and reduction in investment. High interest rates may encourage saving, but borrowers are more likely to be traders and speculators, than productive entrepreneurs. Whatever advantages are derived by exporters who get windfall gains from heavy devaluations, are negated by failure to reduce imports, and by their inflationary effects. Trade liberalisation is not a feasible policy in view of protectionist practices of industrial countries and adverse effects on infant industries. Privatisation is indiscriminate and doctrinaire. The presumed superiority of private over public enterprise has no theoretical foundation, and the substitution of profitability criteria for social welfare criteria in vital areas like water supply is not acceptable. Indiscriminate liberalisation, deregulation and minimisation of the role of the state does not take into account the need for selective government intervention which may be indispensable in countries experiencing skewed income distribution. Across-the-board reductions in deficits are deflationary and the consequent reductions in social expenditures on education, health, Post-Mortem on Debt and Adjustment

sanitation and water supply have adverse effects on the well-being and the productivity of the population.19

Moreover, the document states that IMF and World Bank programmes have been accepted under duress, because the countries badly need external finance. They are too much geared to macroeconomic imbalances as ends in themselves, and neglect human condition imbalances related to employment, nutrition, incomes, health and education. An alternative programme is built around food self-sufficiency on a regional basis and, more generally, economic empowerment and democracy. World Bank Evaluation of Ten Years of Structural Adjustment Programmes In 1988 the World Bank produced a report on 'Adjustment Lending: An Evaluation of Ten Years of Experience' 20 which analysed the experience of 30 countries which had received adjustment loans prior to 1985. In 12 of these countries, improvement in the external balance was achieved at the cost of economic growth; in 5 countries an increase in growth was achieved at the cost of deteriorating external balance; another 12 countries experienced both growth and balance of payments improvement, while one country failed on both counts. The burden of adjustment fell heavily on investment, shown by the relative worsening of investment/GNP ratios in two thirds of these countries. In all the countries examined, caloric intake has on the average, stagnated or declined during the 1980s.21 It was noted that the poor have been adversely affected by adjustment measures such as rising agricultural prices, reducing food subsidies, and reductions in government expenditures necessitated by unsustainable fiscal deficits.22 These indifferent results cannot be attributed to the lack of implementation of conditionalities. It was found that 84 to 89 per cent of the conditionalities of 51 structural adjustment loans (SALs) and sector adjustment loans (SECALs) in 15 countries were 'fully' or 'substantially' implemented. Anybody familiar with the detailed nature and long list of conditionalities which typically accompany any one of these programmes cannot but be impressed with the capacity of the Bank to lever clients into compliance.

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In the early 1980s, Bank doctrine denied the severity of terms of trade and interest rate shocks on developing countries and insisted that economic disequilibria were primarily due to inappropriate policies of import substitution, uncompetitive exchange rates and other price distortions and, more generally, excessively interventionist policies. By 1988, the Bank was forced to acknowledge that the combined effects of deteriorating terms of trade and high real interest rates had seriously affected the capacity of developing countries to achieve adjustment with growth; that these two factors alone were responsible for a reduction of GNP by an average of three per cent; and that reduced capacity to import intermediate and capital goods had adversely affected growth rates. The Bank further admitted that its earlier econometric projection of the Organisation for Economic Cooperation and Development (OECD) growth rates was grossly over optimistic and inflated — resulting in unrealistic claims made on behalf of trade-oriented policies as 'engines of growth', capable of pulling debt ridden countries out of crisis. Projections of average annual real growth in developing countries of 4.5 to 5.1 per cent during 1980-85, and even higher rates for 1985-90, consequently were equally unrealistic. Thus, 'the cumulative effects after seven years of growing at 2.3 per cent rather than 5.6 per cent is a 20 per cent lower level of output, and the near elimination of any improvement in per capita income'.23 So much for the mystique of the scientific nature of quantitative programming.

A Faint Shadow of Revisionism from the World Bank? Under the influence of rising concern for the social consequences of structural adjustment, highlighted in the influential United Nations International Children's Emergency Fund (UNICEF) studies on 'Adjustment With a Human Face', the Bank addressed the subject of poverty in its 1990 World Development Report (WDR), and added 'sustainable poverty reduction' to its objectives. It is, however, questionable whether poverty can be alleviated within the framework of macroeconomic policies which systematically reduce the fiscal resources of the state, and skew income distribution in favour of profits. The authors of the WDR24 admit that adjustment policies have fallen short of the claims made on their behalf. Buried among the findings of the WDR (1991J, which largely repeats the recommendations of previous WDRs, are some welcome acknowledgements of problems, long 228

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recognised by critics of the view that debtor countries are uniquely responsible for their indebtedness. Here is a summary of some of these revisionist observations: As the importance of openness and competition has been realized, the conviction has grown that they are insufficient by themselves. Investment in people provides the firmest foundation of lasting development. And the proper economic role of the state is larger than merely standing in for markets if they fail to work.25 Developing countries are affected by the macroeconomic policies of the industrialized countries, especially when these policies reduce the supply of global savings and raise real interest rates. An adequate supply of external capital is essential — which calls for strong efforts by the World Bank and other multilateral agencies, as well as bilateral sources.26 Adjustment programmes generally improve the balance of payments, but may have negative effects on investment and reduce the growth of output. Fiscal cuts in productive investment in infrastructure and education are likely to hurt long-term growth.27 Devaluation increases debt service denominated in local currency and hence the fiscal deficit. Harsh reductions in real wages may result in an excessive decline in aggregate demand, jeopardizing the recovery of output. 28

Japan Challenges World Bank Orthodoxy Comparisons between the successes of the East Asian newly industrialising countries (NICs) and the 'failures' of Latin America became a small growth industry, both in academia and within the multilateral agencies. Prestigious and influential economists concluded that the successes of the East Asian countries were due to their liberal and externally-oriented policies, whereas the failures of Latin America were the result of excessively 'inward-oriented' and interventionist (dirigiste) policies. By virtue of repetition, these wisdoms gained wide currency — indeed, I hear them repeated by undergraduates who have only the faintest idea of where these countries are located on the map. As Albert Hirschman commented: This is not the first time that the United States, or the multilateral institutions strongly influenced by them, have convinced themselves

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that they possess the key to progress and development for all these wayward, hence backward, countries. But never have Latin Americans been lectured and admonished as consistently as in recent years — on the virtues of the free market, of privatization, and of private foreign investment.29

Remarkably, the successes of Korea have been used by World Bank economists to argue the case for liberalisation, privatisation and against state direction of industrial policy. Early in 1992, the World Bank was challenged by its Japanese Executive Director to set the record straight, explaining what has been well known to development experts all along, that is, that Korea built its impressive export performance on previous import substitution; that Korea's drive into new industries was strongly government directed, with high and variable effective rates of protection, central allocation of credit, deliberate industrial strategies to create large conglomerate enterprises, minimal reliance on direct foreign investment, and close monitoring of private sector performance at the highest political level. Education of the labour force was central to Korea's strategy; firms were required to invest heavily in worker training and in research and development, and were encouraged to access foreign technology by purchase of equipment and licensing, rather than participation in foreign controlled ventures. Technology transfer was regulated by the government in order to strengthen local absorption, and later, innovative capacity. While established Korean firms operate in export markets under competitive conditions, the next generation of new industrial activities, highly protected, are developed, initially for the domestic market, as a 'learning experience'. Korean economic policy has always been firmly in the hands of Koreans. No wonder Korea has succeeded in producing its own motor cars and other high-tech products of excellent quality. The Bank has now disowned its own study of 1987, which was directly critical of the philosophy of widespread selective intervention, had discredited Korean policy instruments such as variable rates of effective protection and credit allocations targeted to specific industries, and had stated (wrongly) that the Korean experience supported the Bank doctrine that only neutral intervention is desirable. This controversial multivolume internal Bank study of the industrial strategy of Korea, India and Indonesia, publicly released in summary form early in 1992, was interesting not only for what it said — which was well known to development specialists, and has been fully described 230

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in several survey articles30 — but for what it revealed concerning the influence of ultra-liberal economists within the Bank. Not the least interesting aspect of this story is the circumstances of its release. Following a challenge by the governor of the Bank of Japan, at the Bangkok Fund/Bank meetings, to the World Bank's exaggerated faith in the market mechanism, Japan's executive director demanded the publication of the study, which argued that the Bank had concentrated excessively on freeing up prices, and insufficiently on nurturing infant industries. According to a report in the Far Eastern Economic Review,31 many World Bank staffers and executive directors from the developed world were critical of the study. Some were against government intervention on principle. Others argued that East Asia's success might not be transferable to other parts of the world, because governments lacked the institutional capabilities, and could not be trusted with greater discretionary powers because they were too corrupt. All of these groups opposed the publication of the study because they feared it would be misinterpreted as a change of Bank policy. In an exhibition of increasing assertiveness, Japan's executive director argued that the study was sound and should be published; and Japan's alternate executive director argued in favour of subsidised loans, which were rejected out of hand when financial sector reform was discussed at World Bank Board meetings. The Japanese have criticised the Bank for making financial sector deregulation an objective in itself. Japan subsidises credit to selected sectors such as basic industries and small business. Japan also disagrees with Bank policies which do not permit on-lending of soft funds by recipient countries' development banks to targeted industries on soft terms — this is precisely the issue which created major problems for Jamaica in negotiations with the World Bank and the IADB for agricultural and financial sectoral-adjustment loans.32 Ultimately, Bank President Preston ruled that a summary of the study should be published without revision. Growing assertiveness among Japanese officials at the World Bank was linked to the feeling at Japan's Finance Ministry that the Japanese economy represented a unique system with a logic of its own and that Japan did not always need to follow the Western lead 'in subservient pandering to US demands'. This minor skirmish between the Japanese executive director and the prevailing neo-liberal consensus at senior levels of the World Bank is not unrelated to the growing strength of all the economies of East and South-East Asia, and the central role of Japan The 'Lost Decade' of the 1980s

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within the entire Asia-Pacific economic growth pole. Southern China has become a major source of manufactured exports, and economic growth for the whole of China is estimated to continue at 10 per cent per annum for the rest of the 1990s. Although China was moving towards a mixed economy with a rapidly growing private sector, these high growth rates were being achieved while some 70 million industrial workers were still employed in state enterprises.

The Market Driven Model and the Myopia of Economists Economists enjoy the status of high priests in a belief system which approximates a secular religion. The influence of economics now extends into the disciplines of political science (public choice theory) and sociology (human capital theory). At the core of this cosmology is the self-interested, isolated individual who chooses freely and rationally among alternative courses of action after computing their prospective costs and benefits. This calculating 'rational' individual is an intellectual construct which supports a view of economic activity as disembodied transactions of 'factors of production' guided by price signals of the market. Economics, which claims to be a value-free science, has severed the individual from the society within which he/she lives, works, consumes, creates, thinks, feels, loves, hates, and so on. Hence, economics is no longer about real people living in real communities or societies, bounded by ties of cultural commonality, and participating in an array of formal and informal associations. The disembodied rational individual of modern economics is the intellectual reflection of the economy as 'disembodied' from society. In reality there is no society, not even the most individualistically modernising United States, in which the economy is totally disembodied from society. However, the fiction of the rational economic agent is a powerful servant in the interests of capital, because money is the most impersonal and footloose of all the 'factors of production'. Money can move across the world, forever seeking the largest, quickest and safest return on investment. Money capital is not interested in where productive activity is located, what is produced, who is employed — or rendered unemployed as a result of this or that investment or disinvestment. Money capital has no concern for the geographic distribution of the results of its international mobility. Economists pretend that theirs is a value-free science, like chemistry or biology. By putting number on everything and running numbers 232

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through an elaborate statistical black box, economists are able to impress the average person and the average politician. But the veneer covering this abracadabra pseudo-science is rapidly peeling off, to reveal undisguised self-interest. Take the matter of the cost to the United States of measures to halt global warming. A cost-benefit study for the Brooking Institute by a prestigious Yale economist concluded that most of the economies of the richer countries operate in a 'carefully-controlled environment'33 (read air-conditioning), and would hardly be affected by a hotter climate. Only three per cent of US national output originates in climate-sensitive sectors. The professor concluded that 'the main factor to realize is that the climate has little economic impact on advanced industrial societies'.34 Never mind the fact that global warming might inundate the islands of the Caribbean. The loss to world GNP would probably be no more than a small fraction of one per cent. And what of the millions of people in developing countries who depend on agriculture for their livelihood and subsistence? You may think that the learned professor is just an isolated example of irresponsible economic calculation. Not so. Harvard economist Larry Summers, then chief economist of the World Bank and co-author of the WDR for 1992 which places the environment at the top of the list of Bank priorities, is on record that, in his view, global warming is grossly overrated, and would cause damage equivalent of only half a year's growth of GDP over the next half century. This is the same fellow who caused some embarrassment to the Bank earlier in the year by a leaked memorandum which applied the logic of market economics to argue that the Bank should encourage the migration of dirty industries to the least developed countries (LDCs) on the grounds that 'Africa is vastly under-polluted compared with Los Angeles'; that the value attached to a clean environment rises with income, and thus 'the odds of prostate cancer are obviously much higher in a country where people survive to get prostate cancer than where under 5 mortality is 200 per thousand'.35 Mr Summers said the memorandum was 'ironic', not meant seriously. Maybe so. Maybe it was stupid. But as a 'joke' it provides a useful insight into the calculus of the academic economist. Why have I burdened you with these examples of the bizarre logic of American economists? Because these are the people who have imposed their theories on our societies in the form of conditionalities of adjustment programmes. But let us be clear. This is the mindset which underlies the 'Washington Consensus' concerning appropriate economic policy. Is this really what The 'Lost Decade' of the 1980s

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we need here in the Caribbean? It is urgent that we rid ourselves of a myopia which sees our development through the eyes of the American culture and American values. In this connection, we must understand that development is a creative social process and that its central nervous system, the matrix which nourishes it, is located in the cultural sphere. Development is ultimately not a matter of money, or physical capital, or foreign exchange, or of 'getting prices right', but the capacity of a society to tap the root of popular creativity, to free up and empower people to exercise their intelligence and collective wisdom. It is increasingly recognised that there is no universal model of economic development. It is the utmost arrogance of the technocrats, of the Washington-based institutions, to claim that they have ready-made solutions to everybody's problems. The Japanese or Korean model of modern capitalism is very different from the 'free enterprise' model of the United States. The 'social market economy' of Germany, or the social democratic models of Sweden or of Austria, with their elaborate provision of social welfare and quasicorporatist relation between business, labour and the state, are also very different from American-style capitalism. Even Canada, with universal free medical care, a state-supported broadcasting network and several highly rated parastatal enterprises, is different from the United States. The most important lesson to learn from the achievements of the East Asia countries is that they have been based on indigenous institutions, traditions, national motivations, policies and financial resources. There is no way that these countries, or indeed any country, can or ever could undertake sustainable economic development under the external tutelage of international institutions whose ideologies are shaped by specific cultural and historical factors, and whose agendas are, moreover, self-serving. Viewed from Washington, we are a few specks in the ocean, micro countries of marginal significance to an empire struggling with its slow economic decline. But from where we are, we are at the centre of our universe, situated at the cultural crossroads of the world. Yes, we must be prudent in the management of these fragile economies. Of course there is much in the adjustment programmes which is sensible and valid. Government must be more efficient, and responsive to the needs of the population. We must develop our human assets and protect our natural and our cultural environment. We must earn foreign exchange by the sale of goods and services which embody rents. This is the concept of

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the 'niche', that is, something special which distinguishes our exports from those of other countries. But above all we must chart our own course, nurture our self-esteem as a people, and cast aside forever the habits of mendicancy and dependence. In this globalised world, small countries can flourish as well, perhaps better, than larger and more fractious countries. Ultimately, solidarity and societal cohesion, sharing and caring, a sense of country, pride in the achievements of Caribbean women and men, will decide whether Caribbean societies will survive, or disintegrate into tropical playgrounds, sources of cheap labour and unwanted emigration.

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Part Three

The Michael Manley Legacy

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fin

Democratic Socialism in

Jamaica: Manley's Defeat Whose Responsibility?1

I would like to raise one or two questions about the role of the IMF in the defeat of Jamaica's experiment with democratic socialism. With respect to that experience we must evaluate a little more carefully and critically the degree to which the Fund was or was not responsible for the failure of the Manley project. This is important not only for Jamaica and the politics of Jamaica. It raises a more general question: If the Fund is really as powerful in imposing open capitalist economies on countries seeking more social justice, and in forcing political changes, as Richard Bernal's2 analysis would make it appear, then I think it would follow that progressive governments should not deal with the IMF at all. Indeed, perhaps the cause of progress and human rights would be better served by the abolition of the IMF? Now, I suggest such a conclusion is not realistic, nor do I think anybody is seriously proposing the abolition of the Fund. However, I believe that the degree to which the Fund is reformable and has to be reformed is an important question and so is the matter of the degree of power which rests on the side of Third World governments in dealings with the IMF. Take, for example, the very large IMF loan to India, some $5 billion to $6 billion. Is it therefore given and determined that India will have to bend and bow down to the extreme model of the IMF? Tanzania is negotiating with the Fund. Does that mean that the government of that country is 'selling out' to international capitalism? I don't think so. The Peoples' Revolutionary Government of Grenada has requested a threeyear extended fund facility (EFF) from the Fund. Does that mean that Grenada must go the way of Michael Manley's Jamaica? I think not.

The questions I want to raise in the Jamaican context therefore are the following: Did the IMF really deal the kind of death-blow to the Manley experiment which one might infer from Richard Bernal's paper, or were there other and ultimately more basic reasons for the failure of the Manley government? Secondly, what are the implications of this for future relationships between Third World governments and the IMF? The Key Actors in Jamaica In order to set the role of the Fund in Jamaica into perspective, I think it is useful to make a simple listing of the principal actors whose combined opposition was in no small measure responsible for the failure of the Manley government. More exactly, and with the wisdom of hindsight, I believe that it was Manley's naivety and the absence of a realistic and consistent strategy in the face of the combined forces of domestic and foreign opponents of democratic socialism that projected Jamaica into a long slide of economic decline culminating in eventual defeat at the polls in 1980. The IMF was not the only major participating factor in this story. Here, then, is a listing of the principal actors which the Manley government had to contend with. I have classified them as economic and political on the one hand, and foreign and domestic on the other. External economic actors Here we have, firstly, the transnational corporations. In the case of Jamaica these are principally the major North American bauxitealuminium companies. Secondly, we have the fraternity of international commercial banks. And thirdly, of course, the IMF. These were not the only external actors in the Jamaican scene, but they were the principal ones. External political actors The principal external political actor was without question the government of the United States. The postures of the President and the state department toward the Manley government underwent a number of changes between 1972 and 1980. The Nixon-Ford-Kissinger administration was unambiguously hostile. The early Carter 240

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administration was conciliatory. In the last year of the Carter administration, the 'hawks' devoured the 'doves', and US governmental support was withdrawn from the Manley government.

Domestic economic adversaries The local capitalists, or — if you prefer other language — the local private sector, became increasingly uncooperative and hostile. Capital fled the country and eventually significant sectors of the organised local private sector united in efforts to destabilise the government and replace it with a Jamaica Labour Party (JLP) administration.

Domestic political forces Here we have, firstly, the Jamaica Labour Party. Secondly, the privately-owned Daily Gleaner, which was transformed from a prestigious daily newspaper into an instrument of relentless and unceasing antigovernment propaganda. The role of the Gleaner has been compared with that of El Mercurio in the campaign to destroy the credibility of the Allende government in Chile in the early 1970s. Thirdly, we have the state bureaucracy: the public service, police and army. As economic decline proceeded and the popularity of the government declined, individuals within the state apparatus became disillusioned. Critical sectors in the police force and army became actively disaffected. Ultimately, and perhaps most importantly, there was the nature of the Peoples' National Party itself. The PNP is a broadly-based nationalist populist party with a class base and ideological spectrum ranging from the political centre to the far left. The symbiotic relationship between the various strata and key personages within the party and its charismatic leader resulted in frequent shifts in policy, as contradictory advice was offered and accepted by Mr Manley. All elements of the party needed the popular leader, and he in turn was unwilling to disappoint or reject any part of his wide-spectrum political base. Thus conflicts within the party were perpetually discussed but seldom resolved. Ultimately this contributed to a sense of insecurity and uncertainty, an absence of firm direction, as contradictory policies were simultaneously adopted and explained by ever less-convincing exhibitions of magnificent rhetoric. What I want to do with the aid of this little classification of principal actors is to put the IMF story into context, because all the actors Democratic Socialism in Jamaica

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identified here played important roles in the eventual failure of the Manley government. Furthermore, as I have already said, ultimately the principal responsibility for the failure to implement the declared policies of 1974 and 1975 — of democratic socialism on the domestic front, and anti-imperialist non-alignment as a foreign policy — must be laid at the door of the People's National Party and its leader Mr Manley. The party and leader were responsible for a lack of realism and a failure to seriously mobilise the popular and economic resources of Jamaica to face the combined opposition of domestic and external capital, which perceived its privileges to be threatened — and ultimately pulled out all the stops to destroy the Manley government.

First Phase: Redistributive Reform Measures The eight years of the Manley government fall into three sub-periods. The first period, from 1972 to 1974, saw massive programmes of long overdue social reforms that had the support of the overwhelming majority of the population: special employment programmes, literacy programmes, school feeding, equal pay, minimum wages, land lease, food subsidies, free secondary and university education, increases in pension and poor relief, and a number of other similar social measures. The degree of internal redistribution of income is reflected in the fact that the share of wages and salaries in total disposable income increased from a level of 58 per cent in 1968-71, to 64 per cent by 1976. The share of profits, interest and capital consumption in national income declined from 36 per cent to 29 per cent over the same period. In the years 1972-74 the mass of real wages (adjusted for price changes) increased by 3.7 per cent, while real input was stagnant or declining. Employment increased by 35,000 and the number of unemployed declined by 11,000 — the first decline in unemployment registered in over a decade. Personal consumption rose steadily from 1972 to 1976, while gross fixed capital formation started to decline dangerously from 1974 onward. This very substantial increase in real income of the masses of the people over the period 1972 to 1976 was the result of a heavy programme of redistribution without growth. Indeed, the economy started its downward path in 1974, and by 1976 real output per head had declined by 10 per cent as compared with 1972.

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Second Phase: Democratic Socialism and Non-alignment The second phase of the Manley administration commenced in 1974 and terminated in 1977 with the signing of the first IMF agreement. The year 1974 saw a shift of the PNP from its traditional role as a centrist populist party to one with a domestic policy of democratic socialism and a foreign policy of non-alignment. It was also the year when Jamaica responded to the oil price rise by a well executed move to impose a six-fold increase in tax on its giant bauxite-alumina industry. Here we must recall that Jamaica was, at that time, the world's leading exporter of bauxite and alumina and that all four of the major North American companies — Alcoa, Alcan, Reynolds and Kaiser — had important facilities in Jamaica. The unilaterally imposed bauxite production levy and the partial, although largely cosmetic nationalisations, as well as Jamaica's role in the establishment of the International Bauxite Association, aroused the fury of the companies and the US government. It must be recorded, however, that this move was supported by the Jamaican capitalist class as a fair and reasonable response to the OPEC initiative, and that prominent members of Jamaica's business community were active participants in the negotiations with the aluminium companies, serving on the government side of the bargaining table. The bauxite levy was an adroit move and produced an instant increase in government revenue from $35 million in 1973 to $200 million in 1974. The contribution of the bauxite industry to government revenue increased from 12 per cent to 35 per cent, and the returned value of bauxite-alumina in total Jamaican export earnings rose from 35 per cent in 1973 to 75 per cent in 1979. The point, however, that I want to make is that if you pick a fight with powerful international capitalist interests, you have to be prepared for retaliatory measures. Retaliations came in the form of litigation in the United States, and a press campaign claiming breach of contract on the part of the Jamaican government. More directly, the companies cut production levels from a peak of 15 million tons in 1974 to 11 million tons in 1975. This cutback might have been excused on the grounds of the prevailing recession but 1976 witnessed prolonged strikes, a major unexplained explosion and a consequent further reduction of production levels to 10 million tons. Production has never regained its 1974 levels. The production cuts by the transnational aluminium companies prevented Democratic Socialism in Jamaica

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the government of Jamaica from reaping the full advantage of increasing levy yields from rising ingot prices. The companies moreover stopped replacement investments and proceeded to pull out as much money as possible. All of that was to be expected and is not said in criticism of the bauxite levy. Where, in my opinion, the government acted irresponsibly, and with an eye only to short-term political advantage, was in its spending of the Capital Investment Fund set up with the proceeds of the bauxite levy. This money went into various items of current expenditure of immediate attraction to its political constituency. There was no effort to limit the foreign exchange expenditure of the middle class nor to practise budgetary restraint. In 1975, real wages rose by 5 per cent while real output fell by 2.6 per cent. Government expenditure continued to increase and net foreign reserves continued to decline. In a difficult international climate, with rising oil prices, and facing the hostility of the key foreign-controlled export-earning industry, the government was prepared to deliver further economic benefits to its mass political base, without hurting its middle class supporters, in preparation for the crucial election year of 1976. From then on, government expenditures were increasingly financed by central bank borrowing, that is, by what we colloquially call printing of money. The US government was highly displeased with the Jamaican move against the American aluminium companies and was particularly concerned that the International Bauxite Association might duplicate some of the successes of OPEC. It soon became apparent, however, that the IBA was a paper tiger, a cartel without teeth because of its inability to control production levels. Of even greater concern to the NixonFord-Kissinger administration was Jamaica's new foreign affairs posture of non-alignment: in particular, Manley's evangelical advocacy of a New International Economic Order (NIEO), and most particularly his newly formed friendship with Fidel Castro. The year 1975 was when the government of Angola requested and received military assistance from the government of Cuba to defend itself against South African invasion. Unlike Forbes Burnham of Guyana, Manley was not able to offer material help to the Cuba-Angola airlift, but certainly expressed the popular sentiment of Jamaicans in his uncompromising support of all efforts to check South African aggression. Henry Kissinger came hot-footing down to Jamaica with a retinue of assistants for a brief holiday. His major concern was Jamaica's new 244

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relationship with Cuba. It has been said that Mr Kissinger offered Mr Manley $100 million dollars of US assistance. If that was the carrot, then what was the stick? There is no question that there was massive destabilization and physical sabotage in Jamaica in the election year of 1976. The full details will probably have to await the opening of US archival records many years from now, but it is interesting to recall that the Prime Minister of Canada personally announced $100 million of Canadian development aid to Mr Manley on the eve of the 1976 election, a move interpreted as a gesture of moral support by Mr Trudeau to Mr Manley. The destabilisation campaign of 1976 was seriously damaging to Jamaica. We have already mentioned the strikes and explosions in the bauxite-alumina industry. The tourist industry was destroyed for several years to come by widely disseminated adverse and exaggerated publicity concerning violence in Jamaica. The violence speeded the flow of outmigration. The propaganda campaign about 'Cubans', which started in 1976, continued unabated for the remainder of the Manley administration with anticipated adverse effects on the investment climate. Prior to the turn in policy signalled by the announcement of 'democratic socialism', the local private sector was generally supportive of the government. When, however, Mr Manley announced that there was no room for millionaires in Jamaica and reminded his listeners that there were 'five flights a day to Miami', the exodus started. There was a flight of capital, and of capitalists, large and small — mostly small because there were not many large capitalists in Jamaica and in any event powerful and well connected business people were able to ship their funds out of the country without necessarily giving up their luxurious Jamaican residences. Many professionals and skilled workers joined the panic parade of emigrants. The drain of migration started in 1975 and accelerated throughout the remainder of the Manley era. Between 1972 and 1979, 14,000 trained personnel emigrated to the United States and Canada. Miami became a suburb of Kingston. The Toronto suburbs of Mississauga and Scarborough became minor satellite settlements of emigrant Jamaicans. Ultimately the non-cooperation of the private sector in a mixed economy — in which that sector controlled by far a larger share of productive activity than did the government — was critical. By mid-1976 the commercial banks had suspended credit to Jamaica. By the end of 1976, the Bank of Jamaica reported that $300 Democratic Socialism in Jamaica

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million had left the country in capital flight, and that net foreign exchange reserves were negative for the first time in the history of the country. After the smashing electoral victory of the PNP in 1976, which gave him a powerful political mandate, Mr Manley was forced into secret backdoor negotiations with the IMF because his foreign exchange kitty was empty — the banks had blocked credits and the windfall gains of the bauxite levy were blown away — and domestic political expenditures were financed in large measure by credit creation. To all of this we must add the havoc caused by the CIA-assisted destabilisation campaigns of 1976, which had largely wrecked the tourist industry and had escalated urban violence, plus the vindictive cutbacks of production by the North American bauxite-aluminium companies, and more generally the threat to the supply of essential food, raw materials and fuel, due to the acute foreign exchange shortage. In 1976 the PNP won a massive electoral mandate for a second term. It was a mandate for democratic socialism and self-reliance. Mr. Manley's campaign was very specific: Jamaica is not for sale! No devaluation! Jamaica will not bow down to the IMF! A team of dedicated PNP university economists were commissioned to draw up a production plan and more generally a strategy for economic survival, without IMF assistance. Appeals to the population brought forth many thousands of useful individual suggestions of how the country could be better organised to achieve greater efficiency, equity and popular mobilisation. But it was later discovered that throughout the first six months of 1977 Mr Manley was secretly negotiating with the Fund. Mr Manley appears to have been persuaded by his more conservative advisers that it would be impossible to continue without the IMF's 'seal of good housekeeping' — this at the very same time that it was believed, even within the party, that Manley had chosen to reject the IMF. While people in good faith were preparing for a non-IMF alternative, the decision had been made, in effect, to go the old way: to deal with the Fund, to borrow more money, to accept conditionalities. The deal was sweetened in various ways. Messages were passed down from the Carter White House that Mr Carter and his wife, and the ambassador to the UN, Andrew Young, wanted to be nice to Mr Manley. It was the liberal administration in Washington at that particular point in time which perhaps persuaded Mr Manley that this was the safer path to take, rather than the more risky venture of self-reliance. In May 246

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1977, the government of Jamaica signed its first agreement with the Fund. Jamaica was permitted a dual exchange rate, and the conditions were not harsh. It was the first step on the road to the destruction of the political support which had so recently been reaffirmed in the election of 1976. Whether we date the turning point in the fortunes of the Manley government to the period 1975-76, when the government could have — and in my opinion should have — imposed strict measures of exchange control and budgetary austerity, instead of encouraging a public and private sector spending spree with a consequent mounting of internal and external public debt; or whether we date it to the post-election months, when the government failed to convert its newly won political mandate into a radical popular mobilisation of the country, and when it demoralised crucial sections of party activities, is debatable. What, however, is inescapable is the fact that the vacillation of Mr Manley during these crucial two years both lost him the support of the private sector, which was mortally afraid of 'socialism', and cut the ground out from under the possibility of popular mobilisation and a non-IMF strategy. From May 1977 onward, the Manley government locked itself into IMF policies designed to encourage a private sector, which would not, however, play ball, while attempting to maintain its popular political base without the economic capacity to continue redistributive policies. The redistribution of 1972 to 1976 now went into reverse gear. Devaluations, wage restraint, fiscal austerity, and all the rest of the IMF package effected a shift from labour to capital, but failed to bring about the 'turnaround'. From 1977 to 1980, it was a case of reverse redistribution in an economy of negative growth. Richard Bernal describes the standard IMF package applied to Jamaica. It was a package biased towards the establishment of free enterprise capitalism. It is important to understand that IMF programmes are not designed to increase the welfare of the population. They are designed to bring the external payments account into balance, and ultimately to free it up so that profits and interest can be freely remitted. The objective is a freed-up system of external payments — that is the optimal situation for foreign capital. That is the ultimate guarantee that the banks and other creditors will be able to collect their loans, and interest on their loans, and that the real resources to service these foreign loans and other debts will be squeezed out of the hide of the population by a reduction in their real standard of living. Democratic Socialism in Jamaica

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The IMF does not really care whether there is economic growth, or no growth, or whether unemployment decreases or increases. The principal concern is to ensure that good 'hard' currency does not get locked in, so that it can continue to circulate and earn remittable profits and interest. Devaluation is advocated in all cases where the 'free' or black market rate of currency is cheaper in dollars than the official rate. Devaluation in an open economy has the effect of an immediate cut in real wages, because prices go up instantly while wages and salaries are subject to control. Public sector wages are kept in check in so far as governments are prohibited from borrowing more than a prescribed ceiling amount, either in foreign or in domestic capital markets. The deeper the external indebtedness of a country, the tighter the reins of the IMF straitjacket are drawn. The IMF is the ultimate guardian of the interests of capitalists and bankers doing international business. Having said that, I must state that I believe that the Fund officials thought their prescription could and would produce a turnaround in the economy. I do not think they set out to embarrass Mr Manley by speeding the decline of the Jamaican economy. I do not think they wanted to see the economy decline year by year. For one thing, it looks bad for the competence of the Fund. Yet this is exactly what happened. The deliberate effort to damage the Manley government by discrediting it in business and banking circles was the special contribution of Edward Seaga and of his Jamaican and American friends.

The Final Phase: The Long March to Defeat The third period of the Manley era began with the first IMF agreement in May 1977. The screws were tightened after the failure of an IMF test in December 1977, on a technical triviality. After that, an extended fund facility (EFF) agreement was negotiated. It commenced in May 1978 and included a substantial devaluation and all the rest of the standard IMF policy package, with the result of a 40 per cent increase in the cost of living and a 20 to 30 per cent reduction in the real value of total wages and salaries. The second year of the EFF started in May 1979, and the agreement broke down in December 1979. We now have to look at the shifting policy of the US administration in 1979 and 1980. You will recall that 1979 was the year of the Iranian revolution, plus the victories of the Sandinistas in Nicaragua and the New Jewel Movement in Grenada. The hardliners came into ascendancy 248

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in Washington. Andy Young, a good friend of Jamaica, was fired in August 1979 and Secretary of State Cyrus Vance was forced to resign some months later. Manley attended the Non-Aligned Summit in Havana in September 1979 and got somewhat carried away with his own rhetoric. In any event, the autumn of 1979 appears to have been the time at which all forces combined to close in for the kill. From September and October 1979 onward, the Seaga JLP, the Daily Gleaner, the private sector, the commercial banks, and disloyal members of the Jamaican security forces combined in an orchestrated campaign to checkmate Mr Manley. The Carter administration withdrew its previously lenient and mildly supportive position of Manley in the councils of the Fund. IMF officials who were inclined to bend the rules to give Jamaica one more last chance at economic recovery were criticised for being too soft on Jamaica. The death-blow was delivered by the commercial banks. In the autumn of 1979 the fraternity of international banks refused point-blank to roll over a massive amount of external debt due for repayment, even though Jamaica had abided by its IMF agreements as closely as could reasonably have been expected, given the second oil shock of 1979. The banks made little secret of the fact that they were preparing to deal with the next government of Jamaica — and in fact discussed rescheduling with the leader of the opposition party, Mr Seaga. Early in 1980 Mr Manley was forced to call an election, three years after having commenced his second term as Prime Minister. The conditions required by the Fund for reactivating negotiations were rejected by the ruling councils of the Peoples' National Party. Self-reliance and the 'non-IMF path' were once more on the agenda. These policies — which would have stood a fair chance of success in 1974 and 1975 before Jamaica entered the debt trap, and again in 1977 when Manley was riding high on a fresh political mandate — were clearly doomed to failure by 1980. Meanwhile Mr Seaga had launched his election campaign some months before Manley declared the premature election of 1980. Seaga's campaign was conducted principally in the United States. Key speeches were made in Miami, New York and Washington — and they were designed to damage the already very shaky credit of the government of Jamaica. The main weapon of the opposition party was the mobilization of financial and economic leverage with intent to damage the Jamaican economy. I am not here talking about the Fund, but about the deliberate Democratic Socialism in Jamaica

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campaign of the Jamaican private sector and the Jamaica Labour Party, in alliance with banks, and perhaps also with the government of the United States, to stage a strike of capital — domestic and foreign. The management of the Gleaner escalated its campaign of psychological warfare and assumed the role of a shadow government. Throughout 1980 violence reigned in the streets of Kingston, and 800 people — mostly poor people in the poor areas of the city — died at the hands of gunmen. The government was unable to contain the violence. It could not declare a state of emergency because Mr Seaga had threatened that, in the event of such a move, he and his friends in the private sector would 'lock down the country tighter than a sardine can'. In the last months before the election, the government was, moreover, reluctant to provide more arms to the security forces, because the loyalty of the police force was dubious — and possibly that of the army also. There was a mini coup d'etat in the army, believed to be a dry run for a more serious one to follow. The outcome of the election was a foregone conclusion. In retrospect, it was perhaps the best possible outcome, because I personally believe that if the PNP had won the election — which was, however, highly unlikely given the state of affairs in the country — there would have been a Jamaican version of the coup which had toppled the Allende government in 1973.

The Social Democratic Model: Is it feasible? The Jamaican experiment raises important questions, not only for the future of Jamaica, or of other Caribbean Community (CARICOM) countries, but more generally for Third World countries seeking justice and reform within a hostile international environment. Is the democratic socialist model, with a mixed economy and an open political system, a realistic one, particularly for countries in the American hemisphere which the United States perceives as its geopolitical sphere of influence? What lessons are to be learned from the Jamaican experience? Was the IMF primarily responsible for the economic decline of Jamaica and the eventual defeat of the PNP government? Is it inevitable that the local private sector will sabotage democratic socialism? Was Manley realistic in expecting a New International Economic Order to solve the problems of his government on external commodity and financial markets? Can the IMF be reformed, and if so, would this make a crucial difference to 250

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events such as those which transpired in Jamaica? Must a democratic socialist government be as ineffective as the Manley administration in mobilising domestic resources and avoiding excessive external debt? And most crucially, what are the limits to sovereignty when it comes to domestic political structures? In the case of Jamaica, the combined forces of the Gleaner, the international media operating under the implicit protection of the government of the United States, and a disaffected private sector with access to virtually unlimited funds and powerful external connections, were able to take advantage of a highly open political system to speed the electoral defeat of the PNP. As for Mr Manley, he seemed to believe that the debating points he was able to score in the national and international arenas could convince his adversaries of the superior logic of his case. He was captive to his commitment to operate the Westminster model in the gentlemanly manner of a cricket match, with minimal use of state powers to defend the government against a barrage of deliberate destabilisation. He permitted his opponents a measure of freedom which was downright irresponsible. The Gleaner was allowed to mount a scurrilous propaganda campaign, designed to undermine government credibility and the economic viability of the country. The campaign worked to destroy the investment climate, to wreck the tourist trade and generally to escalate the atmosphere of fear and violence. At one point in the conflict with the Gleaner, the PNP organised a protest demonstration in front of the offices of the newspaper, led by a number of cabinet ministers including the prime minister himself. At the time I had to ask myself just who was in charge of this country. Such a measure of 'press freedom' would not be tolerated, even in more stable democratic countries. One of the most disgusting aspects of the opposition's media campaign was the charge by the Gleaner and the international press that the Manley government was abusing civil liberties. I have never lived in a country which was so completely free with respect to what anybody anywhere could say or print — and that includes Canada. Just cast your mind back to the 'apprehended insurrection' in Quebec in 1970, and the Draconian measures taken, including the charge that the editor of Le Devoir was part of a supposed 'provisional government'. The Jamaican experience had many similarities with Allende's Chile. Although nominally Marxist, the Allende government was a popularly elected constitutional government. It was violently overthrown by Democratic Socialism in Jamaica

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combined internal and external forces after three years in office. Likewise, the Sandinista government in Nicaragua has been the victim of Americansupported external military aggression and a tightening economic boycott. It has been forced to curtail press freedom and postpone elections. The easy, and perhaps tempting, conclusion is that democratic socialism is an impossibility, a liberal illusion, and that the Cuban model is the only one with a chance of survival. This view is held by a number of North American and European intellectuals who do not have to face the complexities of reality and can pass simplistic comment from the comfort of their academic or editorial posts. The reality is that there is no one model of socialism such that progressive governments based on a wide spectrum of populist forces will continue to accede to power in Latin America and the Caribbean — whether through elections as in Chile and Jamaica, or by armed struggle against an entrenched oligarchy as in Nicaragua. Mixed economies are likely to be the rule; and the widest measure of democratic expression and respect for civil liberties is essential to achieve popular mobilisation and confirm the legitimacy of the government. The basic problem, of course, is vulnerability to external interference and external intervention. It is precisely in defence against external destabilisation and ultimately against external military aggression that popular governments are forced to curtail freedoms and to take measures to defend their national security. Far from protecting civil liberties and human rights, the activities of the Reagan administration and its friends in the Caribbean and Central America have made a mockery of democracy and of elections. The first conclusion to be drawn is that the most important single precondition for stability and democratic, economic and social progress in the Caribbean and Central America is the respect by the United States of the right of peoples to choose their own form of government, without external interference.

Could the Fund have saved Manley? I have been asked whether I think the Fund could have saved Jamaica, if the United States had been less hostile to Manley. Frankly, I do not think so, taking into account the constellation of forces, the policies of the Manley government and the lost opportunities and mistakes. And I do not think that the Fund will save Mr Seaga's neck either, because 252

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from what I have seen and know of current developments in Jamaica, Mr Seaga and his policies are going to be a great failure. Ultimately, capital and capitalists are after money. They are not interested in ideology. You can have all the Rockefeller committees, and Mr Reagan can endorse Mr Seaga till the cows come home, but if the capitalists do not think they can make money in Jamaica and take it back home, they will not put their money there. And I do not think that foreign capitalists are putting any significant amount of money into Jamaica at this time. There are some 500 investment projects, but if you go and look at how many investments there are, you will discover that there are not very many — except perhaps in real estate and highincome residential housing. I do not think a different IMF would have saved Manley and I do not think the generosity being extended to Mr Seaga by the Fund will solve his problems, because they are embedded in the malfunctioning of that model of dependent capitalism which Richard Bernal describes, and which we know so well from the 1960s. And if it didn't work in the 1960s, it is certainly not going to work in the 1980s. In the 1960s, the Jamaican model was based on incentives designed to build up an importsubstituting industry and was fuelled by massive bauxite-aluminium investments. The action in the international bauxite-aluminium industry has shifted to Australia and Brazil. As for the import-substituting industries, although they were not very efficient and required a lot of imports as inputs, nevertheless, they provided some measure of employment. The policies currently favoured by the Seaga government and his patron in the Reagan White House have flooded the Jamaican market with foreign imports, and many Jamaican business people are having a more difficult time of it than even in the worst days of the Manley era. Jamaican domestic agriculture has seriously regressed since 1980. No, the IMF could not have saved Manley, nor will it save Seaga.

Some of the Lessons It is clear that there are a number of lessons to be learned from the mistakes of the Manley government. The first and most obvious one is that there is a limit to redistribution if the economy cannot maintain and increase production. Increased real wages and costly increased social services financed by credit creation and heavy outlays of foreign exchange Democratic Socialism in Jamaica

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are steps on the road to the debt trap. The political mandate and immense popularity of the first Manley government of 1972 could have been converted into a national project to secure the independence of the country through a partial closing of foreign transactions and a lessening of vulnerability to external creditors. The political temptation to deliver immediate economic benefits to the masses of the people, without restraining the expenditure of the middle classes, should have been restrained. The windfall gains of the bauxite levy of 1974 should have been invested in strengthening the productive base, particularly in such key sectors as domestic food production. Secondly, effective exchange controls and state purchasing agencies should have been put in place long before the foreign exchange kitty was empty in mid 1976. Inessential consumption expenditures and foreign travel should have been curtailed long before necessity forced such measures, and all loopholes to capital flight should have been plugged. If necessary, commercial banks should have been nationalised to prevent them from assisting in the flight of capital, as they did. As recently as 1976, Jamaican visitors to the Montreal Olympics were permitted a travel allowance of $500. Given the critical foreign exchange position, this was ridiculous. It is a fact of open dependent economies that foreign exchange is essential for just about all private and public sector transactions. For this reason, foreign exchange budgeting is an essential preventive measure to avoid an eventual, uncontrollable foreign exchange shortage. Thirdly, the government should have run a far tighter fiscal ship, with greater accountability and a stricter check on the implementation of projects. Jamaica was replete with excellent but often unimplemented projects. Where projects are financed with foreign loan funds, there has to be an evaluation procedure which strictly ensures the capacity to service these loans. Because money is fungible, there is a temptation to accept any and every project offered by donors, simply in order to cream off some foreign exchange which is urgently needed for other, usually very current, purposes. At the end of that road, the debt trap waits. The ultimate choice is between a self-imposed fiscal discipline in accordance with the priorities of democratic socialism, or a discipline imposed by the banks and the Fund based on the very different priorities of external creditors. Fourthly, there was a measure of naivety in dealings with the local private sector. In the autumn of 1979, for example, Mr Manley attended 254

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the Non-Aligned Summit in Havana and indulged in some magnificent rhetoric concerning the inequities of imperialism in general, and the policies of the United States in particular. A week or two later, he attended the annual private-sector get-together in Miami to explain Jamaica's guidelines for private investment and to invite and welcome foreign investments. Mr Manley's actions on these two occasions were honest and principled and strictly in accordance with the declared policies of the government. But they were not very realistic. The fact is that the private sector is very sensitive about the security of its money. You can tell them about guidelines, very genuinely meant, but the fact is that American and Jamaican investors are particularly turned off by 'socialism' of any variety, and have been conditioned by two decades of relentless propaganda to distrust anything 'Cuban'. The Jamaican economy was in a most precarious situation at the time. Essential food imports were not secure. The banks were refusing to roll over debt. The IMF programmes were predicated on an upturn in private sector investment, which had not materialised. The public sector was too broke to offset the virtual strike of capital by the private sector. Further borrowing was difficult because even friendly sources were reluctant to lend to a government so clearly at the point of disintegration. So was that really the best time for Mr Manley to grandstand to the world from a stage in Havana? Fifthly, and finally, I return to my earlier comments about the Peoples' National Party and its incapacity to opt for a clear and consistent policy. Eventually, technocrats and other skilled workers became disgusted and many migrated. Party supporters and even party activists were demoralised. The private sector was confused, because capital — even small capital — wants to know exactly what the rules of the game are. As for the masses of the people, Michael Manley and his Peoples' National Party were able to draw on an enormous fund of trust and goodwill, in spite of the suffering of the people from unemployment, shortages and horrendous urban political violence. People were willing to trust, to follow, to sacrifice, in the belief that 'better must come'. But it is clear from this brief account of Jamaica's experience that by 1979 and 1980 there was no light at the end of the tunnel, no sense to continued sacrifices, and the majority of the people decided to give Mr. Manley and the PNP a rest on the opposition benches. A final word or two about the Fund. Briefly, within the last 15 years the IMF's leverage in the international monetary system has Democratic Socialism in Jamaica

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diminished substantially. The Bretton Woods system of 1944, or even of 1965, has disintegrated because the United States is no longer able to play the role of top metropole effectively. Its currency is no longer secure and stable. Since the beginning of the 1970s there has been an orgy of credit creation, principally by the international commercial banks, in off-shore currencies — the so-called Eurodollars which are not only Euro and not only Dollars. The banks were unbelievably greedy in pushing their loans on anybody who could be persuaded to take them, at high real rates of interest. As recently as 1965 the reserve position of all countries in the Fund, as a percentage of total world reserves was 19 per cent. By 1980, this percentage had dropped to five per cent (excluding gold). The IMF is no longer the powerful monitor and stabiliser of the international monetary system envisaged at its founding. It is a wreck, whose programmes are now exclusively confined to developing countries. The Fund was unable to prevent the United States from demolishing the stability of the fixed exchange rate system, and from financing its own enormous external deficits with its own currency. Nor was it able to check the international banks from overextending themselves by excessive lending. Today the Fund is acting largely in the service of the commercial banks, and its objective is to assist the banks to collect their loans from countries which are increasingly unable to repay their debts — and thus to prevent the burden of adjustment from falling on the banks. There is no doubt that the international financial system is a shambles, and that reconstruction and reform are on the agenda. The burden of my argument, however, is that Third World countries undertaking basic social reform should not expect the forces of international capital to be supportive of such efforts, and that little can be expected from appeals to the North to assist the South at this time. This is particularly true in the Caribbean and Central America, where the government of the United States is using its financial leverage to bring pressure to bear on governments, based on its own short-sighted perception of its geopolitical interests.

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Era

From Socialism to Neo-Liberalism: The Michael

Manley-Kari Levitt Letters1

We should all welcome the correspondence that follows, between Michael Manley, former prime minister of Jamaica, trade union leader and Third World advocate, and Kari Polanyi Levitt, the George Beckford Professor in Caribbean Economy at the University of the West Indies, an engaged scholar and student of developing-country economics. The exchange will add significantly to the continuing debate about commitment and options open to the two-thirds world in identifying the problematique of development, and the capacity and capability to determine appropriate modalities of action to attain social and economic wellbeing, both in the context of cultural realities and as part of the wider discourse on the phenomenon of 'globalisation' and its impact on world development at end of century. The question of moment for Professor Levitt is the threat of the recolonisation of self and society in Jamaica and the Caribbean blurring the vision of a self-directed, self-reliant polity tenanted by people whose sense of place and purpose at the centre of the cosmos is the surest guarantee for high productivity, stability and growth, as well as for sustaining the inherent strength of the social capital firmly rooted in traditional values of service and decency, trust, and mutual respect in interpersonal relations. She echoes with scholarly passion, admittedly tempered with academic calm, the voice of the late George Beckford one of the moving spirits of the New World Group. That group of seminal West Indian thinkers, 'set about opening the West Indian mind and setting an example of intellectual leadership' — a remarkable achievement, indeed, in 'a society with a long tradition of contempt for scholarship and of hostility to research and intellectual independence' according to Sir Phillip Sherlock who was Vice-Chancellor of the UWI at the time when the group flourished. It is precisely because of his deep understanding of the debilitating effects of such contempt that Michael Manley entered the fray, seeking clarification for the utterances from academia which took to task what

appeared to many as his abandonment, on the return to power of his People's National Party in 1989, of a democratic socialist vision, for a neo-liberal ideology. The feeling of disappointment was no doubt all the more intense, considering the 'huge strides in social justice and educational opportunity which were the splendid and irreversible accomplishment of the 70s.' Even if Professor Levitt found not all of the accomplishments to be 'irreversible', she graciously conceded the 'huge strides' made in other important areas, resulting in what people from the streets, to the lasting credit of the decade, have aptly described as the 'smadditisation of Jamaica.' It is the disempowering of all those 'somebodys' that Professor Levitt seems to fear will follow logically on the adoption of 'neo-liberalism', the current indulgence of a preening triumphalism by the West following on the disintegration of the Soviet Empire. Naturally Mr Manley draws on the fact of the realities of active politics — the operationalising of decisions taken, as against analyses from academia armed with the advantage of hindsight. One had to contend with external destabilisation and domestic violence; and decisions had to be taken in the heat of battle, as it were, and against a background of an unruly complex mix of factors impacting on each task at hand. In any such situation, risks must be taken, shifts in emphasis must be part of the exercise and there has to be a full grasp of the inevitability of change while one remains fully aware of the regulative principles that underlie all change. If his mode of operation shifted in the changing circumstances of the late 80s, the goals of participatory democracy, of people empowerment, of social justice and 'transformation without hopelessly dividing the society,' never left his vision. Undiscriminating essay into neo-liberalism could not have been his strategy, Mr Manley insists, not with the rhetoric of 'level playing field' and the actual efforts on his part, before his retirement, to develop a 'functionally cooperative social model.' His views in the Party document 'The Compass' attests to this, the reader is reminded. The correspondence speaks for itself from here on, but readers will be fascinated particularly by the exchanges dated April 4, 1996 (from Kari Levitt) and April 26, 1996 (from Michael Manley). The reader will not be put off by the fleeting moment of impatience (letter of May 20, 1996) in the dialogue, since return to no less human interaction was quick, thanks to the gracious persistence of the genuine scholar in pursuit

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of truth and enlightenment (letter of May 28) and the sophistication and urbanity of the consummate politician who understands the place of intellectual inquiry in human development, and the obligation of the man of action to invest such action with thought and reflection (letter of May 30). Did he not himself share with his public(s), throughout his political career, writings on his thought and his vision of a future for Jamaica, in several published works? This makes the exchange even more valuable. It is valuable for another reason. It will allow for the discourse to continue with sharper focus, and with questions yet to be posed, challenging Jamaica and the Caribbean to find the political vocabulary appropriate to their reality. Some such questions come quickly to mind. Is economic prosperity to be purchased at the price of political freedom in a country and region barely emerging from plantation slavery and colonialism? Are stability and order to be guaranteed by draconian state intervention? While subscribing to a view of self-reliance that governmental hand-outs by way of subsidising the citizen's consumption will debase the citizen and weaken the nation, can the citizen be left alone to eke out an existence without state support of the infrastructural imperatives of health and education? For are these not necessary means of ensuring the citizen an 'earning capacity that will increase and have the young attain the equal chance at the starting post,' as the founding father of Singapore was recently reported as saying? How can the Caribbean citizen be made into a genuine stakeholder in his society by enhancing his assets at points of power in the corporate structure in particular and the economic system in general? How is the trade union movement in a land 'built by labour' to be reoriented to accept the reality of the age of the globalised market? Is the idea of a social contract predicated on the culture of partnership between state, the bureaucracy, trade unions and workers, employers and managers and the wider community, an answer in a country reared on strong individualism, albeit side by side with a sense of community fellowship? Is the cultural context espousing freedom of expression, justice and a deep sense ofpersonhood important to development strategies concocted in planning units and government cabinets with eyes still slavishly glued on the 'models' constructed elsewhere? Are Jamaica and the Caribbean to persist in the belief that the choice is simply between two dominant polarities, simplistically posited, without recourse to alternatives firmly rooted in native realities, if only From Socialism to Neo-Liberalism

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to be able to withstand the whirlwind that is the new 'globalised' phenomenon? Is there life after Adam Smith according to Friedman and Karl Marx in the Gospel according to Lenin? The Manley-Levitt letters do a lot more. For one thing they demonstrate how civilized discourse should be conducted between town and gown — and between gown and gown, for that matter. I refer to the capacity on the part of both correspondents to agree to disagree agreeably, which is the hallmark of democratic governance and a manifestation of mutual respect in social interaction. The civility that attends the entire dialogue and the willingness to admit to errors of perception, however slight, are aspects of that democratic temper which must espouse tolerance and graciousness even in passionate defence of one's own arguments. Mona and the rest of the UWI academic clerisy can certainly learn from this. The Manley-Levitt letters point directions, as well, to possible solutions to seemingly intractable problems which mark the harsh realities of end-of-century existence. We are in the debt of these two correspondents for making it possible to continue the quest. Significantly, neither wished to have the 'last word'. They no doubt each recognised the quest to be a challenging ceaseless one! Rex Nettleford October 24, 1996

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The Manley/Levitt Exchange December 12,1995 Professor Kari Levitt, c/o Department of Economics, University of The West Indies, Mona, Kingston 7. Dear Professor Levitt: I have read your lecture with great interest and agree with the general thrust and much of the specific comment, including significant elements of your analysis of the 1970s. However, I raise several issues. Firstly, while agreeing that populist rhetoric in the 70s frightened the middle class, it is by no means the whole story behind the migration of that period. Applications for permission to move to the US rose dramatically in 1973 the moment it became clear that the PNP government intended to use property taxes to deal with a class of persons who lived at spectacular standards and contrived to avoid the payment of significant income taxes. This occurred a full year before the declaration of Democratic Socialism and the subsequent populist rhetoric. More importantly, beginning in 1975, the Opposition began its calculated programme of violence. This was a full year before the CIA became involved as a punishment for our support of Cuba's defence of Angola against South Africa. At the same time countless secret meetings were held in which groups of people were assured with exquisitely calculated cynicism that the PNP plan called for the establishment of communism in Jamaica. The terror which thereafter engulfed sections of the middle class was at least as much the product of physical fear, as the death toll rose, coupled with the erosion of any sense of reality, as the idea of imminent communism which was promoted day after day. In summary, it was the combined effect of the search for equity in taxes, populist rhetoric, violence, and calculated propaganda which produced the lamentable result. It is utterly simplistic to suggest that populist rhetoric alone did the damage — a view consistently peddled to divert historical memory from the other factors. From Socialism to Neo-Liberalism

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Secondly, I suggest that failure to recognise the huge strides in social justice and educational opportunity which were the splendid and irreversible accomplishment of the 70s is to give a strangely one-sided view of the period. The 70s rewrote the statute books for women, children, workers, trade unions. For the first time thousands of children each year were exposed to education beyond primary school. At the start of the decade something like 10 per cent of each age cadre received any instruction whatsoever after 12. By the end, the figure had at least trebled. At the same time a new social climate was created. Previously a submanagerial class, largely black, had been trapped for a century and a half. During the 70s and since, they erupted upward and now largely control the financial sector and most of the management of the productive sector. It is simply unacceptable that no account should be taken of the huge investment in social capital which occurred in the 70s. Furthermore, to speak as if all of this never happened is, again, to present history with that warp which is the price of major omission. I mention these things because you put the migration issue in your lecture; and because social justice, education and social mobility are important elements in development. None of this needs to be laboured or the occasion for extended comment. A couple of sentences would, in each case, do justice to the historical record and the resulting perception of historical process. Even your claim that bauxite production was reduced because of the levy is now open to serious doubt. For a variety of reasons including the state of the aluminium market and energy costs, the industry was about to embark at that time upon major restructuring of its smelters in the South-East of the US. Our industry was going to be adversely affected in any event. Later, when the lecture turns to the 90s, I detect a continuing weakness again reflecting, in my judgement, a biased interpretation of history. You suggest that the PNP in 1989 rushed with a kind of uncritical abandon into a neo-liberal, by implication, laissez-faire strategy. This is not actually true. Before my retirement in 1992 I tried to set in place an agenda dedicated to empowerment and the development of a functionally cooperative social model. Market forces were to be given rein to push the economic system towards efficiency. Entrepreneurship was to be encouraged. However, in the design which I tried to leave in place, the

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state would direct its energies towards two critical objectives beyond the normal scope of government action. Firstly, it was to act as the fulcrum for the development and maintenance of an on-going social contract between the political directorate, the bureaucracy, the private sector, the trade union movement and the intelligentsia. A National Planning Council was set up for the purpose and I had tried to give effect to the concept in my first major foray in foreign policy in the 90s, the Mission to Washington to persuade President Bush to write off USAID and PL480 government-togovernment debt. In preparing for the visit and in its actual conduct, teams representing all of these elements worked closely with the government. We invaded Washington in this 'attack on debt' on as wide a front as possible, both in terms of who went and who were seen. The second element involved empowerment. For example, privatisations were to include full worker participation in share ownership, the widest possible public participation and restrictions to the amount of shares that any one person could own. Furthermore, a part of the proceeds of each privatisation were to be directed towards the financing of a programme of micro business development to achieve a recycling of the proceeds to the economic development of the poorest. Within the micro-investment programme I had instructed that a model be developed in which each community would seek to identify a group of elder citizens who could collectively underwrite collateral for poor youth who had nothing of their own to pledge. There was to be a national programme to put employee share ownership in place and to create investment opportunities through institutions such as Unit Trusts for all those who worked in areas of the society which do not create profit centres or lend themselves to equity ownership. Land reform was to be revisited but incorporating some of the experience of the 70s in which acceptable levels of productivity had not been attained. Renewed efforts at the development of community structures which incorporated all political elements was critical to the success of many elements in the new model. Some, but by no means all of this agenda has been pursued after the election of 1993. I quote these few examples to show that there was never in my mind any rush to neo-liberalism. We had spent the 80s trying to rethink From Socialism to Neo-Liberalism

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Democratic Socialism in the light of a rapidly changing world, the emerging global market, and the failure to succeed in any significant way with the ideas of the international management of elements of economic exchange. These are just a few of the monumental changes which included the end of the Cold War and the temporary victory of the radical right and its Thatcherite counter-revolution. Above all, we were concerned to find a model which could hope to contribute to the imperatives of social justice and transformation without hopelessly dividing the society. Liberalisation was an element in that portion of the strategy which saw market forces as important to both efficiency and a transformation of attitudes in the business sector. It is a tragedy that a full year of patient work before the final act of currency liberalisation, in late 1991, failed to produce the US$50 million cushion of foreign exchange support which would have eased the transition. At one stage it seemed that the multilateral system would have come up with the support. In the end they did not and the decision which had to be faced was whether to continue to limp along with a system which was not producing internal economic dynamism or to take the gamble of removing the controls on currency. It is perfectly fair to criticise the decision as a mistake. It has caused great social problems and has not yet resulted in the turnaround in local investment which was hoped for. However, I do not agree that the decision was inevitably wrong. The truth is that the course of action adopted calls for very careful management of the macroeconomic environment. After the dollar settled at $22 to US$1 in mid 1992, having slipped by some 40 per cent in the absence of the foreign exchange cushion, there is substantial evidence that Jamaica was preparing for a great burst of internal investment. The subsequent tragedy occurred as a consequence of the 1993 election when the expenditure taps were turned on and had, by the end of the first quarter of 93, blown the dollar out of the water by 50 per cent. Neither confidence nor true stability has returned to the system since. Nonetheless, even at this late stage I believe that the growth which had seemed about to occur in late 92 could take place in the second half of 96 if the dollar is held firm over the next few months. Only time will tell. The currency liberalisation issue apart, I find it interesting that the lecture reveals so early a rush to judgement and so little desire to find 264

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out the thinking behind the 1989 policy. I do not recall that you ever asked to speak to me about the period for which I was responsible between 89 and 92, nor to find out whether the agenda which I put in place was documented. Even more importantly, you do not examine whether that agenda has been followed after my retirement at the beginning of 92. It would seem to me that all of those are important fields of enquiry which should precede any form of historical judgement. I find equally extraordinary that there is no reference to the mountain of debt accumulated in the 1980s with little to show in increased productive capacity. Nor is there reference to the fact that it is the inescapable task of the 1990s to repay this debt — a task still absorbing some 50 per cent of total budgetary resources. Bearing in mind that credibility is indivisible, I think it is a great pity that one with your obvious analytical facility should put at risk a number of interesting ideas which you advanced at the end of your lecture by an analysis of the post-independence period that is so flawed and so patently reflective of bias. You speak of populist rhetoric and the point is well taken. May I dare to warn you against a parallel sin which can be even more debilitating in the total experience of a nation — the sin of populist scholarship. In this form there is a rush to convenient judgement before the duty of patient scholarship has been exhausted. Like its political variant it is quick to win applause but contributes little to a deeper understanding of the immense and complex problems of governance in a developing society. Criticism, even contemptuous dismissal, is the teacher's right. Your own views may, of course, only coincidentally reflect the analysis and the agenda of the right. Meantime, I refuse to surrender the claims of balance! I take the liberty of sending you two recent speeches. Both reflect my own view of the historian's duty. With best wishes in your exciting new challenge, Yours sincerely, Michael Manley

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April 4,1996 Mr Michael Manley Manley and Manley Consultants Ltd. Caldon Finance Centre 52-56 Grenada Crescent Kingston 5 Dear Mr Manley, I am sorry to hear that you have not been well and wish you a speedy and complete recovery. Your communication, dated December 12, 1995, reached my office in mid March. I was then suffering from an extended bout of influenza and awaited the recovery of my capacity to do justice to this correspondence. I thank you most sincerely for your extended comments on my Beckford Lecture. I welcome the opportunity to clarify my treatment of the 70s, and value the intellectual exchange with someone I hold in high esteem. I regret that the text of my lecture caused you to conclude that I 'failed to take into account the huge investment in social capital which occurred in the 70s,' or that I failed to appreciate the new social climate created for the advancement of the black majority classes in Jamaica. If I gave the impression that 'all of this never happened,' that was certainly not my intention. I cannot accept the charge that I write without appreciation of the achievements of the 70s, or without knowledge of the sequence of events which resulted in electoral defeat in 1980.1 was here from 1978 to 1980. My study on the 'The Origins and Consequences of Jamaica's Debt Crisis' covers the two decades 1970 to 1990.1 believe the 1970s were the most hopeful and creative years in the post independence history of Jamaica. I welcome your defence of the achievements of the 70s, which appear to have been forgotten by many 'radical' public figures whose efforts contributed to their conception and implementation. You are probably right that my text was incomplete, and that 'a couple of sentences' might have avoided serious misunderstanding. I do not think that I presented a 'one sided view of the period.' In summarising the 1980s, I mentioned the fact that Mr. Seaga more than doubled Jamaica's external debt when he accepted official loans in excess of US 2,000 million dollars, spent on private and public sector 266

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consumption, with record fiscal deficits, and noted that this confirmed the delivery of Jamaica into IFI trusteeship. I stated that migration in the 1980s exceeded levels of the second half of the 1970s, and was now composed of large numbers of skilled workers, the 'country's most valuable human resource. On reflection, I think that my statement that the energies and sacrifices which the population was prepared to make (in the 1970s) for a more equitable society were 'squandered,' requires modification. Although I noted that 'economic opportunities opened to informal traders and black professionals who joined the ranks of management in the large private sector in the 1980s,' I omitted explicitly to credit the educational and social reforms of the 1970s. This I regret. However, your statement that the 'huge strides in social justice and educational opportunities were irreversible accomplishments' of the 1970s is precisely what is in question. The contrast between the deep desire for change in the social order in the 1970s, recently recaptured by Portia Simpson, and the currently declining standards of primary and secondary education, and more generally the demotivation of the population, expressed in anger, frustration, alienation, crime and anti-social behaviour of all classes of society, lends substance to the conclusion that 'the social ferment of the 70s failed to make an impact on traditional class structures.' It was the deeply felt disappointment with the irreversible failure to open economic opportunities to the black majority classes which caused Beckford to make such harsh judgement of your stewardship in the 1970s. I quoted Beckford because I felt it appropriate, in a lecture dedicated to his memory, to put his words on record. Subsequently, I decided to omit them from the published text, because I feared they would be misunderstood in the present climate of opinion concerning the 70s. I do not share Beckford's judgement that 'history will never absolve Michael Manley,' although I understand the bitter disappointment that gave rise to it. With the vision of hindsight, I think it is unrealistic to expect that Jamaica could have escaped the 'counter-revolution' of the 1980s, when the United States and the Washington based multilateral agencies used their control over access to development finance to pressure weak — and not so weak — indebted countries to adopt a neo-liberal model of 'Social Darwinism'. Small Caribbean countries located in America's backyard are particularly vulnerable to United States pressures From Socialism to Neo-Liberalism

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of 'carrot and stick.' Concerning specifics, you state that the Opposition, beginning in 1975, set in motion a calculated programme of violence and sabotage. This is a fact, and my text cited 'destabilization by domestic political forces, assisted by the CIA' as a factor contributing to economic decline. You suggest that I subscribe to the view 'that populist rhetoric alone did the damage'? This is not correct. I listed reduced bauxite production, destabilization, exaggerated reports which adversely affected tourist arrivals, and economic pressure of declining living standards as factors which defeated the PNP in 1980. Your reminder that deliberately fostered paranoia concerning 'imminent communism', and the rise in levels of violence, contributed to the exodus of middle class Jamaicans is both true and relevant. In that regard, your comments about 'a couple of more sentences' are well taken. I cannot leave the 70s without a comment on commodity power and the New International Economic Order (NIEO). The bauxite levy of 1974, which gained the support of important private sector personalities and produced a windfall revenue approximately equal to the increased cost of petroleum imports, was an appropriate response to the oil shock. I do not believe that the levy precipitated the trend toward reduced bauxite production in Jamaica. I simply stated that the 'companies reduced production, which was costless because the market was temporarily depressed and because they were in any event reorganising and re-sourcing their operations on a world scale.' Jamaica's 20 year long bauxite boom which made the country the world's largest producer of bauxite, terminated in 1973 when construction of the last alumina factory was completed. The bauxite levy was not the cause of re-sourcing to Australia, Guinea or Ireland, but trends in the international industry should have caused the government to apply the revenues yielded by the levy to productive investments rather than populist public expenditures, which moreover depleted foreign exchange reserves, and paved the way for the entry of the IMF. The lesson is clear. If a country wishes to maintain a measure of policy autonomy, public expenditures must be biased toward economic and social investment, financed from taxation, a high level of domestic savings, and moderation in external borrowing. It is my view that populist expenditures, rather than the populist rhetoric you refer to, were critical factors contributing to the failure of Jamaica's experiment 268

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with Democratic Socialism. The argument is more fully developed in 'Lessons From the Manley Years,' reprinted by George Beckford as Pamphlet No.l in 1983. Regarding international economic relations, the successes of OPEC in the early 1970s created the illusion that Third World primary exporting countries had bargaining power to persuade the industrial countries to entertain the reforms of the NIEO. The importers of petroleum in the industrial countries responded to the oil shock by energy-saving technology and steep increases in the domestic price of gasoline. At the turn from the 70s to the 80s, the United States and the other major industrial countries, made a macroeconomic shift to counter inflation by tight money policies. Interest rates went sky high, precipitating the recession of 1981-82 and the Third World debt crisis. The protracted North-South dialogue of the 1970s fizzled out. By 1981, the NIEO agenda was 'dead in the water.' One wonders whether the industrial countries were just playing for time to make the above mentioned adjustments. Your spirited advocacy of the agenda of the NIEO, sustained over many years, won international respect and admiration for yourself and for Jamaica. Why do you say 'it was predicated on a fantasy — namely that anyone in international politics will respond to an argument built on ethics' (Daily Gleaner, May 17, 1992)? The NIEO agenda was not based on 'ethics' but on the sovereign rights of developing countries over natural resources, on the need for codes of conduct for transnationals, and international measures to stabilize commodity prices originally proposed by Keynes and contained in the Charter of the (aborted) International Trade Organization (ITO). The advent of Thatcher and Reagan signalled a 'regime change,' nationally and internationally, which tilted the balance of power toward capital, and against the labouring masses, on a global scale. With the active complicity of the governments of the United States and Britain, international money markets were freed from national regulatory constraint to seek the fastest and safest return on financial placements, including speculative attacks on currencies. The new 'rules of the game' privilege asset holders over borrowers of funds; privilege the rights of property over the social and civic rights of citizens. The capacity of international money markets to 'discipline' governments and reduce policy autonomy in the economic and social sphere is a serious constraint on sovereignty. From Socialism to Neo-Liberalism

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In the case of developing countries, the market power of global finance has been buttressed and cartelised by the international financial agencies, and given the gloss of beneficial development by neo-liberal ideologues and the mainstream professional corpus of economists. 'Globalisation' is the buzz word intended to condition us to accept competition of each against all, domestically and internationally, the strong against the weak, the powerful against the powerless — a 'Social Darwinism' of 'winners' and 'losers'. In the 1980s, the International Monetary Fund (IMF), whose original mission was the guarantee of a stable and expansionary international monetary order, was assigned a new role as debt collector on behalf of over-exposed international commercial banks. Leverage over indebted Third World countries is now used to impose neo-liberal 'policy reforms' of deregulation, privatisation and down-sizing of government. Liberalisation conditionalities attached to IMF and World Bank loans are accompanied by lectures in neoclassical economics idealising the magic of the market. 'Price distortions' and 'inward looking' policies are identified as the fundamental causes of the debt problem. 'Outward-looking policies' of opening economies to free trade and capital flows are presented as beneficial adjustments to the 'globalisation' of trade and finance. The nation state is regarded as an obstacle to the efficient allocation of resources in a 'borderless' world. I respectfully suggest that when you returned to office in 1989, you had bought into this view, whole hog. I quote you from an article written in 1991, reprinted in the Daily Gleaner, May 25, 1992: If you want a really dynamic, effective economy, the only thing you can do is to pursue the market logic completely. Whole hog, not half way. That means you have to divest what was brought under state control. You must liberalize foreign exchange controls. You must eliminate subsidies and price controls. You must expose the economy to the shock of competition, knowing full well that you will lose some of what you built up to create a leaner but more enduring process of development. I was able to convince my Party, the People's National Party of this course. And since my return to power in 1989 it has been pursued relentlessly not as a matter of rhetoric, but in reality. It is now clear to me that the market unleashed, not the political control imposed, can be the most effective instrument of opportunity for the poor.

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It is one thing to bow down to conditionalities imposed by international financial institutions (IFIs) and multilateral and bilateral development agencies. It is quite another to adopt the ideology of the regime change introduced by Thatcher and Reagan. You say that my treatment of the return of the PNP to power in 1989 was a biased interpretation of history. You suggest that the PNP in 1989 rushed with a kind of uncritical abandon into a neo-liberal, by implication 'laissez faire' strategy. That is not actually true. I stand by my statement that 'the PNP embraced the liberal market paradigm with the same enthusiasm, untempered by pragmatism or caution, which had characterized the socialist rhetoric of the 70s.' Regarding the currency liberalisation of September 1991, a decision you grant may fairly be criticised as mistaken, 'but was not inevitably wrong'. I would certainly like to learn more about the preparations and negotiations you mention in your letter. You speak of promises by the multilateral system to come up with a cushion of US$50 million to ease the transition, and their failure to do so. What was the connection with President Bush's Enterprise of the Americas Initiative? What was demanded from Jamaica in return for the US$50 million? What did the IMF advise? What was the role of the local private sector? What caused you to believe that free currency markets could bring about financial and exchange rate stability? Why did you say that the alternative to currency liberalisation was 'collapse'? The liberalised foreign exchange regime is one of the cornerstones of the market economy. And so there is no question of turning back to the old system of a fixed exchange rate, because if we did the whole road of our new opportunity would collapse. What we have to do is to use the method of a market economy to bring the slide in the value of the dollar 'under manners.' And the only way we can do this is to dry up the supply of extra Jamaican dollars that is floating around trying to buy up foreign exchange to import goods from abroad or whatever else people need .... This means that high interest rates will continue... the high interest rates are the shortterm trade-off for a stable dollar (Broadcast to the nation. Daily Gleaner, January 6, 1992). The high interest rates have been with us for over four years, and the dollar which was $22 in mid 1992, is now at an insecure $40. Internal debt has ballooned, and acts as an engine of redistribution from workers and consumers to holders of government paper. Productive activity is From Socialism to Neo-Liberalism

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gasping for survival at interest rates of 55 per cent. Holders of dollars nevertheless are transferring funds to dollar accounts. It is increasingly evident that monetary policy alone — 'the method of the market economy' — cannot stabilise the dollar without additional drastic reductions in expenditure on essential public services and a punitive contraction of production for the domestic market, causing bankruptcy, redundancy, and a further deterioration of the 'social capital' of trust and cooperation. We are at an impasse. I appreciate your desire to set in place an agenda dedicated to empowerment and the development of a functionally cooperative model. Certainly, ESOP, MIDA, RAD A, PRIDE and similar programmes are positive measures of economic empowerment of poor people. The Social Investment Fund is a promising initiative. But none of this can be more than islands of 'poverty alleviation' in a society divided against itself by class, race and gender, where frustration manifests itself in violence and crime, and rampant individualism is eroding traditional values of caring and sharing. In his recent George Beckford Lecture, C.Y. Thomas made an important point when he suggested that economic theories based on the assumption that it is 'rational' for public servants and politicians to advance their private interests at the expense of the public good, tend to be self-fulfilling. These neo-liberal theories devalue motivation based on service, and lend social acceptability to predatory, self-seeking and even downright (white collar) criminal behaviour. Not only has stabilisation by the exclusive use of market mechanisms proved to be dysfunctional, but the behavioural assumptions which underlie the neo-liberal model corrode cooperation and solidarity in society. Remember Mrs. Thatcher's 'there is no such thing as society'? When you announced your 180 degree turn around ('During the 1980s, I turned my ideas on their head,' Daily Gleaner, May 17,1992); when you declared your 'whole hog' embrace of the market, and admiration of the United States (Daily Gleaner May 25,1992), and made the now famous statement that 'You just can't improve on Adam Smith', you lent the prestige of your authority to a socioeconomic model which has created a new underclass of poverty and dispossession in the world's richest countries. The market model, unfettered, deregulated and unleashed on a society of severe inequality, as in Jamaica, has further impoverished the poor, while enriching a narrow stratum of the commercial and professional elite. 272

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Nobody is advocating a return to the 1960s or the 1970s. That is clearly not in the cards. But why such an extreme shift from Democratic Socialism to the 'magic of the market'? Why such an extreme change from positions of Third World and Caribbean solidarity to postures of mendicancy, as in the 1990 Mission To Washington to beg relief from US official debt, or in the negotiation in 1991 for a moderate infusion of US$50 million, which failed to materialise at the time of currency liberalisation. Unquestionably, the international economic environment is less favourable to small developing countries than it was in the 1960s and 1970s. Power has shifted to the holders of financial assets; all governments — with the possible exception of the United States — have lost a significant degree of policy autonomy. That is a reality. So was the huge debt overhang inherited from the Seaga regime. Those who believe that the 'market knows best,' have welcomed the reduced capacity of governments to tax the rich or otherwise to interfere with the 'economic liberties' of the owners of property. I do not believe that you share that view. Why such extreme praise for the market and the United States? How are we to interpret your public guarantee of March 15, 1992 that the 'passing of the baton' will 'not affect the market economy path, liberalisation, privatisation, and export orientation'? Why should Jamaica be irreversibly locked into policies designed in Washington and imposed by detailed conditionalities attached to World Bank and IDE SALs and SECALs? Is this not a new form of colonialism? More than once, you have noted that 'globalisation' has shifted the locus of production from nation states to worldwide sourcing. The implication is that 'national economies' no longer exist. But does the fact that motor cars are produced and assembled in many locations mean that sovereign governments are not able to use their authority to impose whatever taxes, subsidies, controls or free public services they considered to be in the best interests of the country? There is nothing new about our dependence on trade. Caribbean economies were born to serve trade. Foreign investment and foreign loans are useful supplements to domestic economic activity, but economic and social policy should not be geared principally to the attraction of foreign capital or for favoured access to foreign markets. Jamaica has moved further and faster toward complete liberalisation than any other CARICOM country. The exchange rate devalued from 10 to 40 in the past five years. Export earnings have increased very From Socialism to Neo-Liberalism

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little. Growth in recent years has been insignificant. The social situation continues to deteriorate. While recognising the importance of increased export earnings, one should be mindful of the fact that the production of basic goods and services for the domestic market provides the major part of employment and remunerated economic activity — even in a country as open to trade as Jamaica. Most of private and public investment is financed by domestic savings. Countries which have been successful in economic and social development have nurtured their indigenous human and financial resources. Foreign investment has been attracted to countries which have generated economic growth from internal resources, and where the population has a good level of basic literacy and numeracy. How can we achieve the necessary improvements in the primary and secondary education without providing the public resources required to pay teachers a decent salary? Similar arguments apply to health care. In Jamaica, the market values a top executive of a bank at over J$10 million. Is this an 'efficient' social valuation? The case for a social contract is ultimately the case for social legitimisation and social authorisation for policies which override the 'market,' if that is best for the country. There is a view that 'country' has lost all meaning, that 'globalisation' has created a borderless world of postmodern transnational economic and cultural flux. I submit that acceptance of such an image — created and diffused by the power of the media in the interests of global marketing — is profoundly disempowering. There can be no 'empowerment' for the ordinary people of this or any other country, without solidarity rooted in shared experience and shared physical and cultural space. Without a sense of 'country' — extended to embrace the 'region' and the diaspora — we are lost. Societal cohesion and 'social capital' now have to substitute for the legislative and regulatory protection which the state provided before the era of recolonisation by the international financial agencies, and the major powers which have shaped their policies. This communication has gone far beyond the specific issues you raised. I hope you will receive it as a contribution to an ongoing discussion of the relationship among and between the state, market and civil society in the context of Jamaica's present problems. I thank you for your two recent speeches, which I enjoyed both for their style and their content. I hope to hear from you concerning your kind offer to share some of the insider knowledge of the liberalisation initiatives of 1990 and 1991. 274

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Once more, with my very best wishes for your speedy and complete recovery. Your spirited, articulate and always challenging insights are an invaluable input to public discussion. Please get better soon. Yours sincerely, Kari Levitt George Beckford Professor of Caribbean Economy

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April 9, 1996. Dear Professor Levitt, Thank you so much for your good wishes and for your reply to my letter which had been so long mislaid in my office. I hope you too are recovered. I am happy to feel that a dialogue about the '70s and subsequent developments has commenced. I found your comments of April 4 very interesting and, if I might be allowed the comment, more consistently judicious than your lecture. I cannot reply in detail right off the bat. I would like a little time to reflect and to re-summarize in my mind the dynamics of the various periods as I tried to interpret them. When I write you I will certainly recount the efforts we made throughout 1991 to get the US$50 million. More importantly, I would like to share my analysis of the long, sad story of the final decision to go to the IMF in 1975. This is what really caused Beckford's bitterness and led to the disenchantment of the left. Here I cannot resist the comment that the '70s set some of the black majority free to penetrate the economy. Look around you and observe the financial sector, the ranks of management and other areas. They are now largely black and female. The problem of entry is surely one of numbers more than race and gender? Finally, I will set out what was the basis of my thinking as it evolved during the 1980s, leading to the policies which I tried to set in train between 1989 and my retirement in 1992. In this connection I will try to explain why I regard the policy shift, seen in its totality, as a movement of 45 degrees and not 180 degrees as you suggest! I will at least hope to persuade you that it was 60 degrees at most! Incidentally, the comment about a fantasy as the basis of the huge and tragically unsuccessful effort to achieve elements of the NIEO was born of bitterness and frustration. We came so near only to be betrayed by the failure to unite the OPEC countries and the rest. We assumed the bitter opposition of the developed world but by late '73 they were shaken to their core. Hence, for me, the real tragedy occurred in 1974 at the Paris conference. After the failure in Paris, OPEC split into three factions: one, Libya, which pursued unrelenting Arab revolutionary interests; two, Iraq, which pursued military adventures against first Iran, and later Kuwait; three, Iran, Saudi Arabia, Kuwait and the Arab Emirates, which 276

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decided to recycle their petrodollars back to the West as they pursued their oligarchic delusions. Later Iran created its own diversion with the fundamentalist course and the attempt to export it. Only Venezuela under Carlos Andres Perez in the first term, and Algeria, saw their oil wealth as a source of Third World development funding, and an instrument in global bargaining. The NIEO was buried by Reagan and Thatcher at Cancun in 1981. But it was fatally wounded in 1974. Even so we came within an ace of the Common Fund at Runaway Bay when Helmut Schmidt came on board, in 1978, I think it was. Still I wish I had not put it that way, as all a fantasy I mean! As to Adam Smith, I will have to look up the context! Two final comments. I am not sure that producer power was all illusion. It did not seem so at the time. Secondly, my comment on social justice and educational expansion as irreversible, was intended to convey that both the wide-ranging legislation and the expansion of education were irreversible. They are. Subsequent failure to pursue the opening of the '70s cannot be blamed on that decade but on what followed. Note what happened when someone suggested that the maternity leave law should be repealed! More anon — Regards, Yours sincerely, Michael Manley

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11 April 1996 Dear Mr Manley, I was delighted to receive your letter of April 9, 1996 and look forward with keen anticipation to your longer communication. I very much share your sentiment that the time has come to open a free ranging dialogue about the 70s and all subsequent developments, including the policy shift towards accelerated liberalisation in the 90s. If my Beckford Lecture — intended as a sort of 'wake up' call to what is left of the Left — has contributed to opening such a dialogue, it will have served a good purpose. Incidentally, the full text of the lecture will be available on April 26 from the George Beckford Foundation. Concerning the dating of your decision to go to the IMF, was it really 1975? Was it not 1977? I am well aware that it was the cause of Beckford's bitterness and disenchantment. I decided to remove Beckford's judgement of your stewardship from the published text of my lecture, because I realised that young Jamaicans, influenced by the prevailing view that all of Jamaica's problems were created in the 70s, might misunderstand where he was coming from. There is a rising tide of disenchantment with the neo-liberal agenda pioneered by Thatcher, Reagan and the IFIs — in the West, the (old) East and the South. It is an agenda which is structurally biased toward the interests of owners of financial assets, and is sustained by powerful forces in the North. It substitutes the authoritarian "discipline" by faceless global money markets for the democratic discipline of politicians and governments by the people. We are in urgent need of alternative visions of development, based on the creative potential of all the people, on social justice, respect for the dignity of all citizens, and the care of all children. There is much in the traditions of Democratic Socialism and anti-colonial nationalism, that remains valid and valuable. But we must, with honesty, come to terms with the past, to free the mind to deal with the future. I look forward to your promise to share your analysis of the decision to go to the IMF in the 70s, your negotiations for the $50 million in 1990, and more generally your retrospective on the NIEO and related issues of 'producer power.' With very best wishes, Sincerely, Kari Levitt 278

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April 12,1996. Dear Professor Levitt: Sorry. It was meant to be 1977 and a typo was missed! Yours sincerely, Michael Manley April 26,1996. Dear Professor Levitt: Herewith my fuller reply as I promised. I will not attempt in this reply to deal with a number of problems in macroeconomic management project implementation which contributed to the difficulties of the 1970s. These were exhaustively reviewed by us in the 1980s. We also grappled with questions related to availability of capital for expansion and modernisation of state-owned enterprises. All of this was assessed in the context of our clear and accurate perception of where the world economy was headed. It was apparent to me that, post-Thatcher, Reagan, Kohl, the attempt to extend the basic principles of the Lome Convention to the wider world through the NIEO had failed. It was obvious to us that we were heading inexorably towards what we now call the WTO and the so-called global marketplace, complete with its real dangers for developing countries. To me this was shades of Canute and the Waves, bearing in mind that Canute knew the waves could not be stopped. The whole story is much misunderstood but, as I am sure you know, he was seeking to get his nobles to understand and accept this reality. Bearing all this in mind, this letter will seek to answer the three questions: 1. 2. 3.

Did Washington ask me for anything specific in 1991 when I was seeking the cushion for liberalisation? Why did we go to the IMF in 1977? Did we execute a 180° policy turn in 1989? I will begin with the two shorter issues. From Socialism, to Neo-Liberalism

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Liberalisation and the Cushion The conviction that we should remove controls over the ownership and trading of US dollars was finally arrived at by me personally around the end of 1990, and after at least a year of discussion and analysis in Cabinet and among the members of my advisory group, which consisted of people like G. Arthur Brown, Omar Davies, Mayer Matalon, Don Ebanks and Alister Mclntyre, as I recall. By early in 1991, Cabinet had finally united behind the proposal. Our next task was to try to secure a foreign exchange cushion which would help to stabilise the dollar whenever the liberalisation took place. I visited Washington more than once to see the top people in the IMF, World Bank, IDB and US Treasury. In each case we contended that the action which we wished to take was justified in our minds as an important element in the whole programme which was designed to energise the productive sector of Jamaica and to prepare it for the world of relentless global competition which we foresaw, indeed which was already upon us. Prior to this, in the course of the programme of activity which led to the first major act of debt forgiveness by a US government involving the PL480 Loans, I had worked very closely with the US Treasury and with both House of Representatives and Senate. This came after persuading President Bush to take the step, in my long discussions at the White House early in 1990, a visit that preceded my long and nearly fatal bout with pneumonia in that year. Ironically, I believe I contracted the illness in Blair House! When I resumed my duties, I used to call people like the Chairmen of the House and Senate Ways & Means Committees on a planned programme since the White House could propose to forgive the debt but it also required Congressional approval. As a consequence of all of that, there was a substantial working relationship which had developed, involving the Treasury and the corresponding congressional bodies. We were now trying to see if we could put together a financial package that would involve elements from the World Bank, IDB and Treasury which would add up to the $50 million. You ask whether I was ever requested to do anything in return for this support. The answer is no. When you think about it, two things are worth bearing in mind. Firstly, the privatisation programme which we were continuing to implement represented a substantial step in a direction 280

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of which Washington was bound to approve. Now liberalisation of the dollar was being considered, again bound to enjoy the same support. However, I state categorically that it was never, repeat never, considered as part of any attempt to win Washington's approval. The justification for the action arose entirely from our sense of where the world economy was heading and what we needed to do to shake Jamaica out of its old habits of dependence which go far back into the very womb of colonialism. Secondly, a Republican administration had tried in 1976 to make the granting of requested financial support, on that occasion, a request for a $100 million, conditional upon the withholding of support from Cuba's heroic defence of Angola against South Africa, the CIA and their stooge, Savimbi. My refusal to entertain such a course was based on the fact that it was contrary to the principles of the anti-apartheid movement and our fraternal commitment to Cuba. I was not prepared to compromise either obligation, even for $100 million for our battered economy, at that time, not at any time since. Incidentally, the active involvement of the CIA in the JLP's destabilisation programme dates from this precise moment. May I remark in parenthesis that even while I was persuading President Bush to forgive the PL480 debt I was continuing at another point in that same meeting to tell him that their policy towards Cuba was wrong and would never have my support. It is true that I set out consciously from 1989 to mend fences with Washington. Nonetheless Washington had learned that I was never willing to trade things in which I believed deeply, for their favour. Anyway the short story is that they asked for nothing but, as it turned out, did not grant the $50 million cushion of support. I cannot say what consultation took place behind the scenes, but suffice it to say that by the middle of 1991 each institution had confirmed that they were unwilling to contribute to the support which we requested. This left us with one of the most difficult decisions, certainly, I have ever taken in my public life. It was whether to go without the support or to wait for some more favourable set of circumstances. I take full responsibility for the decision to go because I was and still am convinced that there never would have been this favourable set of circumstances. There was no other possible source from which we could have secured that level of money. At the same time, experience had shown that foreign exchange was leaking out of the system as fast as it was earned under From Socialism to Neo-Liberalism

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the existing arrangements. In other words the elements did not exist to create a favourable set of circumstances in the foreseeable future. I have no quarrel with anyone who argues against the liberalisation concerning the dollar. What I would look for is a closely reasoned account of how Jamaica would have prepared itself for the global reality which is a fact, whether we like it or not, and which is not itself the creature of Thatcherism. The policies which have been fashioned by the Right, in response to that global reality, have been largely fashioned by the Thatcherite counter-revolution, not the reality itself. There is also the separate question of how the Jamaican economy might have been managed between 1992 and 1996, and in particular in early 1993, to hold the dollar reasonably steady in the region of 22 to 1 as against the 40 to 1 which now obtains. There is much evidence to support the view that a substantial investment loan was in the works in '93 but collapsed when the dollar moved from 22 to 1 to 33 to 1, and now to 40 to 1. How I approach the question of a new paradigm for developing countries in the face of the increasingly globalised marketplace is also another matter requiring a separate discussion. This should include the question: should you try to prepare your economy for a worst case scenario while you fight against the unfavourable course of events; or should you proceed as usual in the hope that you will succeed in attempting to change events?

The IMF and the People's Plan Now to the decision to go to the IMF. I will not weary you with any long recitation of the sequence of events. I am sure you know a lot about it, although you would have heard it mainly from Beckford's perspective. The key issue was, once again, foreign exchange. The People's Plan was an exciting new departure for Jamaica and undertaken with my strong support. However, in the final analysis there was a brutal question that could not be ignored, to wit, how would we finance the Jamaican society's needs with respect to foreign exchange in the early years of the plan? The objective reality revealed a two-party system with an entrenched Opposition of substance, numbers, part of a cultural tradition, and be it remembered, with powerful paramilitary elements. A constitutional army was in place. In the face of these political realities was the fact that if we could not find a substantial source of foreign exchange support, virtually the 282

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entire manufacturing sector of the Jamaican economy would collapse within a foreseeable period because the sector was a net foreign exchange user. Anybody not blinded by romantic delusions, however sincerely embraced, would realise that the political situation of the Government in 1977 would have been completely untenable without special foreign exchange support until the productive proposals of the People's Plan would bite and pull us through to a new economic situation. In 1975-76, the attempt to raise the $100 million line of credit had failed for reasons which I have set out clearly in Struggle in the Periphery. Our support of Cuba had been shortly followed by a mounting CIA involvement in the paramilitary activities that were already ripping Jamaica apart. How they would have loved to have thousands of workers in the manufacturing sector out of work with the entire trade union movement in an uproar! With what delight would they have seized upon the fact that the bulk of the victims were part of the working class heartland of political support for the Government! As you know, a mission in search of foreign exchange support was dispatched through Cuba to the Soviet Union and other parts of that system. The Cubans warned us that it had no chance of success but we persevered. In due course the mission returned empty-handed. It is at that point that the decision was taken to go to the IMF. It is a part of Jamaica's tragedy that no support could be found that could have enabled us to stay alive through the early days of the People's Plan. It is also a part of Jamaica's tragedy that so many members of the left, though by no means all, at that time opted to retreat into a surly bitterness, contending that everything had been betrayed. Perhaps if they could have looked at the objective realities of the Jamaican social, economic and political system and really joined hands, however sadly, in the course which we attempted in 1977, the course of history might have been discernibly different. This 1977 course must never be confused with the hell that was let loose when we failed the IMF test at the end of that year and were crucified by the 1978 IMF programme. One of the problems that needs to be unravelled concerns what actually occurred in the period immediately following the decision to go to the IMF. The People's Plan was as much a programme for mobilisation as a set of production specifics. The parts of it which might have been salvaged could only have been implemented by people who believed in it. But the majority of these were hurling charges of betrayal rather than offering to work out how a partial salvage operation might From Socialism to Neo-Liberalism

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have been undertaken. Of course, in discussing the People's Plan, the IMF and Foreign Exchange, I am not dealing with economic policies which contributed to the foreign exchange crisis during the period best known for the stagflation phenomenon. That is the subject for another debate. The foreign exchange situation was an objective reality during the period when the decision to go to the IMF was taken. In the meantime, I do not quarrel about what happened, but deep in my heart is an ironic question: who really needs history's absolution?

The Change in Economic Strategy I now come to the changes in policy that followed the reassessment by the PNP between 1981 and 1988, and the return to office in 1989. May I set the entire question of policy in context. Any attempt to evaluate the direction of government policy must be set in ideological context. In our lifetime we have seen two extreme views. On the one hand there is the Stalinist interpretation of MarxismLeninism. The state became supreme in production, planning and in the social support systems such as education and health. Even the concept of the small, individual producer in agriculture and business was eliminated. More recently, we have seen an equally extreme counterideology in which the state is seen as an evil, to be kept to an irreducible minimum. This, of course, is the basis of the radical Republican revolution in the United States, a logical extension of Thatcherism. Between these maximalist and minimalist extremes lies an ideological expanse which has been occupied, at one point or another, by everything from the pragmatic conservatism of the Tories before Thatcher, through the social activism of the Roosevelt Democrats, to Scandinavian social democracy. The People's National Party has, throughout its history, taken its position at various points within this broad ideological middle ground, always somewhere from the middle to the middle-left, if we must jargonise it. Equally, the JLP has always been found somewhere from the middle to the middle-right. Certainly, during the 1970s the PNP neither preached, nor planned, nor espoused any form of extreme statist control of the economy or the surrounding social system. There were always two issues: one involved the role of the state; the second involved sovereignty, meaning local ownership. It is the second which was central to PNP policy in this 284

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period. Indeed, it is clearly stated in Principles and Objectives of the PNP. Democratic Socialism is described as: 'A process rather than a rigid dogma .... Its application must depend on the particular conditions which obtain from time to time in each country'. Concerning economic control, it says: Social ownership, though fundamental, is not the only basis for the exercise of social control. Control can be exercised directly by the people through co-operative and other participatory institutions and indirectly by the state acting on behalf of the working people or by worker participation in private enterprise.

This is not a statist formulation; and be it observed, all this is written before the long reassessment of policy undertaken in the 1980s. Always the role of the state has been conceived in pragmatic terms although there have been considerable changes in the view taken of the extent to which the state should be directly involved in production and in regulation of the economy. Before assessing change in the 1990s, the policies of the 70s must be viewed realistically and it is important to look at seven critical areas: production; regulation of the economy; self-reliance; supporting social infrastructure; democratisation; foreign policy; and culture. It is not possible to include a comprehensive review of the entire programme of the 1970s. Hence I will omit the huge housing programme, the literacy drive, the redirection of state involvement in sports development and a host of other achievements. Instead I have chosen areas, admittedly arbitrarily, which I think establish the central core of the 70s project and the thinking behind it. Let us start with production. There were two primary objectives. The first was to use the state in areas of the economy which were ignored by the private sector, or deemed to be of strategic importance, and to try to reduce the extent to which the traditional oligarchy dominated economic activity. Bearing these in mind, the government sought a presence in the financial sector, which led to the acquisition of Barclay's Bank by the government. It led to the negotiation of a minority presence in joint-venture with the bauxite corporations in that industry. It led to the setting up of a small number of state farms as part of a nutritional programme primarily aimed at the school-feeding programme. On the other hand, the acquisition of a number of hotels which were about to

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be shut down by their foreign owners and operators (because of the severe contraction in the industry which followed the stagflation crisis, itself the product of the oil price shock and post-Vietnam war inflation) owed absolutely nothing to any ideologically driven desire to secure a state presence in the hotel industry. The government had underwritten large loans which it would have had to continue to service, and in any event wished to maintain Jamaica's presence in the tourism market. In the era of economic regulation there was a strong policy of price controls and foreign currency management. There was also a very active policy aimed at protecting some industries, including the total exclusion of certain imports. The import control policy leads us directly to the philosophy of self-reliance. We worked assiduously to create the conditions within which local producers would be encouraged to produce to fill gaps in meeting the consumers' needs. At the same time we were determined to strengthen the linkages within the economy, and set up government companies in certain areas like food processing, or as an adjunct to the school-feeding programme. In social policy we completely revolutionised the structure of social legislation. I will not bother to elaborate because this is well documented and prompted my earlier comment about social changes which were irreversible. At the same time there was the quantum leap in the availability of secondary education, along with substantial gains at the primary and tertiary levels. And here I pause to repudiate absolutely the suggestion that we were wrong to use some of the bauxite levy to finance the heavy new investment in education. When we came to office in 1972, post-primary education was minimal. Bear in mind that each age cohort is approximately 55,000. In 1972 a grand total of 20,000 out of the 55,000 were able to enter schools each year to receive genuine secondary education. That means 35,000 were illiterate. By the end of our term, that 20,000 had grown to 45,000. Put another way, we found a genuine secondary education population of just over 100,000 in 1972. When we left office, there were 270,000 children in secondary schools, and I regard that as one of the greatest accomplishments of the era. This was a fundamental investment in our economic future, as well as a massive shift in the balance of social opportunity. I suggest that history will show that this greatly outweighs the problem with equality which arose, largely because of the resource constraints which affected the money available to the system after 1975. 286

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It is fascinating to hear this dismissed as populist by many Jamaicans to this day, when every expert in development now agrees that knowledge is more important than even capital and that investment in education is an economic, as much as a social imperative! Democratisation was a critical component of the strategy of the 70s. It had three main elements. We ensured that virtually the entire secondary educational system was put on a basis that involved student councils, the election of classroom representatives and the like. It is not often appreciated that this was a major result of the 70s and the result of deliberate government policy to further the strategic purpose of deepening democracy. Then there was the worker participation programme which sought to involve workers in share ownership and to introduce worker representation into decision-making in industry. Not much was accomplished, because the trade union movement was not ready to participate and employer groups were hostile. But it led to some interesting developments at Workers Bank, Radio Jamaica and the Jamaica Broadcasting Corporation, which adumbrated later developments. The creation of Community Councils was another example of the attempt to deepen democracy. The land reform programme fits partly within the section on the economy, partly under self-reliance and partly under the participatory aspect of democratization. Literally thousands of small farmers were put in secure possession of additional land, and rural unemployed in possession of land for the first time. Interestingly, domestic agriculture became the only sector to maintain positive growth throughout the period. This is another interesting commentary on your suggestion, derived from Beckford, that none of the black majority received any benefit from the 70s, an assessment in the face of which the imagination boggles. Now to Foreign Policy. This stood on two broad and three particular foundations. The first of the two broad foundations led to our extreme, activist position within the Non-Aligned Movement and was aimed at the attempt to focus the energy of the movement on the NIEO, the specifics of which represented an attempt to bring aspects of world economic activity under equitable management. The second broad foundation was our commitment to the regional integration process, beginning with CARICOM, but also aimed at engagement of Jamaica with the Latin American countries of the Caribbean Basin. Again, our From Socialism to Neo-Liberalism

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record of performance as a founder of CARICOM and a co-author of so many policies, including the San Jose Accords with Venezuela and Mexico, needs no elaboration. The first two of the three specific legs were both sacred to me: the anti-apartheid struggle within the broad framework of the decolonisation process; and the defense of Cuba's right to pursue its chosen path irrespective of the hegemonic opposition of the United States. The third was also important, involving direct engagement with Africa. In fact, going beyond protocolary diplomacy, we pioneered relations with Africa. We probed for areas where economic cooperation would make sense. It proved very difficult but led to oil cooperation between Nigeria and Jamaica, as well as broader cultural exchange. The latter had special significance. And so to culture. We wished to use the state to support the powerful, indigenous, cultural movement which exploded in the 1930s and took on new significance by the beginning of the 1970s. This was critical to the development of a sense of self, and thus to self-reliance and a sense of nationhood. We also sought cultural exchange with Africa for reasons far deeper than entertainment. Our African heritage was the colonially induced, dark area of self-denial of the Jamaican psyche. We saw culture as integral to both national self-confidence and to an activist foreign policy. What emerges from this is an economic policy very much within the normal purview of the mixed economy approach, along with high levels of state-driven, social activism and a clear foreign policy. Let us look at this range of policies and make comparisons. In 1989 we were no longer committed to the activist involvement of the state in production, and increasingly abandoned the attempt to control prices and regulate imports. Let us look at each in turn. Privatisation was largely driven by the recognition that it was increasingly difficult for the state to mobilise capital at the rate necessary for modernisation. Eliminating import controls was partly in response to relentless pressure by the multilateral financial institutions. Neither was essentially driven by a change in ideology and the intention was to insist on worker involvement in ownership. On the other hand, price decontrol did represent a major policy shift, aimed, hopefully, at energising the distributive side of the economy and a process of consumer activism. In summary, the changes are substantial, both in content and their implications. However, although very important, all this cannot even 288

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remotely be described as representing a 180 degree turn of policy. In the meantime we must bear in mind the context. Indeed, I comment earlier on the basic reasons for the change and raise a fundamental question about how changes we believe to be inevitable should be approached. The privatisation policy as I conceived it in 1989 included three critical components. Firstly, it was to provide the basis for workerparticipation through employee share ownership. Secondly, I intended to spread ownership through other financial instruments which would involve workers such as teachers, nurses or civil servants, in a measure of ownership in the economy. Thirdly, each privatization was to be a source of finance for the Micro Investment Development Agency (MIDA). Nor was MIDA to stand alone. I ordered the resumption of the land reform programme and a review of cooperative policies to see where these might be better organised within the context of land distribution. I also ordered a fresh look at how we might strengthen community structures so that economic developments like MIDA would stand in a more secure community framework, less paralysed by party political tribalism. Where a public utility was concerned, privatisation was to be associated with careful state regulation and was to include careful discussion of investment targets. This was not strictly observed in the case of TOJ where investment targets were successfully discussed but the sale preceded the regulatory agency. The targets have been honoured but it was an open secret that the Government went ahead with the sale because the money was needed to meet an IMF target. In the meantime you may note that there was no intention to privatize institutions like the National Housing Trust (NHT) and the National Housing Corporation. Equally significantly, where bodies like the Government Printing Office were to be privatized, we did so directly to the workers because we felt that the investment targets which were necessary would be manageable. If we had been coming from a Soviet position with respect to production you might describe this as a 180 degree turn. Having regard to the reality of the policies of the 1970s it is not even a 90 degree turn. In my view it would be more realistic to describe it as a 45 degree shift. Furthermore, this has to be seen in the larger context of policy. In my contemplation, there was to be no change in social activism and there certainly was no change in the commitment to regionalism, to culture, to the anti-apartheid struggle or to Cuba; and none in relation From Socialism to Neo-Liberalism

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to Africa. Although I believe, sadly, that the attempt to secure the NIEO was doomed in our generation, I became, and remain, a strong advocate of South-South cooperation and the search for a modus operandi that can make it feasible, even if this must begin modestly. The shifts in economic policy, including the liberalization of the dollar, were born of the conviction that in the twenty-first century Jamaica will face an unyielding reality in the shape of a global marketplace, whether we like it or not. I was, and remain, convinced that countries like ours will survive to the extent that they face this reality and embark upon the path of competitive efficiency. Because I know that small countries are at a huge and unfair disadvantage I continue to work, even after retirement, for regional integration as the means to greater economies of scale, rationalization of production and competitive advantage. I make no apology for this. At the same time I repudiate, totally and absolutely, the suggestion that the policies which I sought to put in place in 1989 represented some form of uncritical, sweeping, neo-liberalism and minimalist ideology. In trying to prepare the country to face the new global reality it seemed to me to be important to talk of private initiative and the imperative of competitive efficiency in the most positive manner possible. I was not only speaking to political followers who were part of a traditional attitude towards government activity in the economy, but also to the population at large, which had spent virtually all of history in a colonial mind-set which sees the government as the great father: a bad father, pre-independence; hopefully, a good father, postindependence; but always a father. Perhaps in the anxiety to urge the country towards a frame of mind geared towards new and harsh realities I may have, upon occasion, overstated the case. Certainly, I was conscious at that time of how far the private sector had been brainwashed to believe that we were all crypto-communists, just biding our time to wipe out the business class and bring the entire productive apparatus under state ownership and control. As you know, that had never, even remotely, been our intention; but it had become a widespread, propaganda-driven perception by 1980. We were not about to have a private sector which refused to invest because they doubted our commitment to their leading role in the productive apparatus. On the other hand, it was my strategic intention to work assiduously and use the state to achieve the sharing of economic power between the 290

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old oligarchy, a new class of entrepreneurs, a dynamic small business sector, an expanding small farmer movement, all in the context of a pervasive system of worker participation — I have often used the phrase — an economy in which everyone owns a fair share and a reasonable piece of the action. In my view, only the state could secure that objective, institutionally and through training. Finally, I had hoped that we would live permanently within a flexible and on-going social partnership secured by the National Planning Council which I set up, representing the political directorate, the bureaucracy, the technocrats, the private sector and the trade union movement. Between 1989 and 1992, no major decision involving economic policy was undertaken without prior consultation and agreement with the private sector and the unions. We first attempted this in the late 1970s but by then the country was hopelessly polarised. Interestingly, the National Housing Trust (NHT) was the product of a type of social contract dialogue before we thought of using the term. When the macro-economic pressures became acute and we began the appeals to the unions for wage restraint, the union leaders used to spend regular sessions with me at Jamaica House. The idea for the NHT came from the union movement at one of those meetings. I leapt upon it and in due course we implemented it. The period 1989 to 1996 does not represent a single, consistent phenomenon. However, to some degree some elements of this policy have survived or have begun to resurface recently. I speak in no criticism because each group must determine policy in terms of its own appreciation of reality and its own calculation of priorities. I write you to share the policies which I sought to put in place between 1989 and 1991 and to indicate changes from the 70s with the reasoning behind them, and those continuities which I sought to preserve. In the meantime, in so far as the 1970s are concerned, there are groups who accuse me of trying to justify them; other groups who accuse me of selling them short; still other groups who say that my radicalism smashed up Jamaica; and even other groups who say that my conservatism made those years a failure. In the very small number of things I have set out in my letters to you I seek only to separate the reality from the fiction; the truth from the conflicting streams of propaganda which surround events. In the end, there were mistakes, but there were also enormous accomplishments. It is good to have an

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opportunity to discuss them rationally and to feel that the letters are addressed to a person who is more concerned with honest scholarship than with propagandist distortion. A personal comment. I cannot recall the remark concerning Adam Smith. However, I must remind you that it is a far cry from Marx and his vision to its implementation under Stalin. It is equally far, I suggest, from the process which Adam Smith contemplated to capitalism by, say, the early years of the twentieth century. There is always a long distance between ideal and actuality. In Adam Smith's case, take away the misplaced faith in the capacity of the hidden hand of the market to produce equitable results and we are left with a model likely to facilitate energetic economic activity in a widely shared system of ownership. Perhaps this is what was in my mind at the time to which you refer. It is still true. Yours sincerely, Michael Manley

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April 29, 1996 Dear Mr Manley, Congratulations on your spirited defence of the 70s in the address you delivered last week at the Wyndham. It was an historic occasion and I am privileged to have heard you break silence to recall the long socialist traditions of the People's National Party. If my treatment of the 70s in the Beckford Lecture contributed to motivating you to claim credit due for the social legislation introduced by your administration, it will have served a useful purpose. More than that, your account of the defence of Jamaica's sovereignty over natural resources (bauxite), support for the NIEO, Cuban intervention in Southern Africa, etc, recalls a time, not so long ago, when Jamaica enjoyed the admiration of the world as a small country with the courage to stand up to the big and the powerful. I look forward to the next instalment of our correspondence, where you have promised to deal with 'destabilisation,' the reasons why you changed your mind about a 'non IMF path', the turn in your thinking in the 1980s, and why you embraced such an extreme form of liberalisation in the 1990s.2 I have no problem in standing corrected about the enduring impact of the social legislation of the 70s, or in being reminded of the proud record of Jamaica in the international arena. My distress was with the frustration of the hopes raised in the 70s, with the persistence of gross inequalities of income and assets, and deep cleavages of class and race — notwithstanding upward mobility of employment in the financial and corporate sectors. Until the privileged classes, whatever their colour or shade, learn to respect the humanity of the labouring classes, there can be no sustainable economic development in Jamaica. The plantation legacy hangs heavy over the country. I sometimes wonder whether we are not going backward, back to colonialism, back to dependence and mimicry of things foreign. I like your suggestion that we publish this correspondence to initiate a retrospective on the 70s, and a discussion of the prospect for development with equity and social justice in the difficult conditions of 'neo-liberalisation.' How to terminate this exchange? On receipt of your

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next (long) communication, I will resist temptation of continued debate, leaving it to others to take up the issues raised. Instead, I would like to respond with a (very brief) forward-looking summary of problems and possibilities facing us in this 'globalised' world order/disorder. To close the correspondence, the last word must be yours! Perhaps you might wish to invite one of our colleagues who have shared this correspondence to write a brief introduction? With best wishes, Kari Levitt

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May 2,1996. Dear Professor Levitt, Thank you for your gracious letter of April 29.1 share more of your misgivings about our times than you probably realise. I will be editing the speech at Wyndham for a pamphlet and both video and sound cassette will be available to whoever wants to listen. I plan a second (final) speech in which I will go through the 80s, along with the factors as we saw them. I will devote the rest of the speech to what was in my mind for the future. (I touch upon it in my letter to you.) People will at least be able to assess what was my view of where we should be heading, some of it in the pieces I wrote for the Party and called The Compass. This can be weighed against their view of what has actually happened. Incidentally, the first thing a politician learns is that the last word is never his/hers. The best you can hope for is the second-to-last word! The offer at the end of your letter takes me into completely unfamiliar territory! I will look for someone to write the Introductory. Regards, Sincerely, Michael Manley

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May 10, 1996

Dear Mr Manley, Thank you for your cordial letter of May 2. I am glad to hear that you plan to publish the text of your two public lectures. I believe the time has come for a careful retrospective of the accomplishments and the mistakes of the 70s and the 80s. The emphasis now placed on human resource development, 'social capital' and 'social partnership' in explaining successful economic development, focuses attention on underlying societal relations and social policy as a critical factor in development. The pioneering social legislation of the 70s, initiatives like the community enterprise organisations (CEOs), and more generally the emphasis placed on 'the land and the people' as Jamaica's principal economic asset is an approach which invites re-evaluation and revalidation. It motivated a lifetime of scholarly work by George Beckford. It is in the 'people' area of social relations and personal motivation that we may hope to find the key to lifting Jamaica out of stagnation, instability and crisis, both chronic (since 1973) and acute (since 1990). I sense a (slow) revival of critical thought in the society, and welcome your participation as witness and key actor in Jamaican and Caribbean events over the past three decades, or more. What is at stake here is not who was right and who was wrong in any particular matter, or what skeletons are hiding in whose closet, but how to free Jamaica from the miasma of a plantation legacy of profound disrespect for the majority classes of the country; how to liberate the energy and creativity of all the people to participate as equal and respected citizens in a concerted programme of increased production for domestic and external markets; and how to resist the drift of Jamaica and the rest of the English-speaking Caribbean into a quasi-colonial relationship with the United States. There is a heavy agenda of fundamental research to be done to define for ourselves, from a Caribbean viewpoint, the options and possibilities of what is and what is not possible, given the complexities of international economic relations, our geographic location, and the cultural and historical heritage which links the Caribbean with Africa, Asia and Europe as well as North America. The first priority is a careful examination of the nature of the changes 296

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in the world economy, popularly known as 'globalisation.' We must be mindful not to fall victim to buzz words and cliches. Regional, subregional and ethnic identities and nationalisms play a far greater role in the restructured post cold-war world than is apparent by looking only at money markets and transnational corporations. Secondly, we must seek to understand how and why power relations in the 'structurally adjusted' world order favour rentier interests over productive activity, as reflected in internationally prevailing high real rates of interest. Thirdly, the thrust to 'globalised' markets and international competitiveness has escalated insecurity of economic livelihood for the masses of ordinary people on a world scale ('winners and losers'). We must track reactive and protective countervailing forces, with special reference to the Latin American and Caribbean region. Fourthly, we must assess the significance of changes in domestic class and race relations, resulting from a decade or more of 'structural adjustment' and economic liberalisation, to locate the true sources of dynamic entrepreneurial activity, and to redefine the role of government in contemporary Caribbean society. Fifthly, we must identify measures which can realistically be taken in the areas of foreign and domestic policy to defend the achievements of previous generations in struggles against colonialism and exploitation; to re-assert sovereignty of policy formulation in a world which is more complex than the advocates of 'international competitiveness' would have us believe. With due respect to your intentions, as explained in your contributions to this correspondence, I maintain my position that the sweeping economic liberalisation measures of 1990-1992 were a serious mistake which precipitated a vicious spiral of devaluation and inflation, and encouraged irresponsible behaviour by a financial and commercial sector which seized the opportunity to 'get rich quick' at the expense of the productive capacity of the country. I believe Jamaica's accelerated liberalisation was predicated on a simplistic reading of the exigencies of 'globalisation'; an unrealistic reliance on the goodwill of the United States; and a naive belief in the capacity of unregulated market forces to produce equilibrium in the foreign exchange and capital markets. I think it is now clear that the neo-liberal model has failed to deliver either stability or growth. Floating exchange rates and perpetual devaluations proved to be disastrous, and have mercifully been abandoned From Socialism to Neo-Liberalism

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in favour of exchange rate stability. They failed to close the trade gap, which has now been aggravated by the reduction in duty on motor vehicles and the encouragement of the importation of used cars, and is out of control. Last year, two thirds of bank credit was allocated to consumption expenditures. The manufacturing industry is in decline, unable to compete with imports from higher wage CARICOM countries. Equipment is run down. Plants are closing. The 'mopping up of liquidity' by issue of Certificates of Deposits (CDs) has acted as an engine of redistribution of income from the poor to the rich. It has increased the fiscal burden of (domestic) debt service. It has generated an increase in the money supply which threatens to destabilise the exchange rate if it is not sterilised by continuous rolling over in high yield, short term government paper. Physical and social infrastructure is a shambles, but the government lacks the financial resources to make good the decay of years of fiscal compression. There is no need to go on. The model is not working. Perhaps it can work in other countries where political democracy was suspended for long periods of time — as in Chile. Be that as it may, it is not working in Jamaica. Recently voices have been raised to say what many Jamaicans have thought for a long time. There is a proposal to raise import duties on non-essential consumer goods. A case has been made for the protection of the dairy and poultry industries from excessive external competition, as is done in all the industrial countries. It has been suggested that the CD overhang should be moved into equity or debt of profitable public enterprises, as has been done in Mexico, and that the Bank of Jamaica should selectively reward banks which shift their lending portfolios from consumption to productive loans by lower reserve ratios. High interest rates, which have favoured rentier investors, now threaten the collapse of prestigious financial institutions with an escalation in non-performing loans. It is regrettable that the perception of crisis had to await the threat of financial losses by the same people who benefitted from financial liberalization at the expense of the rest of the population, before they were prepared to breach rules of the neoliberal dogmas they previously favoured. The neo-liberal ideology which has pervaded economic discourse for the last decade has contributed to the erosion of traditional values of service and decency in interpersonal relations. It has lent legitimacy to anti-social behaviour at all levels of society. It is destructive of the social capital of trust and respect. It ascribes rationality to self-serving behaviour by politicians and public servants. It devalues society and 298

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country. It is, incidentally, as unfair to charge Adam Smith with the doctrinaire neo-classical economics which accompanied liberalisation conditionalities, as it is to charge Karl Marx with Stalinist atrocities. So let us put Adam Smith to rest in peace! I do not wish to be misunderstood concerning the fundamental changes in the economic environment which have taken place over the past two decades. They are largely irreversible, as is much of the domestic liberalisation imposed on indebted countries by structural adjustment programmes. It is neither possible nor desirable to return to policy regimes of excessive protection of domestic markets. Moreover, there are promising possibilities of 'non-traditional' niche markets for Caribbean high quality/high value products and services — as in the area of speciality 'personal care' health and cultural 'tourism' based on climate, proximity, and the ageing of diaspora and mainstream populations in North America and Europe. Having said this, however, we cannot afford to permit the investment in physical, social, and human capital made in Caribbean agriculture and manufacturing for domestic and CARICOM markets to be eroded and destroyed by irresponsible policies of excessive liberalisation. Nor can we afford to permit the continued deterioration of educational and health facilities. There is a widely felt sentiment that it is time for the country to take charge of its national economic affairs, which cannot be allowed to drift by virtue of neo-liberal policies, or populist political expediency. In closing, I appeal to you to revisit the issue of sovereignty of small Caribbean countries in the post Cold War reordering of the world. Please correct me if I am mistaken, but I have the distinct impression that when you 'turned your ideas on their head' in the late 1980s, you dismissed 'sovereignty' as having limited significance in a globalised world where transnational corporations locate the production and assembly of a single motor car in several countries, and preferential trading arrangements like CBI and ACP are due to be phased out. I draw your attention to a recent paper by Mr Elliot Abrams, former Assistant Secretary for Inter-American affairs during the Reagan administration, and influential in Republican circles. In a paper entitled 'The Shiprider Solution: Policing the Caribbean' (The National Interest, Spring 1996), Abrams questions the future 'economic viability' of the Caribbean, identified as an 'area of instability' in the 1990s constituting a national security concern for the United States 'in our front yard.' The From Socialism to Neo-Liberalism

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small countries of the English-speaking Caribbean, 'who export little, have few resources except sand (except for Trinidad) and need more far jobs than they are creating' are potential sources of population migration, drug trafficking and political instability. The 1990 attempted coup in Trinidad is cited as an example. The proposed solution, aptly characterised as an 'Atlanticised Brezhnev Doctrine' of 'limited sovereignty' by a Trinidad-based commentator, is set out by Mr Abrams as consisting of 'a voluntary beneficial erosion of sovereignty' whereby the United States, 'as the only major power that has a border (sic) in the Caribbean' would assume control over the external security of Caribbean island states, in exchange for economic and trade benefits — NAFTA parity for Jamaica and other larger countries; increased aid in perpetuity for the smaller countries of the Eastern Caribbean. Whatever your views concerning the limitations of sovereignty in the era of globalised free trade, I find it difficult to imagine that you would not share the conclusion of Mr Carl Parris, director of the Institute of International Relations at St Augustine, that 'to depict the sovereignty of Caribbean states in the light of a potential and/or future "threat" to US national security is a warning bell to the region as a whole.' I quote from the concluding passages of his memorandum, and enclose a copy, together with the article by Mr Abrams. All of this highlights the extent to which it is imperative that Caribbean states exercise the greatest possible solidarity among each other, and resist any attempt to isolate and destroy the sovereignty of any state in the region, whether it be through political arm-twisting or economic strangulation. Beyond the imperatives of regional solidarity, psycho-historical links, or even ethnic affinities, it is in the strategic interest of all Caribbean states to assist the Republic of Cuba — which now is going through a painful process of socioeconomic reconversion and political/ethnic democratisation — to succeed in its attempt to return to the Caribbean. Only thus, and by the implementation of a thorough regional integration, with deliberate speed, may the Caribbean form its first, its truly first endogenous Alliance For Progress, an alliance that will render costly, if not impossible, any attempt at the curtailment and/or abrogation of sovereignty of any of its constituent nations, small or large.

Whatever anybody may say about Michael Manley, nobody can deny your commitment to the region, to the Caribbean Community,

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and to the defence of the sovereignty of Cuba — so costly in the 70s in terms of political capital, domestically and in Washington. The Caribbean islands of the Greater and Lesser Antilles, together with the mainland territories of Belize, Guyana and Suriname constitute a community of over 50 million people, with living and vital cultural and economic ties with Europe, Africa, and Latin America as well as North America. Can we permit a definition of the Caribbean in terms of unwanted immigrants, drug traffickers and potential sources of 'instability' to determine our economic relations with the United States, Latin America and Europe? Does the issue of 'sovereignty' not require a renewed initiative toward some form of confederation of Caribbean states, defined by historic and cultural ties of 500 years of shared experience, rather than by United States political/military strategists seeking new roles in the post Cold War era? I think it appropriate to end this correspondence on the theme of Caribbean unity, and with a sincere Jamaican 'Respect.' With my very best wishes and thanks for your appreciation that my contributions to this correspondence are motivated by 'honest scholarship' and the search for solutions to the problems of Jamaica and the larger Caribbean region. In this, as I stated in my lecture last November, I have been guided and assisted by the spirit of our friend and colleague, George Beckford. Kari Polanyi Levitt

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May 20, 1996.

Dear Professor Levitt, I found your original lecture interesting in part, misinformed in part, and misguided in part. Your reply to my first letter made concessions, albeit tiny, and raised questions. At least it suggested that you had bothered to read what I wrote! I was encouraged to feel that dialogue was possible. Your last letter in the form of a tirade has laid to rest the very notion of dialogue. It is clear that you are the victim of an idee fixe. You seem driven by a compulsion to dismiss the PNP regardless, and with it any sense of the unfolding reality which is today's world. Even your choice of coordinates, 1973 and 1990, betray, firstly, an abysmal failure to understand the nature of the Jamaican social crisis as it gathered momentum in the five years before 1972. Secondly, you are equally oblivious to the horrendous price Jamaica paid for the insane borrowing and the indiscriminate sale of national assets between 1980 and 1989 — all to keep Jamaica from facing the hard realities to be met and overcome if we were to return to a path of economic growth. Even worse is the implied forgiveness of the crass, cynical, money jingling philosophy of the 1980s which laid the basis for the prevailing mood of unrelieved materialism. Or are you merely out of touch? Suffice it to say that I suggest you write your own pamphlet or publish your own lecture — or not, as you please. In due course I will publish my own views on post-Independence Jamaica in the world post-CANCUN, 1981. Those who have to face the challenge of action may make mistakes. Meantime, those who reside permanently in the world of ideas, alone and untested, do not help anyone when they refuse to accept that reality is more complex than theory. Yours sincerely, Michael Manley

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May 28, 1996

Dear Mr Manley, I am sincerely distressed that our attempted dialogue has aborted, and that my last communication has created such unfortunate misunderstandings between us. It was certainly never my intention to 'dismiss' the PNP, or to 'forgive' Mr Seaga for accepting the US$2 billion which put Jamaica into receivership to the IFIs, or his encouragement of what you so rightly describe as the 'crass, cynical "money-jingling" philosophy' of the 1980s. I have consistently drawn attention to his responsibility for Jamaica's burdensome external debt, in writing and public comment. I regret that you interpreted what I wrote as hostile in any way. That was certainly not my intention. I don't think we are in disagreement about the important things that really matter — values of equity, decency, and respect for all citizens regardless of class and race. Does a disagreement about details of economic policy really merit a breach of communication? Your explanation concerning your decision on financial and exchange rate liberalisation in 1991 is an important contribution to the clarification of the sequence of events, and I hope that you are still agreeable to meet with, and to brief me about what you said was 'the most difficult decision you have ever taken in public life.' I am currently researching 'liberalisation' from 1980 to 1995 and would love to meet with you face to face. I have the greatest regard for your many achievements, and respect your views as honest and sincere, even if I cannot always agree with them. I thought our correspondence was useful in directing attention to the many positive achievements of the 70s, and in opening a debate on the causes and consequences of liberalization. I hope we can close the rift which has developed between us. Perhaps you may even reconsider publication of our correspondence without my last communication? I should however explain that my intention in that letter was to appeal to you to bring to bear your authority to address problems facing us now and in the future, which the present administration seem incapable of comprehending, much less addressing. Among these are the issues of sovereignty and the urgency of new initiatives to unite the countries of the Caribbean to protect and defend the gains made since the revolution in Cuba, the expulsion of the Duvaliers from Haiti and decolonisation From Socialism to Neo-Liberalism

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in the English speaking Caribbean. Nobody could be more effective in such a role than Michael Manley. Once again, regrets at the misunderstanding. Please accept my best wishes for your health and many more years of service to Jamaica and the Caribbean. Yours sincerely, Kari Levitt

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May 30,1996. Dear Professor Levitt: I was very pleased to get your letter of May 28. I am relieved to think that it may well be possible to rescue what could be an interesting and stimulating dialogue, perhaps prompting some reflection and even new thinking. The problem with the letter which made me feel that it might be better to forget the project was this: I had written to you, in no way seeking your approval but, rather, to explain the beginnings of a process in my mind which I continue to pursue. I cannot speak for anyone else but I have never surrendered my ideals and have never ceased to regard myself as a Socialist (of course I hasten to add, a Socialist somewhat in the Fabian tradition and substantially influenced by people like Harold Laski). Others approach the subject differently; certainly Beckford did, along with others of the University group. With the deepest respect, I refuse to accept a judgement of anything that I do by reference to an imaginary interpretation of me. I expect people to disagree and expect to be judged. But I find it intellectually intolerable for people to invent a me that never existed and then to condemn me because I do not conform to this imaginary standard. I felt that your letter totally ignored anything that I had tried to explain, yet it was written in a context that suggested that it was your judgement of my present views. For example, the comment about a naive faith in the US is so wide of the mark where I am concerned as to leave me in a state of gasping incredulity. I watch much of what is going on in the US today with dismay verging on horror. I seemed to gather from your last letter that some of the strictures in the letter before reflected general comments about contemporary affairs and were not intended as a direct response to the on-going dialogue. Anyway, enough of all that. I have no concern with whether any remarks of mine end the dialogue or not. What seems to be important is that the dialogue represents a logical sequence of thinking and comment. I would be happy to try to figure out how this might best be done since it is probably better that we stop the exchanges somewhat short of War and Peace. Perhaps you might turn your mind to how this might best be done. Yours sincerely, Michael Manley From Socialism to Neo-Liberalism

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P.S. Incidentally, I discovered recently, almost by chance, what is supposed to have caused the bitterness in the minds of people like Beckford. Apparently they had, with tragic paranoia, persuaded themselves that I had never taken the People's Production Plan seriously, merely allowing them to go through the motions as a way of keeping them quiet. According to this version I intended to go the IMF route all along and it is even suggested that I had authorised secret negotiations to this end while they were busting their guts. This is not only factually and demonstrably totally untrue, but it also reflects a completely false reading of the kind of person that I am. If I had felt that the Production Plan could have succeeded and kept us out of the grip of the IMF, I would have regarded it as the crowning achievement of my life. Needless to say, I heard the story with a mixture of dismay and sadness about the folly to which people commit themselves where communication succumbs to mistrust.

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June 7,1996 Dear Mr Manley, I recently returned from a visit to Trinidad and was greatly relieved to find your letter of May 30.1 am much more comfortable with Peace! As for our continuing dialogue, I propose to re-read our whole correspondence, and reflect on how we can wind it up and pass the baton to the next generation. I have to pay a short business visit to Canada and shall be back on June 26, 1996. Perhaps this intermission will create a useful space of reflection within which I will attempt to identify the principal issues which have been raised in our exchange. You will hear from me as soon as I return. With my very best wishes, Sincerely, Kari Levitt

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July 5, 1996 Dear Mr Manley, I hope this note finds you well in health and spirit. I am now back in harness after two weeks in Canada, and turn my mind to our unfinished correspondence. Perhaps this interlude was useful. The dust has settled somewhat on 'War and Peace' and I don't want to stir up any further problems. I have carefully re-read our correspondence, with particular attention to your long and important letter of April 26.1 see no merit in attempting to identify the principal issues raised, as suggested in my last communication. The correspondence speaks for itself, and its merit is perhaps its unfinished nature — an 'unfinished symphony'? Some time ago, we agreed that the time has come for a free ranging retrospective on the 70s and subsequent developments, including the policy shift toward accelerated liberalisation in the 90s. We have shared this correspondence with a number of like-minded colleagues. Perhaps one of them would like to write a brief introduction to the publication of the correspondence, inviting others to participate, in whatever manner they think appropriate. The reality is that we are moving through uncharted waters. The post Cold War world now taking shape holds out no determinate future. Much depends on the determination of people to shape their own future, to protect us from the destructive drive toward unrestrained materialism, greed and violence. The best we can do is to uphold our principles and our faith in the basic good sense, decency and creativity of ordinary people. Like you, I have never regarded myself other than as a socialist. Perhaps history will judge the ideals of socialism to have been a passing phase of western civilisation. I don't personally think so, but we are shaped and limited by our shared generational experiences. But we have a responsibility to younger people to put on the record the endeavours, struggles, achievements and mistakes of our generation. If this correspondence can initiate a frank and honest exchange of assessments of the past 25 years of Jamaican and Caribbean experience, it will have served a useful purpose. Please let me know what you think. There is an initiative to found a new journal of critical thought, which might serve as an appropriate forum for such a discussion. With my sincerest best wishes, Kari Polanyi Levitt. 308

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July 19,1996. Dear Professor Levitt, Thank you for your letter of July 5. I agree that it might be best to publish the correspondence without further comment. I would only make two small points: Certainly in my own case, I would like to make one or two editorial corrections and in one instance that I can remember state a set of figures more accurately than appeared in one of my letters which was written purely from memory. I would expect you to do the same although, being the good scholar that you are, there probably is nothing that could be improved! As to an introductory comment, three names suggest themselves to me: Rex, Rupie Lewis or Tony Bogues. Each would be eminently qualified. What do you think? Regards, Sincerely, Michael Manley

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July 23,1996 Dear Mr Manley, Thanks for yours of July 19.1 am very happy that you have decided to go ahead with publication of 'war and peace.' Of course both of us must look over the texts of our letters to make any corrections deemed appropriate. And please feel free to add anything you may wish to clarify. As a matter of fact I was vexed to discover that several quite important lines were inadvertently left out of my last letter of July 5. I enclose a corrected copy for your file. I spoke with Rex, who has agreed to write an introduction. I also spoke with David Scott, who would very much like to have our correspondence for the first issue of his new journal Small Axe, if you are agreeable. Several of our colleagues are on the advisory board of this journal, including Rex, Rupie Lewis and Tony Bogues. He will contact you directly, to request a corrected version of your letters on diskette. With very best wishes to you and yours, Kari Levitt

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11

Lessons of the Seventies for the Next Generation1

Positioning Myself Although I was a frequent visitor to Jamaica in the 1960s and 1970s and a Visiting Professor with the Department of Economics from 1978 to 1980,1 was essentially an interested observer rather than a participant in the events of the 70s. From 1969 to 1975 I lived and worked in Trinidad, in the days of Black Power — the formative experience of a generation of youth of the Eastern Caribbean whose most dramatic achievement was the Grenada Revolution of 1979. When I first arrived in Jamaica in 1961 I was shocked at the gross inequalities of class and race, which became progressively more oppressive as the economic boom spawned a new middle class and virtual castles were carved into the hills of St Andrew. The contrast between the relatively more fluid social relations of Trinidad and the deep cleavages of class and race in Jamaica was — and remains — a shock, when moving between Jamaica and the Eastern Caribbean. It is difficult for younger Jamaicans who do not know the rest of the region to understand how different Jamaica is from Trinidad or Barbados in that regard. In Jamaica, ethnic cleavages are not explicit, like those between populations of East Indian and African origin in Trinidad or Guyana. But the social distance between the 'brown' Jamaican ruling (not owning!) class and the black masses is as deep as that between the Creoles of Latin America and the original 'Indian' populations of Mexico or Andean America. The legacy of the slave plantation continues to hang over Jamaican society. This is the essence of the plantation economy analysis which Beckford, Best, Girvan and others, including myself, contributed to Caribbean thought. The persistence of Jamaica's economic and cultural dependence from the 1950s to the 1990s was the subject of my George Beckford Lecture of 1995.2

In that lecture I stated that the opportunity to construct a more self-reliant economy to sustain a more equitable social order was missed in the 70s. This angered Mr Manley and gave rise to an exchange of letters, introduced by Professor Nettleford and published in the first issue of Small Axe. I expressed regret that I did not do justice to the importance of the social programmes of the 70s, but repeated that the opportunity to ground social reform in a viable economic model was missed. By 1976, the 'window of opportunity' had closed. But the construction of an equitable and inclusive society sustained by an equitable and inclusive economy remains on the agenda. With due respect to Mr Manley's conversion to a 'market driven' economic model with provision for worker share-ownership, I maintained that this could never result from following the prescriptions of neoTiberalism. I stood by my opinion, expressed many times since the start of the 1990s, that the currency and financial liberalisation of 1990-93 was premature. As a direct consequence, the country experienced the worst macroeconomic instability in its history, including unprecedented devaluations, a surge of inflation, a stock market bubble, debilitating high interest rates, and a major banking and financial crisis, followed by an excessively generous bail out of mismanaged and overstaffed financial institutions, whose final costs are not yet known. Today Jamaica is drifting in a holding pattern of economic stagnation and unsustainable social tensions. Unresolved problems are pushed to the future by the accumulation of public debt. It is crisis management without vision or effective leadership. There is a crying need for new thinking and new directions. The hegemony of neoliberal ideology is crumbling under the impact of the global financial crisis. The International Monetary Fund has suffered a dramatic loss of intellectual — and financial — capital. There is a growing consensus that the interventions in Asia escalated a minor currency crisis in one small country into a full blown regional financial and economic melt down. IMF policy prescriptions of devaluations, monetary austerity, fiscal surpluses and accelerated currency and financial liberalisation appear singularly inappropriate in the context of deflationary forces sweeping through the world economy. The world is on the brink of a global recession on the scale of the 1930s. The IMF agenda of accelerated capital liberalisation has lost credibility and authority. Some mainstream economists are advocating a return of capital controls. The ideological hold of neo-liberalism is slipping. In this context, a revisiting of the 70s is timely. The lessons are important. Never before or since has 312

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there been such a collective national mobilisation of voluntary energies to effect meaningful change.

Jamaica in the 70s In the 1960s sustained high growth based on foreign investment in bauxite/alumina, tourism and ISI manufacturing produced a new middle class and escalating social tensions. This inequitable model of economic development, strongly biassed toward capital-intensive construction and generous tax holidays for foreign investors, was accompanied by declining total employment. Massive unemployment was alleviated only by large scale emigration. When the PNP won the election of 1972, many believed the country was on the brink of revolution. From 1972 to 1975 a comprehensive programme of social reform was reluctantly accepted by the majority of the middle classes as necessary and overdue. But the PNP failed to capitalise on its political mandate and the popularity of Michael Manley to launch a national programme of economic self-reliance to diminish dependence on primary commodity exports and continued inflows of foreign capital. The temptation to deliver social programmes without regard to the capacity of the economy to sustain them was politically irresistible. The commodity boom of the early 1970s (petroleum, bauxite, sugar) created illusions that Third World producers could turn the terms of trade to their advantage by the use of commodity power. Jamaica, the world's largest bauxite exporter in the mid 1960s, countered the rise in petroleum prices by the bauxite levy and the initiation of the International Bauxite Association. It was believed that a New International Economic Order (NIEO) was a realisable objective with immediate economic benefit. (A more cautious analysis of trends in the bauxite/alumina industry toward the end of the 1960s would have revealed large investments in expanded bauxite production in Australia, Brazil and Guinea). From 1974 on, it was 'redistribution by capital consumption'. Destabilisation by the organised private sector, the opposition party and the Central Intelligence Agency (CIA) contributed to a deteriorating situation in 1975 and 1976. In the election campaign of 1976 the PNP rallied its supporters and won a second mandate. Public expenditure in the election year was financed by printing money. By December 1976 net reserves were negative, external credit was unavailable and the Lessons of the Seventies for the Next Generation

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political capital required to sustain a 'non-IMF' path was dissipating. The private sector and many traditionally PNP middle class voters had turned against the government. The regime was perceived as hostile and 'communist'. Capital flight, which started in 1975 gained momentum, accompanied by the migration of commercial and professional strata. For all the talk of 'socialism', the Jamaican economy was — and remains — a mixed economy, dependent on relations of trust and cooperation between the government, the local private sector, the trade unions and, more generally, civil society. Although I had the greatest respect for the immense effort and sacrifice my left wing colleagues were making, I could not see light at the end of the tunnel. I did not think the Emergency Production Plan was politically or economically feasible in 1977; or the 'non-IMF' path in 1980. Many of the proposals of the Production Plan — including Community Economic Organisations and comprehensive land reform — were right on. But the opportunity for national economic mobilisation was missed in 1974. By 1977 the political capital of trust and confidence vested in Michael Manley in the early 1970s was running out. The professional middle class was alienated; the working class was bitterly divided by party political tribalism; and from mid 1977 the PNP was internally split by Manley's decision to call in the IMF. The slogan of the 1976 election 'Jamaica is Not For Sale' was repeated in a post-election address to the nation early in January 1977. I was here and remember it well. Soon it was learned that negotiations were proceeding with the IMF. How to explain this? How to justify it? George Beckford said history will never forgive Manley. I cannot pass judgment. Manley could have rallied the masses and marched down the road of self reliance — win or lose. He could have fought — and lost — the election of 1980 on the issue of the IMF. Or he could have resigned as party leader and prime minister as did President Nyerere when the government of Tanzania opted for the IMF. From 1978 to 1980 Jamaica was in a virtual state of civil war. I did not think the PNP could win the 1980 election, and I did not think it right to put any more hardship on the population. I was relieved when the PNP lost, because I feared a Chile style bloodbath with most of the middle class and large sections of the working class in support of the coup. In a conference in 1982 I attempted to draw the lessons of the 70s. My comments were reprinted by George Beckford as a 'Maroon Pamphlet'.3 I concluded that the critical mistakes were made in 1973 and 1974 when 314

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the political temptation to deliver immediate benefits to the masses of the people without restraining the expenditure of the middle classes should have been resisted. The windfall foreign exchange gains of the bauxite levy (US$ 200 million) should have been invested in strengthening the productive base, particularly in such key areas as domestic food production. Effective exchange controls and state purchasing agencies should have been put in place long before the foreign exchange kitty was empty in mid 1976. All loopholes to capital flight should have been plugged. The government should have run a tight fiscal ship with greater accountability and a stricter check on the implementation of projects. Because money is fungible, there is a temptation to accept any and every project offered by donors, simply to cream off urgently needed foreign exchange. At the end of that road, the debt trap waits.4

I would not change a word today, except to add that the time for an Emergency Production Plan was in 1974, at the time of the oil shock and the bauxite levy. At that critical moment a programme of economic self-reliance was an appropriate and realistic option, and could have received broad-based support from the country — including the professional and middle classes and some influential members of the private sector. The opportunity passed. Jamaica missed the boat. A selfreliant, equitable and inclusive economy remains on the agenda. But the difficulties of mobilising the required social consensus are now greater because the market driven model which has prevailed since 1980 has increased inequalities and encouraged a mentality of mimicry of things American.

The 80s and the 90s It is important to understand the rupture in the international economic order which resulted from the termination of the Bretton Woods system of fixed exchange rates in 1971-73. Released from balance of payments discipline, international liquidity ballooned. Commodity prices — including sugar — surged. A Eurodollar market enabled developing countries with good export prospects to access sovereign loans from banks awash with liquidity. Toward the mid 1970s the brief commodity boom collapsed. Commodity prices declined and — with occasional blips — have declined ever since. (Petroleum prices began their secular decline, with a ten year delay, in the mid 1980s.) Lessons of the Seventies for the Next Generation

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In 1979/80 the United States in cooperation with the major OECD countries initiated a 'regime change' in macroeconomic policy. A decade of full employment and rising prices in the OECD countries had favoured labour and debtors (private and public) over capital and creditors. Low and negative real interest rates in the 1970s eroded asset values. Corporate profits declined. In the 1980s a shift to hard line monetarism turned the balance of economic power against labour and debtors to favour capital and creditors. In 1980 and 1981 US interest rates jumped to the high teens, precipitating a recession and the great Latin American debt crisis of the 1980s. Jamaica escaped a Latin American style debt crisis because foreign investors had ceased to invest in Jamaica since the mid 1970s, and because the JLP government elected in 1980 was favoured by the Reagan administration with billions of official loans. By the end of the 1980s, Jamaica's external debt stood at $4 billion,5 one of the highest in the world in relation to GDP. After an initial consumption binge, economic and social conditions deteriorated; migration resumed, including large numbers of skilled industrial workers. Migration in the 1980s surpassed levels of the 1960s or the 1970s. Toward the end of the decade there was a brief upturn in growth, frustrated in 1989 when the PNP returned to office and yielded to external and domestic pressures to undertake drastic financial and exchange rate liberalisation, which triggered a large devaluation and a surge of inflation. A proliferation of (unregulated) banks and near banks appeared like grass after rain. Legislation and regulation followed — with a critical lag. Since the mid 1990s, severe credit restriction have driven down inflation at the cost of sustained high interest rates and a mountain of domestic debt. This exercise in monetary engineering has acted as a regressive mechanism of income redistribution. Individuals — and financial institutions — with money to invest in government paper could earn 20 to 40 per cent without risk or trouble, while productive sectors choked on interest charges of 40 to 60 per cent. Debt finance has been an alternative to macroeconomic adjustment because the privileged do not — and historically never have — paid a fair share of taxes; because the public sector is — and historically has been — an instrument of delivering jobs and contracts to the political constituency of the governing party; and the exchange rate is now an implicit contract with labour to maintain the real value of negotiated wage contracts. There is an absence of direction or leadership. Adjustments are postponed on 316

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borrowed time and borrowed funds. This is how we have arrived at a situation where 52 cents of government expenditure (and over 65 cents of government revenue) is pledged to amortisation and interest on public debt; and the cost of the bail-out of failed financial institutions amounts to half of Jamaica's GDP. When the PNP assumed office in 1989, Jamaica embraced the market-driven ideology of the so-called Washington Consensus. In this neo-liberal model the principal role of government is to deliver macroeconomic stability, with emphasis on price stability. Given macroeconomic stability, trade and financial liberalisation, privatisation and minimal government intervention, the private sector will, it is argued, 'grow' the economy by engaging in productive investment. A fragile macroeconomic stability has been achieved at a very high cost in terms of regressive income distribution, increased poverty, collapsing social sectors, and an unsustainable burden of debt service. Production has been at a virtual standstill. Average GDP growth for the past eight years has been negligible. The only growth in the real economy has been in finance, distribution and construction activity — and a surge in imports, including motor vehicles. Construction has been almost exclusively in residential and commercial real estate — shopping malls to distribute imported goods and office towers to the glory of the wealth and power of Jamaica's newly arrived financial moguls. A brief era of pride in Jamaica's overblown financial sector was quickly followed by a slide and a fall into bankruptcy, and the most expensive bail-out of financial institutions on record. Given the absence of growth in the real economy, the neoliberal 'reforms' of the 1990s have resulted in a redistribution of purchasing power from the poor to the middle and upper classes. It is not the masses of the population who shop at the new malls and supermarkets, jam the roads with expensive new vehicles, or send their children to be educated abroad. Who can deny that in the 1990s the standard of living of Jamaica's professional and commercial classes has risen while life for the majority classes has become increasingly difficult? Anger and frustration manifest themselves in road blocks and in explosions of violence in communities and in the home. Since the collapse and rescue of the financial sector, there has been a lot of talk of 'crisis', but strangely, there is no sense of urgency. Everybody is just hanging on, including the government, which continues to reassure the public that everything is under control. But a hurricane of new Lessons of the Seventies for the Next Generation

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problems is approaching. A global financial crisis is turning into a creeping global recession which threatens to affect all of Jamaica's exports. Metal prices, including aluminium, are falling; the demand for sugar is likely to decline as importing countries restrict consumption; coffee is already in crisis and excessively dependent on Japan; garments cannot avoid a hit by the inevitable flood of exports from stricken Asian countries; and tourism will not be unaffected by reduced travel expenditures if Americans feel poorer because they have suffered a decline in the value of their savings in pension and mutual funds.

Equity, Growth and Social Cohesion There is evident need for a fundamental rethinking of policy options, beyond circular arguments restricted to economic variables (exchange rate, interest rate; inflation rate). Macroeconomic stability, it is agreed, is a prerequisite to relaunching economic growth. But macroeconomic stability is ultimately not a matter of pushing the right monetary and fiscal buttons. It is more than a technical matter of fine-tuning monetary and fiscal instruments. Ultimately it depends on an underlying social consensus of the major social and economic interest groups. There can be no solutions to Jamaica's economic problems until the 'haves' are prepared to sacrifice some of what they have acquired by the transfer of real resources to the 'have nots' — most especially since 1993 when individuals with money to invest in government paper could sit back and collect interest without risk or trouble. 'Fiscal adjustment' is a clinically technical term. But underlying the sanitised language of economics, there are critical distributional issues. How will the fiscal debt burden be lightened? How will the fiscal gap be closed? By dismissing public servants? By further cuts to capital and current expenditure on education, health or public transportation? Or by requiring the privileged and propertied classes to pay a fairer share of the costs of rehabilitating social infrastructure so they can continue to live in personal security in this country? Without a minimal social consensus all issues are politicised; the society remains deadlocked in an unstable state of economic stagnation and potential social implosion. Economic research has established that an equitable distribution of income is favourable to economic growth and stability. Social research has linked crime to inequality, as distinct from poverty. We have noted the rupture of the international economy of the 1970s. From 1960 to 318

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1975, 50 countries (including Jamaica and Barbados) had per capita GDP growth of three per cent or more. From 1975 to 1989 only nine countries (including the Asian Tigers) sustained growth at these levels. A recent study by Harvard economist Dani Rodrik found that the countries which experienced the sharpest drops in growth after 1975 were those with divided societies and weak institutions for conflict management. Neither openness to trade nor the size of the public sector explained post-1975 performance. When countries began to fall apart in the second half of the 70s the reasons had little to do with ISI policies per se or the extent of government intervention. Countries that weathered the storm were those who undertook appropriate macroeconomic adjustments rapidly and decisively.

At a 'deeper level' Rodrik found that in societies where there are deep social cleavages and the institutions for conflict management are weak, the economic costs of exogenous shocks — such as deteriorating terms of trade — are magnified by the distributional conflicts that are triggered. Such conflicts diminish the productivity with which a society's resources are utilized in a number of ways: by delaying needed adjustment of fiscal policy and key prices (real exchange rate; real wage rate) and by diverting activities from the entrepreneurial sphere to the political sphere.

He concluded that weakness of domestic institutions of conflict management were the Achilles heel of development strategies in Latin America and the Middle East which made these countries so susceptible to the external shocks of the 1970s. On the basis of his findings of a positive relationship between economic growth and social cohesion, Rodrik suggested the following elements of a strategy of institutional reform: 1)

2)

Credibility of the state: quality of the judicial system and the public bureaucracy; uprooting of corruption — the state must be honest and competent. Improved mechanisms of voice, whereby non-elites (workers; farmers) are brought into decision making councils. This implies strong and widely based trade unions; strong and disciplined political parties; a strong executive which can use its authority to strike bargains and alliances with popular sectors.

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3)

Role of social insurance to cushion exposure of shocks to countries integrated into the world economy (for example, large income transfers in West Europe; enterprise policies of life-long employment, labour market regulation and more gradual controlled liberalization in Asia). 6

In a companion study, Rodrik found 'no evidence that countries without capital controls have grown faster, invested more, or experienced lower inflation.' He concluded that we should resist 'canonizing capital account convertibility' because it will leave economic policy in emerging markets to the whims and fancies of two dozen thirty-something [year-old] country analysts in London, Frankfurt and New York. A finance minister whose top priority is to keep foreign investors happy will be one who pays less attention to development goals. We would have to have blind faith in the efficiency of capital markets to believe that these two sets of priorities regularly coincide. 7

A Paradigm Change in the Making? There is a regrettable lack of quality reporting and analysis on international affairs in Jamaican media. It is not generally understood that the financial crisis which started in Asia was the result of excess lending by international banks and institutional investors and excess borrowing by domestic banks and non-banking corporations — recently freed from domestic restrictions on capital transactions. The East Asian countries experienced high growth with reasonably equitable distribution of the gains for three decades, financed principally by a high rate of domestic savings of 30 per cent or more. All the 'fundamentals' were in good order: low inflation; surpluses or small public sector deficits; high growth rates of exports, although there was excess capacity in computer chips and other export manufactures. Unlike earlier Latin American crises, it was not the public, but the private sector which engaged in excess borrowing, and invested in real estate and stock markets which crashed. The East Asian crisis was a private sector crisis, triggered by financial and exchange rate liberalisation under pressure from international financial agencies and the United States. It blew up into a major economic crisis which wiped out the gains and the savings of a generation of workers, and their hope of attaining middle

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class status. It is arguably the most dramatic illustration of market failure since the crash of the 1930s. The Great Depression of the 1930s, served to overthrow classical economics. Will the Great Asian Crisis of 1997/8 serve to unravel the intellectual authority of the neoliberal reincarnation of classical economics? I believe this is already happening. There is a general consensus that the intervention by the IMF in Asia aggravated the situation and speeded contagion. The IMF came steaming into the region with a tough credit crunch intended to stop the outflow of capital, raise interest rates, and protect the value of assets denominated in local currencies from loss by devaluation. It did not work. Capital flight accelerated and contagion spread. The diagnosis was wrong. The IMF 'solution' aggravated the problem. By mid 1998, a minor currency crisis in Thailand had developed into a major economic recession in Asia, with fallout in Russia, Eastern Europe, Latin America, Canada and Australia. The Asian crisis has put in question the authority of the International Monetary Fund and its agenda of accelerated global capital liberalisation. In the words of a BBC report, 'the crisis has shaken the faith of the international community in the untrammelled benefits of globalization as nothing ever before.' When the Prime Minister of Malaysia first called for a ban on international currency speculation in September 1997, he was greeted with scorn and derision. Not a full year later, the world is depending on the combined resources and administrative controls of Greater China to beat off the speculators and prevent another round of regional — and global — devaluations. Greater China — China, Taiwan, Hong Kong, Singapore — is now circling the wagons in defense of currencies and stock markets. With the world's second, third and fourth largest reserves, they are facing off with George Soros and other big league speculators. An irony of the situation is that communist China has been able to defend the value of its currency and insulate the domestic economy, at least partially, from external shock, because it has the necessary administrative controls. (The contrast with Russia, where western financiers and the IMF insisted on imposing currency convertibility, is instructive. It is reported that $3.5 billion of an IMF injection of $6 billion has been deposited in the Swiss bank accounts of the directors of major private Russian banks). The capitalist Tigers are joining in the defense of their gains from decades of growth by interventionist and protective measures. Taiwan has prohibited trading in Soros hedge funds, on penalty of stiff punishment. Hong Kong has intervened in the stock market to the tune Lessons of the Seventies for the Next Generation

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of $15 billion, acquiring the assets of a major British Bank. Thailand and the Philippines have raised tariffs on a number of imports. Korea has defied the IMF by an increase in deficit spending to refinance domestic industry and put seven million unemployed back to work. Malaysia has abandoned a home-made IMF style programme of tight credit and high interest rates in favour of reflation with reimposition of exchange controls. Asia is losing confidence in the free market medicine of the IMF and the United States. In a remarkably short space of time the prescriptions and conditionalities which have accompanied IMF programmes for the past 25 years have lost credibility and authority. Not long ago, devaluations were almost universally required as conditions of IMF support. Today, the IMF is shoring up currencies in efforts to stem the melt down of asset values by devaluations. Significantly, concerns about inflation are giving way to fears of deflation and recession, triggered by high interest rates to stem the tide of capital flight to safe havens. Not long ago, export of manufactures appeared to offer an escape from declining terms of trade associated with dependence on primary commodities. Today, fierce competition and declining unit values of export manufactures have blurred the distinction with primary commodities. Cheap labour embodied in export manufactures of developing countries is just another 'primary' commodity.

Conclusion The ideological hold of the neo-liberal paradigm is weakening. The agenda of accelerated 'globalisation' is giving way to more cautious approaches. At the international level, there is talk of measures to slow the global movement of cross border funds and monitor the activities of private lenders and borrowers. At the regional level — including East Asia — global recessionary trends may give rise to new initiatives of regional trade and credit mechanisms, including balanced (barter) trade between member countries. For Jamaica this implies greater reliance on the Caribbean regional market and the diversification of trading relationships. If these projections are valid, we are likely to see a retreat from liberalisation, and a return to approaches of self-reliance based on Jamaica's advantages in terms of the country's natural resources, its people and its culture. We do not know what changes the first decade of the coming century has in store. The only thing that is certain is that there will be no shortage 322

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of challenges for the students of today and leaders of tomorrow. On reflection, the greatest achievement of the 70s was the cultural revolution which elevated respect for and self-respect of the majority race and majority class in Jamaican society. The greatest disappointment was that the generation which benefitted from the educational opportunities of the 70s grew up in the culture of mimicry, greed and vulgar consumerism of the 1980s. My hope is that the next generation of youth will have the self-confidence, the intelligence and the fearlessness to attack the social cleavages of class and race which are the curse of Jamaica — and release the full potential of creativity with which this country is blessed. That was the project which inspired so many to sacrifice so much in the 70s. If the lessons of the 70s can contribute to a more self-reliant, equitable and inclusive social and economic order in Jamaica, the 70s will be remembered for the successes, not the failures; not with shame, but with pride.

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Part Four

The Right to Development

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m

The Right To Development: The W.A. Lewis Legacy1

Previous papers in the Sir Arthur Lewis Memorial Lecture series addressed the celebrated contribution of Sir Arthur Lewis to intellectual and public life in the Caribbean — as scholar, teacher, administrator and role model to a remarkably creative generation of West Indian economists. In his inaugural address, Rex Nettleford, reminded us that this eminent economist and Nobel Laureate was, in the final analysis, a great educator and guru to his people both in the Caribbean and the wider Third World who perceived their future and any hope of redemption to rest firmly on the exercise of their intellect and their imagination. I thank the Eastern Caribbean Central Bank for the opportunity to join Norman Girvan, Alister Mclntyre and Lloyd Best in paying my respects to the memory of Sir Arthur Lewis — illustrious son of the Caribbean, public intellectual and development economist supreme. I have chosen 'The Right To Development' as the theme of this paper because it was central to the life and work of Arthur Lewis, and because 'globalisation' has in may respects put development in suspense — if not regression. Developing countries are without an effective voice in the making and the implementation of the rules governing the global economy. The right to development has been subordinated to the rights of investors, fortified by the trade-enforceable regime of the World Trade Organisation (WTO), and an ever-growing list of economic and political conditionalities attached to official development finance. The new rules governing trade, investment and property rights are increasingly invasive, requiring institutional 'reforms' which transgress the sovereignty of developing countries, and seriously constrain policy autonomy to determine domestic social and economic priorities.

Although Caribbean countries are small players in the world economy, Caribbean statesmen have played an important role in Third World initiatives to achieve a more equitable international economic order within the framework of the United Nations System. In 1986 the United Nations adopted a Declaration on the 'Right To Development' as an inalienable human right. The process of development is 'the realization of all civil, economic, social, cultural and other human rights enumerated in the Universal Declaration of Human Rights.'2 Responsibility for the formulation of policy to advance human development is vested in the nation state: 'States have the right and the duty to formulate appropriate national development policies' as economic and social projects for 'the constant improvement in the well being of the entire population and of all individuals'3; to assure 'equality of opportunity for all, in their access to basic resources, education, health services, food, housing, employment and the fair distribution of income'4. Internationally, 'States have the duty to cooperate with each other in ... eliminating obstacles to development, and fulfil their duties in such a manner as to promote a new international economic order based on sovereign equality, interdependence and mutual interest.'5 Since this Declaration was adopted, 'globalisation' has devalued sovereign equality and stripped states of economic and administrative policy instruments essential to medium, and long-term development planning. The authority of the United Nations has declined. Private global capital flows have displaced official development assistance as the major source of external finance. Market criteria of profitability have trumped social criteria in the provision of public goods directly affecting the well being of people. International inequalities have escalated. Commodity prices continue to fall. Finance has been privileged at the expense of productive activity, and countries open to capital inflows have borne the full economic, social and human costs of adjustment to ever more frequent and serious financial and economic crises. Since the mid 1990s, major countries of Latin America — Mexico, Brazil, Ecuador, Bolivia, Peru, and now Argentina — have suffered financial and economic collapse. In all these cases, as in the Asian Crisis of 1997/98, governments were provided with unprecedented billions of bail-out packages by the US Treasury, the International Monetary Fund (IMF), World Bank and Inter-American Development Bank (IADB), to protect investors from the 'discipline' of the market. (The bail-out in Argentina is close to $40 billion to rescue an economy which has abrogated monetary autonomy by dollarisation). 328

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These loans will have to be repaid with interest for years to come. We do not know where the next crisis will hit — but we can say with certainty that there will be more such crises — and escalating billions will be found to protect an unstable global financial structure by draining the life blood out of economies struck by these man-made disasters. The Caribbean is relatively fortunate in having escaped the calamities suffered in other regions of the developing world, although endemic poverty in Haiti and Jamaica, organized drug-related crime throughout the region, the high incidence of HIV/AIDS, and the threat of elevated sea levels due to global warming, must urgently be addressed. As mentioned, the Caribbean played an important role in past efforts to fashion a more equitable international economic order. The developing world is now more fractured, and 25 years of 'structural adjustment' has reduced the policy autonomy of states. There is a crying need for creative thinking and new initiatives by the 'South' to protect the gains of development from devastation by financial hurricanes fed by institutional investors who freely move funds in and out of countries at the tap of a keyboard with no responsibility for the impact of their operations on 'host' countries. The IMF, Bank for International Settlements (BIS), G7 and G20 are captive to the overriding interest of protecting the value of global financial investment, regardless of collateral damage to shattered lives and hopes of millions. A minimal consensus of developing countries in international negotiations with the Bretton Woods institutions and the WTO, and a critical examination of the ideological claims of neo-liberal policies to universality, call for intellectua and political leadership from the South. The aspirations to equity and social justice which motivated the call for a New International Economic Order (NIEO) 25 years ago remain a fundamental motivation of all human rights claims, including the right to development. A rising tide of outrage at global inequities, orchestrated by church leaders and a broad spectrum of international social activists in Seattle, Washington, Prague and other cities, has attracted the attention of the world. There is a growing sense that globalisation is a non-territorial form of imperialism, imposed by legally binding obligations of compliance with rules favouring capital, enforced by trade sanctions and denial of access to finance . For the past 25 years, developing countries have been encouraged — sometimes bullied — into excessive dependence on export earnings and foreign credits by programmes designed by the staffs of the Washington-based international The Right to Development: The W.A. Lewis Legacy

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financial institutions (IFIs). The International Monetary Fund has become a foreign policy instrument of the United States. Crises have been used as opportunities to radically restructure economies — most scandalously in the case of Korea. Since the end of the Cold War, the only remaining super power has acted as self-appointed global policeman. Military interventions targeted at physical and social infrastructure have punished civilian populations for the misdeeds of their leaders. Sir Arthur Lewis was conservative and pragmatic in temperament, practical in delivering policy advice, but radically anti-imperialist in his conviction that the peoples and societies of the South have the capacity to chart their own path to development. In an autobiographical note written late in life, he stated, 'what matters most to growth is to make the best use of ones own resources and exterior events are secondary'. Trade plays a useful role in development, but 'countries that hitch their fate to trade are bound to be frustrated'. 6 In the context of globalisation, the teachings of Arthur Lewis present a radical challenge to the developing world to reclaim the right to development — the right to make the best use of one's own resources. First Encounter I first encountered Arthur Lewis in 1942, long before I knew anything about the West Indies. I was a first year undergraduate at the London School of Economics (LSE), and Lewis was lecturing the introductory course on economic analysis. I was 19 years old, and a convinced socialist. Having failed to win the necessary scholarships to study history in Oxford or physics in Cambridge, I concluded that I was a scholastic failure and was now at liberty to learn how to put the world right by studying economics. In the third week of the course, Lewis presented a diagram showing the marginal product of labour and the wage rate, and explained that employment could be increased by lowering wages. I gathered up my courage and approached the lecturer after the class. 'Sir,' I said, 'I don't believe it. Before the war there were three million unemployed in Britain and they could not find work at any wage.' 'What is your name?' he asked. I supplied the information. 'Miss Polanyi,' he said, T assume you have come here to study the science of economics. When you have mastered it, you may return and we will discuss this subject.' I was impressed, and decided that I would study this subject until I could prove him wrong. Of course it was Keynes who explained that mass unemployment in Britain in the 1930s was not due to excessively 330

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high wages, but to an excess of savings. To argue his case for fiscal and monetary policies to combat depressions and recessions, Keynes invented macroeconomics by discarding critical assumptions of neoclassical economics. (Younger generations of economists may not know that macroeconomics and national income accounting did not exist before Keynes).

Classical Model in a Tropical Setting Lewis was similarly unorthodox. His seminal article on 'Economic Development with Unlimited Supplies of Labour' was the result of a brilliant departure from the assumptions of neoclassical economics. Lewis asked himself two questions: Why do wages in developing countries not rise with rising productivity? And why is labour paid so much less in peripheral (tropical) countries than in industrial ('temperate') countries? Why is coffee so cheap and steel so expensive? He tells us that, One day in August 1952, walking down the road in Bangkok, it suddenly came to me that both problems have the same solution. Throw away the neoclassical assumption that the quantity of labour is fixed. An unlimited supply of labour will keep wages down, producing cheap coffee in the first case and high profits in the second case. The result is a dual (national or world) economy where one part is a reservoir of cheap labour for the other.7

In conditions of surplus labour, wages are not determined by the productivity of labour, but by the reserve price of labour which stays close to subsistence level as long as labour can be drawn out of a 'non market' reservoir of subsistence activities. This also explains why workers producing coffee or sugar stay poor, while workers producing steel in the metropole gain rising wages. Lewis invented an analytical construct (model), based on familiar economic concepts, to explain the unequal distribution of the gains from capital accumulation in colonial (tropical) conditions of surplus labour. The conclusion he drew from this analysis was that open (tropical) exporting economies cannot escape from underdevelopment until they have raised the productivity of the domestic sector producing food (and other necessities of domestic consumption). The developing world should rely on its own resources to generate the necessary savings for investment, and utilize its natural and human resources to provide the necessities of life for its populations. The Right to Development: The W.A. Lewis Legacy

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Terms of trade of Primary Commodity Producers My initial encounter with Arthur Lewis in 1942 was followed by a second one — which perhaps contributed to my destiny to become a development economist. When I returned to the LSE in 1944, after two years of national war service, I attended a course in which Lewis lectured the contents of a book he was in the process of writing. Economic Survey 1919-193 9 is a brilliant account of the inter-war years in the setting of world economic history — written in the accessible lucid style noted by Mclntyre. Many times reprinted, the book is on a short reading list for courses at McGill to this day. There are prophetic passages, such as the speculation based on long wave theory that 'the decline of the inter-war period was a mere phase; to be followed in due course by another burst if vigour and prosperity, say from the middle 1940s to the 1970s, when a new period of decline would set in'.8 Years later I learned that 1944 marked the beginning of a lifetime of research on the history of the world economy after 1870, published in 1978 as Growth and Fluctuations 187 0-1913.9 But back to my story. From previous reading, I was reasonably familiar with what had happened in Europe in the 1920s and 1930s. What made an indelible impression on me was Lewis's treatment of the slide of world commodity prices in the 1920s, which preceded the Great Depression of the 1930s. As a child in Vienna, I had read that mountains of coffee were burned in Brazil. I could not understand why anybody would do something so destructive. Now I could make the connections. The coffee was burned to keep up the price. It was Lewis who awakened my interest in the terms of trade of colonial primary exporting countries. By this time I had made personal friends at LSE from India, Malaysia, and other (then) colonial countries — among West Indians, Lloyd Braithwaite. They took me to meetings where I heard Krishna Menon, George Padmore and a short fiery Indian trade unionist whose name, if I remember right, was Dange. But never in my wildest dreams could I have imagined that more than 50 years later I would be delivering the Fifth Arthur Lewis Memorial Lecture, here in St Lucia where Arthur Lewis grew up; where he tells us, his father took him to meetings of the local Marcus Garvey association when he was seven years old; where, he left school at 14 because he had completed the curriculum, and worked as a clerk in the civil service until he was old enough to sit the exams which won him a scholarship to an English university of his choice. 332

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Industrialisation in the Caribbean From the time of his arrival in England, at age 18, Arthur Lewis turned his attention to the condition of the West Indies, advocating the destruction of the economic foundations of slavery by the equitable redistribution of land to the peasantry. In Labour in the West Indies,10 Lewis described the causes of the insurrections, strikes and riots which swept through the region from 1935 to 1938 and gave birth to the labour movement. His anti-imperialism, grounded in early personal experience of the colonial condition in the West Indies, was shared by a generation of Caribbean, African and Asian intellectuals and political leaders. As teacher, scholar, policy adviser and administrator, Lewis combined advocacy of practical measures for economic development and economic independence in countries emerging from colonialism, with research in industrial economics, which he dropped after 1948, and the history of the world economy, 'which I started in 1944 and still pursue, and in development economics, which I did not begin systematically until about 1950.m In his reports to the Caribbean Commission (1948) Lewis argued the case for the industrialization of the British West Indies, based on the success of industrial development in Puerto Rico. He used his knowledge of industrial economics to identify a set of manufacturing industries which could be established in the region. A careful reading of this report reveals the seeds of his subsequent work in development economics. We draw attention to his insistence on the need to increase the productivity of the food-producing peasant sector, which would have the effects of raising the supply price of labour to the capitalist (plantation) sector. The case for industrialisation was argued on the grounds that plots of two or three acres are too small to yield an acceptable standard of living from agriculture. Because land resources are limited, and population density in the islands is very high, the number of peasant holdings must be drastically reduced — perhaps in half — to provide land holdings sufficiently large to enable the peasant farmer to gain a decent income. Income-generating employment in manufacturing would have to be created for the labour displaced from the land, and overseas markets would have to be found, because local — even regional — markets were too small to absorb output on the scale required for full employment. We note that the reason why the islands have to export manufactures The Right to Development: The W.A. Lewis Legacy

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is that they are grossly overpopulated in relation to the land resource — a legacy of plantation slavery which introduced millions of unfree African workers to the Caribbean islands at a time when sugar was highly profitable. When commodity prices weakened and the sugar economy collapsed, unemployment became endemic. Lewis did not argue the case for export manufacturing on general grounds of comparative advantage, but as a policy appropriate for small countries burdened by chronic excess population.12 Industrialisation of the West Indies was a radical idea at the time, given the resistance of colonial authorities, and prejudices relating to the capacity of West Indian labour to become skilled and productive industrial workers. Lewis proposed a set of industrial policy measures to encourage, protect and subsidise the establishment of manufacturing industry, including concessions to attract foreign capital and capitalists, as was done in Puerto Rico. Until such time as national income would rise to levels adequate to generate domestic savings for domestic investment, it would be necessary to 'fawn' on foreign capitalists to learn the 'tricks of the trade' and gain access to their overseas distribution outlets. We note that Lewis considered the free movement of goods and people (single economy) within the region, together with a political federation of the island territories and a single regional Industrial Development Corporation as essential to the success of this industrialisation strategy.

Misplaced Criticism; Erroneous Revisionism The implementation of industrial policies proposed by Lewis in Jamaica and elsewhere in the region proved disappointing. Economic growth in the 1960s was accompanied by rising unemployment and growing inequalities. In the radical climate of the times, Lewis was held accountable by a younger generation of UWI economists for the failures of 'industrialisation by invitation'. The failures were real, but the criticism was misplaced. Regrettably, subsequent generations of UWI students were left with the impression that 'Industrialisaton of the British West Indies' was the most important — perhaps the only — work of Arthur Lewis. The seminal article of 1954 was largely ignored. Later there were mea culpas and a revisionism which claimed Lewis as a far-sighted champion of export-orientated development. Economic problems were

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ascribed to the failure of governments to heed his advice to concentrate on export manufacturing. But the revisionists have been too quick to dismiss import substitution as a useful industrial strategy, and too quick to buy into the currently fashionable doctrines of 'externally oriented development'. Industrialisation policies which established import substitution industries, with all their shortcomings, were important in upgrading technical and managerial skills. They have served Trinidad well in the development of a diversified manufacturing sector, now strong enough to expand into regional and overseas markets. The collapse of many of these industries in Jamaica in the 1990s is a serious loss of social capital, as well as a devastating loss of income to the workers who have lost their jobs. Jamaica is regressing to a colonial style import-export economy — virtually the only country in the hemisphere which has not experienced economic growth in the 1990s. It is one thing to understand that exports are essential where national and regional markets are too small to sustain a high level of employment in manufacturing or services. It is quite another to claim Lewis as an advocate of 'outward looking development'.

The Lewis Legacy In the Schumpeter Memorial Lectures, delivered as 'The Evolution of the International Economic Order' Lewis brilliantly summarised the results of decades of research on growth and fluctuations in the world economy. I quote the concluding sentences: The development of the LDCs does not, in the long run, depend on the developed countries; their potential for growth would be unaffected if all the developed countries were to sink under the sea. The LDCs have within themselves all that is required for growth. They should not have to be producing primarily for developed country markets. International trade cannot substitute for technical change, so those who depend on it as their major hope are doomed to frustration. The most important item on the agenda of developing countries is to transform the food sector, create agricultural surpluses to feed the urban population, and thereby create the domestic basis for industry and modern services. If we can make this domestic change we shall automatically have a new international order.13 Arthur Lewis gained the Nobel prize in 1979 in recognition of his contribution to development economics. His seminal article on The Right to Development: The W.A. Lewis Legacy

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'Economic Development with Unlimited Supplies of Labour' 14 grounded development economics in a model which assisted in establishing the subject as a distinct area of economics. The open version of the Lewis model provided the theoretical foundation for the radical conclusions he drew from a lifetime of research and intimate familiarity with the economics of peripheral (tropical) developing countries. When Arthur Lewis stated in the autobiographical note quoted earlier: 'what matters most to growth is to make the best use of ones' own resources, and external events are secondary', what was he telling us? Certainly not that trade is unimportant, or that small countries do not have to find export markets for their goods and services, where possible on the most favourable terms of trade, and in high value specialised products. What I believe he meant was that developing countries have to engage the world economy on their own terms, not on terms set by global markets or international institutions. His emphasis on the internal and domestic wellspring of development, and the primacy of domestic food production, directly challenges currently prevailing economic doctrine which holds that countries which do not adjust domestic policies to global markets will be marginalised. But is it really true that trade and foreign investment are the sources of economic growth? Has it ever been true? What transformation has globalisation brought about to justify favouring exports over domestic production, and courting foreign investment with incentives and subsidies? Has globalisation now made it impossible for developing countries to chart their own path to development, according to their endowment of human and natural resources, cultural and institutional heritage, and social imagination? If so, peoples and societies comprising 80 per cent of the world's population will have to reclaim spaces of policy autonomy to exercise the 'right to development'. Anything less would fail to do justice to 'this most distinguished West Indian of the Century'.15 These are the issues we now address. Was Import Substitution (ISI) Really So Bad? Because ideas are powerful means to inform — or disinform — policy, we have to assess the validity of current orthodoxies . Relentless and interminable repetition of the doctrinal mantra that 'inward-looking development' is bad, and 'out-ward-looking development' is good has demonised policies of import substitution (ISI) — which served the developing world rather well in the 1960s and 1970s. 336

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The World Development Reports used to contain useful summaries tracking growth rates of major regions since the 1960s. They have disappeared, perhaps from embarrassment of evidence confirming what one observer called the Bank's 'optimism beyond the bounds of empirical responsibility'.16 The data shows a secular decline in annual growth rates in the industrial countries from 5.3 per cent (1961-70) to 3.1 per cent (1971-80) to 2.8 per cent (1981-90) and 1.8 per cent (1991-95). For Latin America, corresponding growth rates were 5.5 per cent; 6.0 per cent; 1.3 per cent; and 2.8 per cent respectively. High growth from 1960 to 1980, largely based on a combination of primary commodity exports with import substitution, was impressive. Nothing like it has been seen since in the region. But Latin America was not the only region of the world which did well in the 1960s and 1970s. From 1960 to the first oil shock of 1973, no fewer than 42 developing countries, including Jamaica, Trinidad and Barbados and 12 countries in South America, six in the Middle East and 15 in sub-Saharan Africa, grew at rates of GDP per capita exceeding 2.5 per cent per annum, and six sub-Saharan African countries were among the 20 fastest growing economies in the developing world. To varying degrees, all these countries practised ISI based on profitable domestic markets for investors. Contrary to received wisdom, ISI-driven growth did not produce tremendous inefficiencies on an economy-wide scale. Indeed, most of the countries of Latin America and the Middle East had total factor productivity (TFP) in excess of East Asia in 1960-73,17 From the mid 1970s, most these countries started to fall apart. Of these 42 countries only 12 countries — Trinidad, Belize, seven Asian and not a single Latin American country — managed to sustain 2.5 per cent per capita growth in 1973-84. Median per capita GDP growth for all developing countries fell from 2.6 per cent in 1960-73, to 0.9 per cent in 1973-1984, and 0.8 per cent from 1984-94. In the Middle East and Latin America, which had led the developing world in TFP growth prior to 1973, TFP turned negative from 1973-94 while China and the rest of East Asia (except the Philippines), and virtually all of South Asia, produced positive TFP growth. By 1994, one hundred developing countries had a lower per capita income than five years earlier; 69 lower than in the 1970s; 35 lower than in the 1960s; and 19 lower than in 1960. Per capita consumption in Africa is today 25 per cent lower than in 1962, and Latin America has not regained 1980s per capita levels.

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The Collapse of Growth in Latin America and Africa The common timing of the collapse of growth in so many countries in the late 1970s and early 1980s, suggests that it was not the 'exhaustion' of ISI policies, but the turbulence which beset the world economy following the demise of the Bretton Woods system, that grounded growth. Floating exchange rates; wildly fluctuating commodity prices, including two oil shocks, balooning international liquidity unconstrained by national banking regulations, and illusions of the sustainability of debtled growth by creditors and borrowers alike, went into the making of the Debt Crisis of 1982. In countries too poor to attract private capital inflows, politically motivated official development assistance contributed to unpayable external debt. As is now well known, the proximate cause of the debt crisis of 1982 was the stringent monetary policy adopted by the Federal Reserve to combat inflationary expectations which precipitated the recession of the early 1980s. The debt crisis was 'collateral damage'. In the 1930s, virtually all Latin American countries declared moratoria on debt service — and bond holders were forced to share the costs of the crisis. In 1982, the IMF saved the international banks from technical bankruptcy by the organisation of a creditor cartel which shifted the entire burden of adjustment to debtor governments. The costs of the 'lost decade' of the 1980s, when wages in Latin America fell by 40 to 50 per cent and rose only slightly in the 1990s, linger on. The incomes of most Latin Americans are today 20 per cent lower than in 1980. From the mid 1980s, governments and technocrats embraced the new doctrines of liberalisation, deregulation and privatisation. Social capital was eroded and income inequality and poverty increased. Interestingly, South Asia escaped the debt crisis of the 1980s, and continued an ISI-led growth path, with average annual per capita growth of three per cent (India); 2.7 per cent (Pakistan) and 2.4 per cent (Bangladesh) from 1975-95. China — hardly a model of a liberalised economy — took off into three decades of spectacular growth, sustained to this day. The East Asian 'tiger' economies achieved 'miracle growth' with domestic savings rates of 30 per cent, low fiscal deficits and booming exports, until financial and exchange liberalisation precipitated the Asian crisis, of 1997. Incidentally, China's defence of its currency during the Asian crisis by effective exchange controls, saved the region from a second destabilising round of devaluations. India also escaped contagion by 338

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the Asian crisis, thanks to modest short-term capital inflows and effective financial and capital controls. Malaysia demonstrated that even smaller countries can defend their economies from destabilising capital flight by the imposition of capital controls. What Are We Forever 'Adjusting' To? Ten years ago, William Demas posed a very good question in one of those rambling telephone conversations which were his way of keeping in constant touch with his many friends in the region. What are we (the developing countries) forever adjusting to? In the Eric Williams Memorial lecture delivered at the Central Bank of Trinidad and Tobago in 1990,1 suggested that developing countries are adjusting to the consequences of the demise of the Bretton Woods system in the 1970s and to the regime change introduced by the United States and Britain in the 1980s to open new national and global opportunities for capital by deregulation, liberalisation, and privatisation of public utilities and other state assets. In the 1990s, it became evident that these neo-liberal policies have three characteristics: they are crisis prone; they encourage a spirit of speculation, rather than entrepreneurship; and they are deflationary.1* Increasingly serious recessions and the slowing down of growth in the capitalist heartlands have intensified competition and the drive to penetrate new markets and establish new outlets for excess savings and excess production. This is the ultimate reason why the United States and Britain ( less so continental Europe) have facilitated business and financial interests in the elimination of every conceivable barrier to entry of goods, services and investments in the developing world — and how the doctrine of externally oriented development serves this agenda. Primary commodity exporters have always been price takers. They have always been under pressure to adjust to business cycles in the industrial countries by pro-cyclical deflationary measures. The industrial countries are the business cycle makers; the peripheral countries are the business cycle takers. 19 Since the advent of the debt crisis of the 1980s, thanks to 25 years of structural adjustment to a liberalised economy, these countries have also become policy-takers. This is why adjustment is now a continuing process. This is the answer to the question posed by Demas over 25 years ago. The exigencies of debt service have been the hook to catch developing The Right to Development: The W.A. Lewis Legacy

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country governments with very limited options. The situation is most severe in sub-Saharan Africa, where debt service can consume up to 60 per cent of government revenue, and average consumption is now below 1970s levels. These countries must forever 'export themselves out of debt', no matter that they are competing with a dozen other countries exporting the same coffee or cocoa — or shoes and shirts. No matter that domestic food production is declining, as export agriculture is favoured over food crops, and natural resources are pillaged for instant returns, with long-term damage to the environment. The export of commodities, both primary and manufactured — because labour intensive manufactures are the new 'commodities' — is a way of exporting cheap labour, as Lewis explained. The real resource transfer from South to North is greater than the recorded debt service and net capital flows. It is not transparent. It is occult. It operates through the market by declining factoral terms of trade. As in times when raw materials were worked up in the industrial world, the export of cheap manufactures contributes substantially to domestic income generation in the importing country in the form of services associated with their purchase and distribution. The difference between the (low) unit cost of production and the final wholesale price accrues to the transnational enterprises who design, sub contract and organize bulk purchase and resale. The increasing volume of these developing country exports has assisted the United States to maintain a long boom of non-inflationary growth in the 1990s. This is the sense in which globalisation has increased wealth — in a unidirectional way, as in sens unique, indicating a 'one way street' in my home town in Montreal.

Globalisation as Agenda and Process Globalisation is a process with an agenda, which promises to deliver prosperity and human development to countries which 'reform' their policies. The agenda is driven by corporate and financial capital and the reforms are increasingly invasive. Investors demand 'national treatment' and trade policy now reaches beyond conventional issues of trade between nations, and raises questions of the permissible limits to the penetration of market relations (of purchase and sale) into the fabric of economic, social, and cultural norms and institutions of developing countries. Policy options are reduced. Indeed, this is the explicit purpose. The intention is to lock states into irreversible commitments to the sanctity of contract. 340

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There is ever less autonomy for states to design and implement development strategies. Eventually everything — and everybody — is for sale. Societal norms and standards are eroded. Social cohesion dissipates under the stress of glaring injustice and inequality. Crime, corruption and repression increase. National boundaries which separate external from domestic markets have become porous and blurred. Trade and development, market and state and growth and equity have been the leading issues of development economics since its beginning. Liberalisation of global trade and finance conflates these issues into one asymmetric relationship which reduces the capacity of developing country states to govern markets at the national level, but enhances the capacity of the major capitalist powers to set the rules which govern markets at the global level. At the national level, governments are under pressure from productive enterprise, labour and civil society, to respond to the real needs of the population — however reluctantly or incompletely. At the global level, capital is insulated from popular protest and the constraints of democratic accountability. Recent attempts by the World Bank to return to its original developmental remit were over-ruled by the US Treasury, resulting in the departures of Joseph Stiglitz and Ravi Kanbur.20 The responsibility of national states in realising development with equity has been subordinated to trade and growth as policy objectives. The doctrine now prevailing at the World Bank is that 'growth is good for the poor' and global freedom of capital is good for growth. 21 Debt dependence has provided the international financial institutions (IFIs) with the leverage to tell developing countries — in microeconomic detail — how to restructure their economies. Whereas the number of IMF standby arrangements has declined from a high of 132 in 1981-85, to 49 in 1996-98, the number of enhanced structural adjustment facilities (ESAFs) — now renamed poverty reduction and growth facilities (PRGFs) — has grown from 18 in 1986-90 to a record high of 96 in 1996-98 — most of them in sub-Saharan Africa. The author of the study from which this data is taken concluded that 'as a result, these countries have pretty much ceded their sovereignty to the IMF and the World Bank'.22 A second generation of the Washington Consensus has moved beyond restructuring economic institutions, to require a proliferation of 'governance-related' conditionalities. An analysis of a sample of IMF programmes in 25 countries between 1997 and 1999, showed an average of 26 conditionalities per programme. In Latin America, the average The Right to Development: The W.A. Lewis Legacy

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was 33, of which 13 were governance-related; in Africa 23, of which nine were governance-related. 23 Unlike macroeconomic targets, governance related reforms are open ended, inviting discretionary judgement regarding compliance. In the view of a World Bank economist, the penalties inflicted by the conditionality regime 'lack moral legitimacy'. But donor pressure to conditionalise development assistance is on the increase, as an ever growing number of civil society stakeholders press their diverse agendas on developing countries by leverage of promises of development assistance and debt forgiveness. For middle-income developing countries, judgment of economic performance has passed to private capital markets. In his introduction to a study which challenges current orthodoxy regarding the role of trade and foreign investment in successful economic development, Harvard economist, Dani Rodrik, notes that the globalisation model raises a fundamental question of accountability. To whom will national policy makers be accountable? The implicit answer is that they will be accountable — not to their populations — but to foreign investors, country fund managers in London and New York and a relatively small number of domestic exporters. These are the groups that determine whether an economy is judged a 'success' or not, and whether it will prosper. It takes too much blind faith in markets to believe that the global allocation of resources is enhanced by the 20-something-yearolds in London who move hundreds of millions of dollars around the globe in a matter of an instant, or by the executives of multinational enterprises who make plant location decisions on the basis of the concessions they can extract from governments. Consequently, governments and policy advisers alike will have to stop thinking of international economic integration as an end in itself. 'Developing nations have to engage the world economy on their own terms, not on terms set by global markets or multilateral institutions.'24 Rodrik dismissed the claims made by boosters of international economic integration as inflated or downright false: Countries that have done well in the post war period are those that have been able to formulate a domestic investment strategy to kickstart growth and those that have had the appropriate institutions to handle adverse external shocks , not those that have relied on reduced barriers to trade and capital flows. Policy makers therefore have to focus on the fundamentals of economic growth — investment, macroeconomic stability, human resources and good governance — and not let international economic integration dominate their thinking.25 342

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His research confirms the advice of Arthur Lewis. The next few paragraphs summarize his findings.

Inflated Claims For Openness There is no special advantage in 'openness'. Trade is a means to an end, a way to access imports essential to growth. A dollar of exports does not contribute anything more (or less) than a dollar of any other productive activity. Countries that grow fast tend to experience increased openness (export to GDP ratios) but the reverse is not true. It is a fallacy to believe that increased openness to trade stimulates growth. Generally, causality goes from dynamic high productivity firms to export activity, not visa versa. There is no efficiency argument for special export incentives. Much the same is true for foreign direct investment (FDI): one dollar of FDI is worth no more (and no less) than any other kind of investment. The correlation between the presence of FDI and superior performance is generally due to reverse causality: multinational enterprises tend to locate in the more productive and profitable economies, or niches in these economies. Policy makers should resist the granting of subsidies or tax credits that favour foreign over domestic investment. A cross country regression of per capita GDP growth from 1975 to 1994 showed only a weak (statistically insignificant) correlation between economic growth and indicators of openness — whether based on trade volumes or on tariff or non tariff restrictions. Openness to capital flows (captured by an indicator of capital account liberalization) did not exert any influence, nor was the size of government a significant factor. What mattered most were investment rates and macroeconomic stability. The evidence in favour of small government/free trade orthodoxy is less than overwhelming. It is domestic investment that ultimately makes an economy grow, not the global economy.

The Successful Export Economies This is also true for the successful export economies of East Asia. According to the standard story, South Korea and Taiwan adopted a set of export-oriented measures in the 1960s which caused these economies to specialize according to comparative advantage, resulting in rising levels of income, investment, savings and productivity. But how could export manufacturing possibly have contributed to high national growth rates

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at a time when exports were less than five per cent of GDP in Korea, barely ten per cent in Taiwan, and manufactured exports were a quarter or less of total exports? A more plausible explanation is that the significant increase in private returns to investment engineered by the government of South Korea kick-started growth. The principal measures used were the extension of credit to large business groups at negative interest; the nationalisation of banks, which gave the government exclusive control over the allocation of investible funds; and the socialisation of investment risk in selected sectors. In both countries, governments played a direct hands-on role in involving private entrepreneurs in investment, and established public enterprises with linkage and scale economies — which accounted for a large share of manufacturing in the 1960s. The economies that have done well in the post war period have all succeeded in their own brand of heterodox policies. High investment rates and macroeconomic stability have been common — beyond that, details differ.

Inequality, Social Conflict and Macroeconomic Adjustment Why did some economies survive the debt crisis of 1982, while others collapsed? The evidence is unambiguous. Trade and industrial policies had little to do with bringing on the crisis. Neither the severity of external shocks, nor microeconomic price distortions were significant explanatory factors. In the countries that experienced debt crises, the crisis was the result of monetary and fiscal policies that were incompatible with manageable external balances. But why were some countries able to make macroeconomic adjustments more effectively than others? Countries with deep social cleavages — whether along class or ethnic lines — and poor institutions of conflict management find it difficult to implement timely and effective measures of stabilisation. The economic cost of external financial or trade shocks is magnified by distributional conflict. The quality of government institutions, civil liberties and political rights, social insurance and access of 'non-elites' to political institutions, are factors which enhance and improve responses to shocks. Emphasis on social conflicts and institutions — at the expense of trade strategy and industrial policy — suggest that the main difference between Latin America and East Asia was not that the former remained closed and isolated while the latter was integrated into the world economy, but that the gross inequalities and deep social cleavages in Latin America 344

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are the ultimate reasons for endemic macroeconomic instability and stop-and-go growth in the region. This conclusion is supported by the authors of an Economic Commission for Latin America and the Caribbean (ECLAC) study of 15 years of transformation toward more market oriented and open economies in Latin America and the Caribbean. They found that these far reaching reforms had a 'surprisingly small impact'. At best they restored rates of investment and labour productivity to levels prevailing 25 years ago at the end of the ISI period. Growth has been modest, employment has grown slowly with problems of job quality, and inequality has not improved and may even have got worse. The increased growth of exports (in volume as well as value) has not led to comparable growth of output. Imports have grown even faster, leading to widening trade deficits, financed by recourse to foreign capital. A key feature of capital flows to Latin America has been their volatility, and the cycles of surges and steep declines became even more frequent in the 1990s. Crises were also more frequent.26 Poverty has increased, and a majority of Latin Americans surveyed in a World Bank study believe their children will not have as good a life as theirs. The identification of unresolved social conflicts as underlying factors in macroeconomic instability and economic stagnation accords with a view I have expressed on several occasions that the basic reasons for the economic impasse in Jamaica are to be found in gross inequalities, deep cleavages of class and race and a malfunctioning political system which has enabled the government and the commercial elite to postpone policy measures required to reduce interest rates and rescue the productive economy from further collapse. Jamaica is living on borrowed money and borrowed time. The contrast with the ability of Trinidad society to negotiate adjustment to the severe shock of the collapse of oil prices in the mid 1980s is striking. Barbados, with few natural resources other than an excellent tourist environment has achieved the highest GDP per capita in the CARICOM region, and the other countries of the Eastern Caribbean have maintained macroeconomic stability and sustained economic growth — assisted by the excellent performance of the Eastern Carribean Central Bank. In none of these countries do we find income disparities of the level of Jamaica. The Human Development Report 2000 singled out Jamaica, together with Brazil and Guatemala as countries of extreme inequality, where the top fifth's share in national The Right to Development: The W.A. Lewis Legacy

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income is more than 25 times the bottom fifth's.27 Equity and social justice are not only self-evident objectives of development, but an essential condition for macro economic stability and economic growth. Policies which increase inequality, poverty and injustice, even when successful in generating growth — which more often they are not — result in a cycle of repression and societal disintegration as crime, drugs, violence and general lawlessness drain the energies and extinguishes the hopes of individuals and societies.

Reclaiming the Right to Development For the past 25 years, the developing world has been adjusting to the agendas of the IMF and the World Bank. It is time to reclaim the right of nations to policy autonomy, the right to make the best use of one's own resources, and the right to engage in the international economy on one's own terms. The Right to Development is a citizen right and its realization is a priority obligation of national governments. States — not the IMF or the World Bank — have the right and the duty to formulate appropriate national development policies. This requires an international rule-based order which permits space for developing countries to follow different and divergent paths to development, according to their own philosophies, institutions, cultures and societal priorities. Finance must be subordinate to the productive economy, globally and nationally. The productive economy must provide the basic needs of the entire population, in an integrated society where there is not one economy for the privileged and another for the poor. Poverty alleviation is no substitute for development as a social project of all citizens. Economic growth must be subordinate to long-term sustainable development. Private profitability criteria are inappropriate for the provision of universally available educational, health and other essential public services. All modern economies are mixed economies, combining the private sector, state enterprise, self-employment and diverse forms of cooperative and associational community economic organisation. Democracy and pluralism implies diversity of social and economic organisation of societies. For peoples and nations as for individuals, the right to development is ultimately the right to be autonomous, the right to be free, the right to the fruits of individual and collective work and the right to live in 346

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harmony in a society of peace and mutual support and respect. The revolution in communication and information has diminished distance and speeded time. We know more about what is happening to other people in other countries, although the Caribbean has always been connected with the four corners of the world by the diasporas of the past which created these unique societies and the diasporas of our times which have enriched many countries and societies by the presence of Caribbean people and their descendants. In that sense globalisation is neither new, nor menacing. What is menacing is the tide of global finance which is sloshing in and out of currency and securities markets, in search of short-term gains, with no responsibility for the fate of the majority of people who gain no benefits but pay the costs of this 'casino capitalism'. There is no limit to the damage that international finance can inflict on an economy. Even the most successful countries have been brought to their knees by changes in market sentiment. The first requirement for restoring the right to development is the establishment, within the United Nations System, of a multilateral World Financial Authority to track, oversee and regulate global financial markets on principles which restore market risk to creditors and limit the socialisation of private (unguaranteed) debt. The IMF should return to its original mandate to provide mediumterm finance for countries with temporary balance of payments problems, to enable them to undertake adjustment without deepening a crisis by restrictive monetary and fiscal measures which have long-term effects in eroding social infrastructure, as intended by the architects of the Bretton Woods institutions. The right to impose capital controls should be reaffirmed, and initiatives to bind countries to capital account liberalisation suspended. All official debt to poor countries should be cancelled, and financial restitution made to sub-Saharan Africa for slavery, colonialism and the imposition of inappropriate programmes and policies by the IMF and World Bank in the past two decades. Development assistance should not be conditional on trade and investment liberalisation, and should be extended to borrowing countries as grants or soft loans to finance free universal elementary education and primary health care. The World Bank should be brought under the direction of the Social and Economic Council of the United Nations which must be strengthened and reformed to accord with the demographic realities of the twenty-first century, The Right to Development: The W.A. Lewis Legacy

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with no permanent seats on an elected Security Council. Nothing less can assure peace, which is the ultimate pre-requisite of development. Developing countries must have an effective voice in the making and the implementation of the rules of the WTO, which should be restricted to trade in its conventional sense, with no extension into traderelated matters. Trade enforceable regulations concerning intellectual property right to pharmaceuticals must be amended to permit — and encourage — the production of generic drugs in and for developing countries. The right to health is a sacred right to life. Because it is obvious that small countries can only implement selfreliance policies in the context of larger regional entities, all barriers to regional economic integration of developing countries should be eliminated from the rules of the WTO, and provision for special differential treatment substantially lengthened to enable developing countries to transform their economies, to be less reliant on exports which impoverish people and the environment, or on destabilising private financial in flows as a substitute for a high rate of domestic savings and progressive and equitable taxation. Regional monetary arrangements for mutual assistance should be encouraged. You may dismiss this wish list as idealistic. Perhaps so, but it is certainly more realistic than the assumption that the world can continue on its present path without courting disasters more terrible than any we have yet visited upon ourselves. Without dreams, nothing is possible. Without hope, there is no future.

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m

William Demas: Primus Inter Pares1

William Demas combined the capacity to illuminate complex problems with a generosity of spirit which touched more people than he could ever have imagined. He sacrificed his health in the service of the Caribbean region. In a long and distinguished career as the region's foremost public servant and principal architect of the institutional infrastructure of Caribbean unity, he won the respect and cooperation of politicians — without yielding to cynicism or negativity. Shortly before his death, battling ill health, he found the strength to alert the regional leaders to the dangers of dealing singly and bilaterally with the United States on matters of regional security. I shall miss William for the rest of my days, as primus inter pares of friends and colleagues with whom I have shared news and ideas, picong and old talk, for over 35 years. I cannot pick up the telephone to share my horror and anger at the bombing of Baghdad, or ask what he thinks about the prediction of Nostradamus that there will be a major war in the Middle East at the end of the twentieth century. The public persona was accompanied by the boundless curiosity of the true intellectual, which ranged from black holes in the universe to the class structure of England. He held John Maynard Keynes in the highest esteem and we often talked of the perversion of economics to serve the ideological purposes of the neo-liberal agenda of globalisation. He gave me constant encouragement and support to continue my vocation as an educator, to clarify the obfuscation of economists who have forgotten that economics is about the livelihood of real people in real societies, about economic security and the protection of cultural identities of small nations buffeted by market forces of capital seeking

the highest returns, with no responsibility for the welfare of people or nations. He was blessed by grace and I am blessed to have known him as friend and colleague. I first encountered William in the stables behind the Red House where he and his team of young economists were engaged in economic planning for Trinidad and Tobago. When McGill University established the Centre for Developing Area Studies in 1963, Lloyd Best suggested I invite William to McGill. As the first Visiting Research Fellow at this Centre, he delivered four public lectures in the spring of 1964. With substantial revision and additional documentation, this became The Economics of Development in Small Countries, with Special Reference to the Caribbean.2 The book remains a brilliant application of development economics to the problems of economic transformation in small open economies. Economic development was defined in terms of the capacity of the economy to be flexible, dynamic and able to apply technological and institutional innovation; the density of structural interdependence of domestic linkages; the degree to which disguised and open unemployment was eliminated, and investment financed from high domestic savings. The case for regional economic integration of small countries sharing geographic and cultural commonalities is argued throughout the book.

A Fine Quartet When William was at McGill University, I was teaching a course on Techniques of Economic Planning and directing a team of researchers constructing input-output tables for the Atlantic Provinces of Canada in Ottawa. We were engaged in constant discussion of the literature of economic development, especially the 'structuralist' work of Latin American economists associated with the United Nations Economic Commission for Latin America. This was also the time when Lloyd and I started joint work on plantation models, first conceptualised during a two-day brain storming session at St. Augustine which included Alister Mclntyre. At this time, Mclntyre was on sabbatical at Columbia University in New York, in frequent communication with Demas in Montreal. Mclntyre and I co-authored a book on Canada-West Indies Economic Relations, with the help of West Indian graduate students. 3 1 was simultaneously engaged in policy discussion within Canada's New Democratic Party on issues of 'foreign investment' which eventually 350

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became the book Silent Surrender: The Multinational Corporation in Canada.4 Mclntyre said it so well: 'indeed a fine quartet of ideas, rhetoric, picong and bacchanal'. From 1966 to 1968, Lloyd and I established a research project at McGill on plantation models with the aid of a two-year grant from the Centre For Developing Areas Studies, and participation by Norman Girvan, Adlith Brown, Edwin Carrington and others. In the academic year 1966/67 William returned to McGill as Visiting Professor in the Department of Economics, where he taught a full year course on the History of Economic Thought, and semester courses on Techniques of Planning, and Public Finance. From Montreal he maintained close contact with the region, and nurtured initiatives toward regional integration.

Caribbean Development Bank It is my clear recollection that William's bold ghost wrote critical parts of a report of the Tripartite Economic Survey of the Eastern Caribbean. 5 I was sworn to secrecy concerning his role in drafting text which appeared over the signatures of an official team commissioned by the UK, Canada and the United States. The Report recommended the establishment of a Regional Development Agency, with a Technical and Commercial Services Division and a Development Bank Division. The functions of the Bank were listed as providing credit to new business ventures with little or no financial record; farmers or fishermen undertaking production into commercial channels in new specialised enterprises or the use of new specialised equipment; medium and low income housing schemes; properly organised central water authorities and other self-liquidating public utility projects. The report adds that the establishment of a Development Bank within the Development Agency would enable the islands collectively to deal with international development agencies whose rules otherwise exclude them on account of size. I believe that this report constitutes the first official mention of the need for a Regional Development Bank, and that William Demas was effectively an architect of the Caribbean Development Bank — which he saw as a necessary instrument to offset potential polarisation effects of the Caribbean Regional Free Trade Area.

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Five Year Plan to Achieve Economic Independence When Demas returned to Trinidad in mid 1967, he directed the drafting of the Third Five Year Development Plan (1969-73). The objective of the plan was 'economic independence' — the economic transformation of a highly dependent economic system, the counterpart of the long colonial relationship with the metropole. The process of economic growth has not been internally propelled. Such growth as has taken place has been 'accidental', regarded from the point of view of people living within the country. In short, the economy has been acted upon , with the local government and people playing a dependent role in the process.6 The Plan stated that the country must develop a vibrant domestic food, livestock and agricultural sector. It must "buy local" and seek to develop raw materials. It must set up its own institutions for applied science research into agriculture and other natural resources and into technology. It must build on the local genius of the people to develop its own characteristic design and styling for successful large scale export of manufactures. It must build its own financial institutions to mobilize domestic savings potential for domestic investment in productive activities. It must develop more local ownership, both public and private. It must promote and encourage economic initiative and self help among the ordinary, therefore authentic, forms of organization. To the extent that these tasks are successfully accomplished, the level of living of the masses of our people can be raised continuously, mainly by our own internal efforts. The key ingredients for achieving these tasks are education and training and the achievement of a greater sense of self-confidence among the people We have, as a result of our history of dependence, come to conceive of ourselves as innately incapable of running a more independent economic system. It is also true that we do not sufficiently understand the specific structure, functioning and institutions of our economy, oriented as we are toward categories of analysis derived from the contemporary and historical experience of other societies and economies.7 In 1969, I was invited by William Demas to serve as a technical adviser to the Government of Trinidad and Tobago on the reconstruction of national economic accounts to serve as a data base for the Fourth

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Economic Development Plan. This system of detailed economic accounts was informed by the accounting frameworks developed by Best and myself and the United Nations System of National Accounts (SNA). The ultimate objective was to construct a Social Accounting Matrix (SAM) with links between real and financial sectors. An excellent team was assembled within the Ministry of Planning under the guidance and protection of Eugenio Moore, whose untimely death we deeply regret. Work was abruptly terminated in 1973, when the OPEC initiative raised the price of oil and lifted the financial resource constraint. The project was suspended, as was national economic planning. During the oil boom, substantial public infrastructure was put in place, and the benefits of prosperity percolated through the society. When the oil boom crashed in the mid 1980s, the burden of external public debt obligations could not be managed without recourse to the IMF and the sale of public assets to lighten the fiscal debt burden. Following many years of downward adjustment and declining real income, there has been recovery of economic growth, largely based on construction related to the energy sector. But this growth has been highly inequitable and accompanied by unemployment, poverty, crime and rising social tensions. The economy is precariously dependent on the export of energy-intensive petroleum products — while the rich human resources of the country are wasting. The country is ill-prepared for survival in the 'information age', which calls for massive expenditures on education and training; or for a major crash of the world economy, which will throw the country back on its own resources. GNP is higher than it was at the time the Third Five Year Plan was written, as is dependency, including the consumption of North American economic doctrines which Demas identified as inappropriate. There has been regression in the area of economic and social thought. The university has failed to nurture critical thought. Trinidad has failed to produce even one economist of the stature of William Demas. The orientation and many of the detailed proposals of the Third Development Plan are as relevant today as they were when it was written more than 30 years ago. I say this advisedly, in full knowledge of the changes which have taken place in the international economy since the mid 1960s. If this statement consigns me to the realm of the dinosaurs, I am in excellent company. However, do not be surprised if we are already witnessing the demise of the liberal dogmas of deregulation, privatisation and the excesses of free trade. The deep recession in Asia, the introduction William Demas

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of the 'market economy' in Russia which has reduced millions to abject poverty and primitive-subsistence barter, and the more recent crisis in Brazil, have cast the shadow of a world depression over the heartlands of capitalism. The signs of global deflation and depression on the scale of the 1930s have been noted in the business press. Already, some mainstream economists are distancing themselves from liberal doctrines to advocate capital controls to contain the destabilising financial flows which are sucking the lifeblood out of real economies, destroying the gains of decades of economic and social progress in many developing — but also in some industrial — countries. The coming years present a major challenge to economists, to reconstruct a viable economic Caribbean regional bloc with diversified relations with North and South America, Europe, Asia and Africa. In that regard, the untiring efforts of William Demas to sustain the flame of Caribbean unity will be critical. As Lloyd wrote, 'his place is secure; his fruit will endure'. But not without the active engagement of new generations of young people with the nobility of purpose, incorruptible idealism and quiet courage of William Demas.

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IK!

Reclaiming Economics for Development

The Case for Relevance and Creativity in Economics What kind of economists does the region need? What kind of training should the University provide in its economics programmes at the undergraduate, and at the graduate level? What distinguishes a training in economics from the acquisition of basic skills and techniques required for routine private and public sector management? What are — and what should be — the special attributes of Caribbean economists trained in a social science tradition which differentiates them from managers? For what purposes does the business sector, the public sector, and the increasingly important 'third sector' of non-profit voluntary associations, need economists? What role should economists play in animating public discussion of national issues? In short, what is the role and function of economists in the Caribbean now and for the foreseeable future? Note the use of the word should. If you interpret this as an expression of dissatisfaction with current trends in the formation of economists within the academy, both here and more generally within mainstream economics curricula in North America, you are correct. There is a disjuncture between the number of economists who can situate a given problem area — whatever it may be — within the larger context of Caribbean reality and the rapidly changing external environment on the one hand, and the need for intellectual leadership and vision required to address the manifold economic problems facing the region, on the other. This constitutes a challenge to the academy to review economics curricula in the light of new developments within the discipline, the developmental experiences of other developing countries, and the need

for renewal of direction and vision in the region. Although economics is well established as a field of study at the University of the West Indies, it is difficult to escape the conclusion that recent generations of Caribbean economists have failed the region in providing intellectual leadership. If a training in economics is nothing more than a career path to private or public sector employment, is there justification for the continued existence of economics departments? Can training for routine functions of management not be provided more efficiently, and at lower cost, in specialised management schools? Perhaps it can, but what about the larger issues of economic and social policy? Economic issues are at the forefront of popular concerns. Unemployment and the cost of living rate are at the top of opinion polls as the most urgent problems facing Caribbean society. People have intimate experience with economics in the form of the rising cost of living, devaluations of the external value of the currency, and prohibitively high interest rates. The population suffers increasing criminal activity and the rise of anti-social behaviour of all kinds, attributed to the lack of economic opportunities for young men. Secondary education and exposure to the world by the revolution in communication has raised expectations above the drudgery and hardships to which previous generations were socialised. The stuff of economics is painfully familiar to all. It is the subject of daily discussion and commentary in the media. Caribbean economies have always been open. At all levels of society, people move money in and out of the country, legally and otherwise. Informal traders are as knowledgeable about exchange rates as any cambio operator. The International Monetary Fund (IMF) has been a household name in the vocabulary of Caribbean peoples for the past 25 years.2 There is a rising tide of impatience and frustration with old patterns of bureaucratic 'top down' government, reflected in the growth of 'informal' and small-scale economic activity, and the rise of voluntary associations and initiatives. The world is undergoing an accelerated rate of change, presenting new problems and new demands on economists to explore new areas of research, and address new opportunities for enlarging the space within which Caribbean peoples can develop individually and collectively. The problems are complex and call for professional competence in a range of subject areas including economic history and development, statistical and econometric techniques, and economic theory. 356

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For years, some countries of the region have experienced stagnation and negative economic growth. Where growth has occurred it has failed to translate into improved living standards for large numbers of people. Large pockets of persistent poverty co-exist with increasing disparities of income and lifestyles. In several countries of the region, there has been serious regression in economic and social infrastructure, and in levels of living of the lower income classes. The Human Development Report of 1995 has revealed that Jamaica and Guyana have fallen in ranking of human development by more than any other developing country in the world. Jamaica was first among developing countries in 1970, and nineteenth in a list of 79 countries; it now ranks at thirtysixth place. Guyana was thirtieth; it now ranks at 50. According to World Bank data, income distribution in Jamaica now rivals Brazil, Ecuador and Bolivia in inequality. Jamaica's showing would have been even worse were it not for two factors: the relatively high level of gender equality reflecting the contribution of women to economic life, and the consumption of social capital by public health facilities, put in place in former times. While Barbados now ranks first among developing countries in terms of the United Nations indicator of human development, and Trinidad has pulled out of years of adjustment towards the demise of the oil boom, there is no cause for complacency here either: unemployment has assumed alarming proportions in both of these countries, as have other aspects of social disintegration. Given the totality of economic problems, one might expect an emerging consensus among professionally trained economists regarding what should be done to mobilise the natural and human resources of the region to achieve self-sustaining growth with equity. There is no such vision. There is a reluctance by professional economists to address the real problems of real people in the real economy. There is a belief that 'the market', if freed from 'interference', will attract investment and generate economic growth. Intellectual speculation concerning the bizarre behaviour of narrow and unstable financial markets has pushed aside traditional concerns about increased national output and the distribution of national income, and about unemployment and the eradication of poverty. Nor have new issues, including the information revolution, the globalisation of finance, and environmental degradation, received the attention they merit. The disjuncture between the real economy and the burgeoning of financial institutions in the region is replicated by an intellectual Reclaiming Economics for Development

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disjuncture between the economy as modelled in the classroom, and the economy as daily experienced by the population. Narrowly defined models of economic behaviour based solely on rational self-interest, devoid of institutional context, whether presented conventionally or in mathematical form, cannot address the real and urgent economic problems of the region. Additionally, the methodological individualism which underlies these models contributes to a socialisation process which emphasises private agendas of career advancement over the larger social concerns which motivated past generations of Caribbean economists. Years of official tutelage of public policy by international multilateral agencies have eroded the critical faculties of the profession. Mimicry and dependence on 'ready-made' doctrines based on simplistic assumptions of 'homo-economies' have displaced an earlier institutionalist tradition of Caribbean economics which sought to understand the persistence of economic underdevelopment in terms of societal structures inherited from the plantation legacy. Notwithstanding the shortcomings of that approach, it had the merit of pointing toward independence of thought as the critical step toward breaking patterns of dependence, and unleashing the creative capacities of all the people of Caribbean societies. The flux of the shifting international environment following the end of the 'Cold War' era, presents new challenges and new opportunities. The policy choices made in the course of the next few years will determine whether the region will continue to drift without direction into the orbit of the North American cultural sphere, or whether it can capitalise on its unique European, African and Asian cultural heritage in a world in which geographic location has diminished in importance, compared with cultural and societal factors, in determining success in economic development. Being off-shore North and South America, combined with traditional commercial ties to Europe and a myriad of 'people ties' with Caribbean diasporas, presents opportunities to diversify external economic relations and capitalise on possibilities for niche markets and specialised services embracing all three of these major economic regions. There is food for thought that, in this regard, the drug economy has pioneered the possibilities of Caribbean-based international economic networks. What is now needed is strategic thinking. It is time to move beyond crisis management and compliance with externally programmed performance criteria, which privilege short term macroeconomic 358

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adjustments over the capacity of the economy to draw the population into productive employment to yield acceptable levels of living for the twenty-first century. This region is not poor in natural and human resources; nor in artistic and intellectual creativity; nor in traditions of caring and sharing which have enabled previous generations to manage their lives with lesser material resources than we have today. The problem is that all of these resources are under-utilised, wasted or inequitably distributed. Neither land, nor labour, nor finance, nor the opportunities of the educational system, nor the administrative capacity of the state are utilised efficiently and harmoniously to create positive feedback and synergistic societal energy. Perhaps the smaller Organisation for Economic Cooperation and Development (OECD) countries have done better, not because of tourism, as is generally believed, but because social cohesion has not been destroyed in these least developed countries (LDCs) to the same extent as has been the case in the so-called 'more developed' countries (MDCs) of the region. Another way of saying this is that personal relations between people in these smaller societies have not (as yet) been impoverished by a style of 'development' which sanctions selfishness and greed by social approval in the form of monetary reward. Recent economic research — and the negative experiences of the introduction of 'market economy' in the territories of the former Soviet Union — underline the necessity to complement market forces with civilised relations of trust between contracting parties and an associational network of 'civil society' which ensures formal and informal protection against the use of economic — not to mention sheer physical — power to exploit the weak and the powerless. Economists are rediscovering the institutional social underpinnings without which market forces run roughshod over economic livelihood. Economic theory is about the efficient use of resources. But efficiency is an instrumental concept. Efficiency has no meaning outside the criteria of the objectives to be attained. Economics, as presented in the classroom and widely accepted as a guide to public policy, has identified wellbeing with economic growth, and the freeing of market forces on a global scale with its achievement. Neither of these propositions has gone unchallenged in recent economic literature. The United Nations Human Development Report mentioned earlier in this chapter has been strongly influenced by the work of Amartya Sen. His basic proposition is that the ultimate purpose of economic activity is not the accumulation of material wealth per se, but the Reclaiming Economics for Development

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enhancement of 'human capabilities and functionings'. It follows that GNP per capita is an unsatisfactory indicator of human development, so defined. The most important single element in the standard of living is, as is common knowledge the world over, good health and the expectation of a long life. Research has revealed that the health status of a population is a function of the provision of public health facilities, and the absence of dire poverty. Although the eradication of poverty requires adequate nutrition, above a certain level of gross national product (GNP) further economic growth does not, in itself, address problems of persistent poverty. The contribution of growth to poverty alleviation lies in the enhancement of fiscal resources in the provision of social capital and social infrastructure. It is in this way that, in very poor countries, economic growth is a condition for the attainment of higher levels of human development. In his presidential address to the American Economic Association in defence of development economics, Sir Arthur Lewis stated that economists still did not understand the determinants of long-term economic growth.3 The unexpected and extraordinary surge of growth in East, South East and now also South Asia, accompanied by a slowing down of growth in Europe and North America — not to mention the 'lost decade' of the 1980s in Latin America, the Caribbean and Africa — has renewed professional interest in the study of economic growth, reflected in the literature on endogenous growth, technology, information, externalities, non-convexities, and oligopolistic industrial structures of non-price clearing markets. Notwithstanding the quantitative advantage of the World Bank in the production of sheer masses of material, and the authority it has acquired in academic and governmental circles as the premier source of wisdom concerning economic development, the facts concerning the 'miracle growth' of Japan, the Tigers, now joined by communist China and diffusing throughout South-East Asia, do not validate the prescriptions of 'laissez-faire' neo-liberal policies which inform the structural adjustment programmes imposed on indebted Third World countries. In Japan and the Tigers, 'export orientation' was preceded by policies of strategic import substitution, using incentives of differential interest rates and controlled access to external finance to nurture industries which subsequently proved capable of competing in external markets.

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In these countries, industrial planning has been strategic, with longterm horizons which take account of the positive externalities of the accretion of improvements by 'learning by doing'. It has been said that the 'right (current market) prices' are the 'wrong prices' on which to base major investment decisions, because expected private profitability criteria undervalue the social returns from such investments. This is aggravated by the fact that, since the late 1970s, global financial markets have generated real interest rates two or three times higher than historic rates prevailing in the 'golden age' of strong post-war economic growth in Europe, North America and in most regions of the developing world — including this one. No developing country can afford an unregulated 'free' capital market. Even the most enthusiastic advocates of free markets have warned against the dangers of financial opening. Capital flight and inward surges of repatriated capital in response to large interest rate differentials are dangerously destabilising, as recent Mexican experience has illustrated. Where renter incomes are substantially higher than expected incomes from productive investment, markets give the wrong signals for the efficient allocation of resources in the real economy. Profits made by financial intermediaries do not flow into productive investment, but are recycled to feed a non-productive process of acquisition of existing assets — whether in real estate or by take-over of existing enterprise — or are recycled into a perpetuation of a bubble economy pumped up by credit in an elusive effort to maintain stability at the expense of expansion of the real economy. Purchasing power is redistributed from the poor to the rich, domestically and internationally. The resource transfers of interest and principal from poor debtor to rich creditor countries is a manifestation of the same process. While growing inequalities are observable in Britain, the United States and Canada, smaller, weaker and poorer economies are less able to defend their citizens against the instability and bias of global capital markets which serve the organised interests of the owners of assets, backed by the leverage of international multilateral institutions. These agencies draw selectively on the body of received economic theory to rationalise policies which bear down excessively on the living human resources of the world — the ultimate source of all economic wealth and development. We are told that nation states no longer have the capacity to programme social priorities, that market forces must rule without interference, that even traditional public goods including water, sanitation, public transportation, and increasingly also health and education, must be Reclaiming Economics for Development

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provided on a cost-recovery basis, to be 'efficient'. Here again, a closer look at the organisation of social and economic life in the fast growing economies of East Asia, including communist China, merits attention. Suffice it to point to the case of Singapore, a small multi-ethnic country whose success has been ascribed to externally-oriented 'laissezfaire' policies. We draw attention to the large scale use of public funds to construct public housing for the influx of migrant workers — and the consequent incentive to personal savings for home ownership. These and many other examples of investment in public infrastructure drawn from other countries of East Asia are policies which cannot be dismissed as 'culture-specific'. Most importantly, it is now generally acknowledged that the relatively equitable distribution of income and assets has been an important factor in explaining the contrast between growth and stability in East Asia on the one hand and persistent internal and external macroeconomic instability in Latin America, on the other. This constitutes a reversal of previously held beliefs that a bias toward the rich produces a high rate of savings. Savings rates in the Latin American/Caribbean region are among the lowest in the world; East Asian savings rates are the highest. What does this tell us about the role of economists in our region, and the kind of educational formation which young minds specialising in economics should expect from a university training? It tells us that economists should be equipped to engage in strategic and forwardlooking thinking, whether employed by the private or the public sector, by associations of agricultural or industrial producers, as teachers in high schools and colleges, or by the media which has an important role to play in public education on economic issues. This requires the capacity to comprehend the relationship between economic variables, and the acquisition of a sense of the relative importance of their magnitudes. Our region has been a veritable laboratory of macroeconomic experiences. Statistics and econometrics are important tools, and must be an essential component of undergraduate and graduate curricula. The problem here is that all too often fascination with techniques of estimation focuses attention on the statistical — as distinct from the substantive — significance of the results. Econometric critical interpretation of quantitative analysis is presented in reports and journal articles. At the advanced graduate level, econometric analysis complements the mathematical construction of models which should reflect the basic 'stylised facts' of Caribbean economies. 362

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A training in micro and macro economics — with emphasis on open economies — at both undergraduate and graduate levels is basic. For the core course at graduate level, this implies general equilibrium models presented in simple mathematical form. I do not foresee much disagreement here, save with the tendency to substitute mathematical formulae for economic reasoning. I have no problem with mathematics. It is an excellent training for logical reasoning by the derivation of propositions from first principles. I believe that the teaching of mathematics should be upgraded, modernised and made more accessible at primary, secondary and tertiary levels. My problem lies with the fashion for 'model building' presented to students who do not have the necessary comprehension of either the mathematics or economics to understand what is really going on. Consequently, they memorise material and reproduce it in examinations without having increased their capacity to understand the more complex and less 'well behaved' functioning of the sometimes bizarre behaviour of Caribbean economies. I want to be clearly understood on the matter of mathematics in economics. There is need to raise the general level of mathematical comprehension at all levels of Caribbean education. At the undergraduate level of economics curricula, I favour basic instruction in calculus, matrix algebra and statistics, including simple least squares regression. In core graduate micro and macro courses, there is a place for a mathematical presentation of material, provided that the mathematics do not substitute for the comprehension of the economics. More advanced mathematical economics properly belongs to elective graduate courses, where students with a mathematical orientation can acquire the skills needed to construct models which embody the stylised fact of Caribbean economies. Until we acquire the capacity to be more creative in this regard, Central Banks and Ministries of Finance have no alternatives to the continued use of models supplied by the Fund and the Bank. At the graduate level, core courses in micro, macro, econometric and development economics are appropriate. However, given the growing complexity of the international environment within which we live, we might consider a fifth core course on the global economy, with emphasis on new themes of information, technology, global finance, environment and the role of state and non-state actors in civil society. I return to the undergraduate program. Standard instruction in basic micro and macroeconomics should be accompanied by a core course in the history of economic thought, including an examination of the Reclaiming Economics for Development

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philosophical, behavioural and methodological assumptions which underlie the construction of economic theories. There has been a limited number of truly important ideas in the corpus of economics since Adam Smith. The insights of earlier economists shed a partial and particular light on the economic realities of their day. By passing over the insights of Smith, Ricardo, Marx, Marshall, Keynes or Schumpeter in favour of whatever is currently taught in North American departments of economics at the graduate level, students are led to believe that what they are taught is the latest and the best kind of economics — knowledge which is universally applicable to any and all economic situations, regardless of time and place. Given the simplistic assumptions of maximising and minimising behaviour by individual transactors operating in price clearing markets which underlie standard economic theory, students are poorly served by this a-historical approach which ignores the institutional context of economic reality. Reference has been made to the rapidly changing international economic environment popularly referred to as 'globalisation'. There is need for instruction at the undergraduate level on the historical evolution of the modern world economy, and the changing place of the Caribbean region within it. This might take the place of the course on Caribbean Economy, which has been dropped as a compulsory course. The semester system suggests two courses, with one in each semester: one on the evolution of the world economy, with emphasis on the divergent experiences of Europe, North America, Asia, Africa and Latin America; and one on development economics with special reference to Caribbean economies. At the undergraduate level, there is a strong case for a basic course on ecological economics, with emphasis on the interaction between human activity — remunerated and unremunerated — and the natural environment. Conventional economics is deficient in its ability to value natural resources by criteria other than their value when they are commercialised. Given the growing importance of this area of public concern, and its obvious relevance to global inequalities in levels of economic development, this course is likely to be well received by economics students. To be forward looking, we cannot afford to imprison young minds in the intellectual cul-de-sac of North American mainstream academic economics where, according to a memorandum entitled 'Economic Reasoning and Social Objectives', co-authored by three prominent 364

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American economists,4 'inertial tendencies', reinforced by peer review procedures for publication and promotion, discourage young scholars with unconventional ideas. They note that 'the sanctions against violating established canon are particularly severe in economics, where the very clarity and rigour of established models support an unusually well-defined and remarkably impermeable boundary between approaches deemed 'acceptable' and those which are not. Easy recognition of this boundary is one of the first things learned by graduate students in economics ... and warnings about the professional consequences of having one's work appear on the wrong side of the line can be remarkably effective'. According to the authors of this memorandum, recent developments in economic theory and the new realties of the post Cold War world, including problems of the environment, the internationalisation of economic activities, the loss of national autonomy and the persistence of serious inequalities, have raised substantial doubts among economists concerning the adequacy of conventional wisdom. The unfortunate influence of insular economic reasoning concerns both the ends of public policy and the means. The widely accepted model of the rational economic actor takes little account of human capacities for moral actions going well beyond the limited accounting of personal and immediate gains .... This distorted view of economic actors has extensive implications for the analysis of policy means as well as ends, the most obvious being the strong prejudice, often powerfully articulated, in favour of extreme models used to oppose government intervention to address problems of unemployment. Unreasoned skepticism towards public policy intervention is not confined to unemployment and other macroeconomic issues, but is quite pervasive, militating against active policies in such diverse areas as inequality and discrimination. The problems confronting the world today go considerably beyond the issues motivating the centuries old debates concerning central planning, markets, and the management of aggregate demand which shaped current conceptions of economics. A largely anachronistic debate has been belatedly closed, and many new and momentous issues opened up. Many of the new models, including the so-called township and village enterprises in China, defy understanding in simplistic central planning versus laissez-faire terms. The apparent difficulties in promoting market-based post-communist economies is likewise a challenge to existing theories of markets and the social condition for their adequate functioning. The part played by behavioural motivations and norms that go well beyond simple profit

Reclaiming Economics for Development

365

maximization, in the economic development and prosperity of Japan, has started to receive attention from economists and sociologists. The new role of states in helping the expansion of the market-based economies of East and South-East Asia deserve much more work. These cases have promoted growing interest in a more much nuanced discussion of the kinds of institutional configurations which support high levels of economic performance.5

The following new developments in economic theory of the past two decades are noted: Growing skepticism of the narrowly defined textbook model of the self-interested economic man in favour of a more psychologically informed conception stressing people's limited ability to process information, their capacity for moral commitments going beyond self-interest, and their capacity to learn. A revival of interest in both the process of innovation and economies of large scale production, and the resulting fact that small differences in the past lead to large and sometimes irreversible differences in the present and future (applications to racial income inequality and divergent growth patterns in the world economy). Widespread interest in those situations in which the unregulated pursuit of self-interest leads to undesirable results in areas such as environmental pollution, unemployment, and the economics of information; this is in sharp contrast to earlier emphasis on the likelihood of desirable outcomes resulting from uncoordinated interactions among self-interested actors. Growing research in the importance of non-selfish behaviour, social norms, altruism, and the like. Interest in broadening narrow income-based conceptions of the quality of life in so far as it is influenced by economic matters. Recognition of the importance and far-reaching theoretical consequence of taking more adequate account of environmental effects of economic activity. Lively interest in the economics of information and in the incentive problems due to asymmetric information, in settings as varied as the provision of public services, labour markets, credit markets, insurance markets, and Third World agriculture.

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The Right to Development

Greater skepticism about naive social engineering approaches to public policy in favour of more modest assumptions inspired by evolutionary thinking and the recognition that the complexity of social systems often greatly attenuates the predictability of the effects of intervention. Increasing attention to economic institutions and problems of economic governance in complex economic interactions where the traditional textbook assumptions of perfectly competitive and fully informed exchange fail to hold (and relatedly, attention to complementary rather than contradictory relationships between public action and market competition in fostering high levels of economic performance). The memorandum further notes that many economic theorists have moved research toward a more complementary relationship with other disciplines, including Active participation of philosophers in investigation of economic importance. Complementarity of research in theoretical biology and economics. Symbiosis of economists and cognitive psychologists in the study of human decision-making capacity. Interest by political scientists in more interdisciplinary conceptions of political economy addressing issues of state and non-state governance of economic relationships at local, national and global levels. Increased interest in the broader characteristics of economic problems in premodern economies and the greater use of economic history and history of economic thought in broadening the understanding of contemporary economic problems.6 The last two areas mentioned are of special relevance to the study of economic development and underdevelopment, and lend support to our proposals concerning curriculum reform. While we have considered it important to point to new directions in economic theory, I conclude by an appeal for the revival of research in Caribbean economic development — largely suspended in favour of shortterm concerns with macroeconomic stability. Here again, we draw on work done elsewhere, in this case Development From Within.7 In this Reclaiming Economics for Development

367

work the authors seek a strategic alternative to previous 'inward-looking' and current 'outward-looking' neo-liberal policies. The topic is Latin American economic development from 1950 to 1990, and the approach is a medium and long-term historical and structural approach, seeking systematically to establish the vital relation between this perspective and the short-term economic situation. An introduction entitled 'In Search of Development Lost' concludes with the following paragraphs: Latin America possesses a rich tradition of autonomous and independent thinking on the subject (of economic development). This must be regained, reviewed, renewed, and applied to current issues, so as to encourage research, debate, and the formulation of alternative strategies and policies. The newer generation of economists have been increasingly and overwhelmingly trained in the so-called neo-classical synthesis. This paradigm completely dominates the teaching of economics in the United States and elsewhere. Our younger Latin American colleagues lack adequate knowledge of thinking generated in the region, by the region, and for the region during the post war period, except in caricatured, biased, and one-sided versions taken out of their historical context.8

The Caribbean also has a rich tradition of autonomous and independent thinking, to be regained, reviewed, and renewed. Here also there is need to search for alternatives which will revive development, combining insights of Caribbean economists of the!960s and early 1970s with lessons learnt from mistakes, and with new directions in economic theory. We might make a start by a collective research project modelled on Development From Within, building on earlier Caribbean economic thought. For there is no development that is not 'from within'. This applies as much to the academy as to the wider Caribbean society.

368

The Right to Development

EG

Building Bridges Across the Caribbean1

We have come a long way since the idea of an Association of Caribbean Economists (ACE) — initially Political Economists — was first proposed by George Beckford and Norman Girvan in Havana in 1981, at a conference of Third World economists. ACE was formally launched in Jamaica in 1987 and has consistently worked to develop a network of economists across the language barriers which divide and segment the Caribbean. I think that this conference marks a big advance. We have matured. The network is getting denser. We are listening to each other. We are engaging with each other in an exchange of experiences — and even more important, of ideas and opinions of how our societies can manage the difficult adjustments to a more hostile and competitive external environment — without losing the gains which have been won in the post war period. Prior to the advent of the so called 'new world order' of liberalisation, privatisation and deregulation, the sovereignty of nation states and the self determination of peoples was an accepted principle of international relations — although frequently breached in practise. The globalisation agenda of international capital has challenged this principle. States are no longer able to order the social and economic priorities of their citizens without regard for the ratings of international capital markets. For Cuba, structural adjustment has been very much more traumatic than was the case for countries like Trinidad or Jamaica, because it involves a transformation from a centrally planned socialist economy with strong trade and aid dependence on the former socialist bloc — abruptly shattered in 1989. Cuba has made greater gains in the social sphere of nutrition, health and education than most of the other countries of the region. In that sense, Cuba has more to lose. But the impressive achievements in human

development can be Cuba's greatest asset in a world in which human and social capital are now recognised — at least by development theorists — as the ultimate foundation of successful economic development. But significant social progress has also been made in many other Caribbean countries. Most of the smaller countries of the Caribbean have attained high rankings in human development, according to the United Nations Human Development Reports. Trinidad ranks with Cuba at the top of a list of 78 developing countries in access to health and education services and life expectancy — (above Chile, Costa Rica or Singapore) — while Barbados ranks first among all developing countries in human development according to an index (HDI) which combines life expectancy with educational attainment and an (adjusted) measure of income per capita. Antigua, Trinidad, Dominica, and St Kitts all rank above China and Korea and major countries of Latin America such as Argentina, Venezuela, Mexico and Colombia. Grenada, St Vincent, Belize and Suriname all rank above Brazil. The larger islands of Jamaica, Cuba and the Dominican Republic rank lower than the smaller countries of the Eastern Caribbean, principally because of lower income levels. Guyana places fractionally above Bolivia and the Central American republics of Guatemala, El Salvador and Honduras, while Haiti is as poor as the poorest African countries. It is notable that progress in social development has significantly exceeded economic attainment as measured by gross national product (GNP) per capita, not only in Cuba, but also in Barbados and most of the small countries of the Eastern Caribbean. (The nomenclature of more developed countries (MDCs) and least developed countries (LDCs) in the Anglophone Caribbean is clearly in need of revision). Managing the process of adjustment and transition presents an enormous challenge to economists. Without minimising the hardships suffered by the population, the management of Cuba's adjustment to the collapse of the socialist economies of Eastern Europe has been impressive. But the future remains uncertain. I think by now we all know that there is no single 'correct' model of economic development. However, I suggest that we may be able to agree that solutions lie in the area of mixed economies, and that the state has multiple roles to play in coordinating an economy that is environmentally and socially viable. Perhaps the most important role of the state is the negotiation of a basic social consensus. The nature and the variety of economic and social 370

The Right to Development

institutions which comprise a mixed economy depend on a number of historical, cultural and political factors and will be different in different societies. I believe that the most important contribution that ACE can make is to place the critical discussion of the relationship of state, market and society in the context of shared Caribbean experiences rooted in the historic, cultural and geographic commonalities of the countries of the Caribbean. It was the vision of George Beckford that the Caribbean is one people, a single sociological nation. George Beckford is no longer with us, although I like to think that his spirit is present, listening and watching over these proceedings. But Norman Girvan is very much here. I ask you to join me in a special thanks to Norman who, together with Sergio Placencia, has sustained this Association from its original conception here in Havana in 1981. His consistency of effort and vision serves as an example of the best which Caribbean economists can contribute to the Region. Judy Wedderburn, who has contributed far more than the administration of the FES financial support which has sustained ACE, must also be recognised. Judy represents the power of Caribbean woman, the bedrock of resilience and creativity which has carried Caribbean peoples through adversities — including the devastating shock experienced by Cuban society in the 1990s. The multiple skills of Caribbean women — manifested in this conference in some outstanding interventions — have played a vital role in sustaining cooperative networks of interpersonal relations. For the ACE family, Judy has managed to organise, encourage, discipline and motivate us — a notoriously individualistic set of academic economists — to progress toward a goal of building an effective organisation of Caribbean economists with a vision of the Caribbean — including the diaspora — as one Caribbean nation. It is this vision, I suggest, which has been the most important contribution of the English speaking countries to the larger Caribbean. The countries of the Commonwealth Caribbean were the first in the region to open official relations with Cuba in the early 1970s. George Beckford was, to the best of my knowledge, the first West Indian economist to visit Cuba in the early 1960s. When he returned to Jamaica, to report on the achievements of the Cuban revolution, the government seized his passport to prevent him, and discourage others, from further visits. What distinguished Beckford from many other friends Building Bridges Across the Caribbean

371

of the Cuban revolution was his vision of Cuba as a 'Caribbean society': Latin American — yes; a member of the COMECON group of socialist states — yes; but above all, he saw Cuba as a Caribbean society sharing the culture and the legacy of the slave plantation with Jamaica and Haiti and all the other plantation societies of the Region. What impressed him most about his first visit to Cuba were three things: the emphasis on the education of the people; the agricultural policy of land reform and the digging up of sugar lands to grow food crops; and the spirit of independence of a small Caribbean country which defied the blockade and threats of invasion by the United States. But from his first visit, Beckford expressed concern with the high degree of trade and aid dependence on the Soviet bloc, forced on Cuba by the US trade embargo. He feared for the vulnerability of a revolution dependent on an external metropolitan power. The theme of external dependence of the commodity-exporting countries of the region was central to the concerns of the West Indian economists of the 1960s. Dependence of sugar and banana producers on preferential access to metropolitan markets has been a persistent feature of Caribbean economies to this day. The phasing out of Lome preferences in European markets hangs over the banana exporting countries of the former British Caribbean. The analysis of Caribbean dependency gave rise to the plantation economy models which owed an intellectual debt to Latin American economic structuralism.2 Mark Figueroa spoke of generations of economists. The Latin American 'dependency' critiques of industrialisation policies associated with the early Cepal and with Prebisch resembled our critique of 'industrialisation by invitation' advocated by Arthur Lewis. In the light of the neo-liberal counter revolution in economics, these differences now appear less significant than the similarities between generations. In the course of my tenure as George Beckford Professor of Caribbean Economy at the University of the West Indies (1995-1997), I made a comprehensive selection of Beckford's professional work.31 am privileged to have known George Beckford for 30 years as colleague and friend. But it was not until I read the totality of his published and unpublished writings that Beckford's consistency of purpose and vision revealed itself. Beckford was at least 20 years in advance of the mainstream economic doctrines of his time, which conflated economic development with economic growth. The professional literature on development has only recently discovered that it is not physical capital or natural resources 372

The Right to Development

which are the foundation of economic and social development, but the quality of human resources — the capacities and the capabilities of people. Raising the 'quality of life', enhancing Amartya Sen's 'capabilities' and 'functionings' requires more than increasing a country's gross domestic product (GDP). It requires a society of equity, dignity and independence, and the nurturing of the 'social capital' of reciprocity and cooperation which enables individuals and societies to survive and overcome underdevelopment. Beckford believed that it was the resourcefulness and creativity of people that was the most important resource of a society. The Caribbean people, he wrote, freed from the economic, social and political legacy of the plantation, could 'transform what is physically the most beautiful part of the planet Earth into a human paradise'.4 I have been blessed by the good fortune to have lived and worked in the Caribbean over a period of 35 years. My life has been enriched by the friendship of Caribbean peoples; the beauty of Caribbean nature; and the magic of the culture. For this I am profoundly thankful. And I thank you, my economics colleagues for the honour you have bestowed on me. I thank Goerge Beckford for never letting me, or anybody else, forget, that I am a part of Caribbean society — by option, by choice. Beckford's vision was a holistic one, which transcended divisions between town and country; physical and manual work; land and labour; nature and culture. 'The West Indian person', he wrote, 'is both town and country. The majority can do both mental and manual work. And agriculture is an industry. There are many kinds of industry — industry of the factory; industry of the field; industry of the mind. Human society must aim to integrate all of these industries, so that mankind can tailor environment to needs'. 5 Beckford had a vision of 'sustainable development', long before the term entered popular use — and abuse. Ultimately, he wrote, 'people will decide everything'.6 But the people who will decide everything are not the disembodied atomistic maximising and minimising individuals of economic textbooks. They are the product of shared experiences of Caribbean society. Beckford was trained as an agricultural economist at McGill (1958) and obtained his MA in International Economics (1960); and PhD in Agricultural Economics (1962) at Stanford. He was brilliant. He could have had a successful conventional career at one of the top North American universities. He chose to return to the region, where his work progressed from studies in agricultural production and land reform, to Building Bridges Across the Caribbean

373

the plantation economy approach to Caribbean political economy, to the social economy of bauxite mining in Jamaican 'man-space', to the cultural roots of the creativity of the New World African diaspora. His vision of one independent, self-reliant, Caribbean nation, was an affirmation of the culture of 'overcoming', rooted in the Caribbean peasantry and the land. The originality of Beckford's contribution was his insistence on the 'Caribbean peasantry' as the repository of popular culture, of self-reliance, self improvement and independence. The Caribbean peasantry was unique, because it was not 'traditional' in the European, Asian or African sense but was a product of 500 years of the revolt and struggle of slaves and ex-slaves against the 'plantation system'. Beckford was above all, an educator. He was a teacher, a university professor. He was never tempted to seek political office and never afraid to criticise the establishment, however powerful — even when criticism was directed at personal and political friends, including the late Michael Manley. Beckford never questioned the importance of the teaching of economics, but he insisted on an economics that was relevant to Caribbean realities. 'Economics is about how economies work', he liked to say — a dictum attributable to Dudley Seers, a British development economist who was profoundly influenced by Prebisch and the Cepalista tradition of economic structuralism. Seers's 'Model of an Open Petroleum Economy',7 derived from previous work on inflation in Venezuela and his truncated inter-industry matrix, was used in the formulation of economic plans for Trinidad and Tobago and for Jamaica in the 1960s. This brings me to a brief discussion of plantation economy models developed by Lloyd Best and myself in 1965-1969. A paper written for a seminar celebrating 'Twenty Five Years of Plantation Economy'8, organised by the Department of Economics at St Augustine, Trinidad, details my collaboration with Best in this work. The original objective was to construct a multisectoral planning model which would reveal how a typical modern Caribbean economy really works. The methodology was based on Marshallian partial theory of the firm and a variation of Keynesian categories of national income accounting, with emphasis on sources and uses of capital and foreign exchange. When we identified the plantation as the fundamental and original economic and social institution of Caribbean economy, we had in mind the 'enclave' nature of Caribbean economies. Export earnings from sugar, bauxite, petroleum and tourism were the principal generators of national income, 374

The Right to Development

and domestic industry was dominated by 'branch plants' of foreign transnational corporations. There were to be three models, approximating contemporary Caribbean economy by successive modification of the initial model of 'pure plantation economy'. In Model I — the only one completed and published 9 — the human cargo of slaves was the principal capital asset of the economy. The plantation was a total institution whose only purpose was the exploitation of labour to produce profits accruing in metropolitan money to planters and merchants. In Model II, ('plantation economy modified') a 'residentiary' sector of peasant and small craft producers developed by free labour, following emancipation. This accords with the historical experience of the British West Indies from the middle of the nineteenth century to the Second World War, when economies developed a limited capacity for endogenous economic growth based on peasant production of 'non-traditional' exports (bananas, coffee, cocoa, and domestic food-crops. Model III ('plantation economy further modified') was intended to reveal the mechanisms of post-war industrialisation, when foreign capital returned (in mineral extraction and tourism) and marginalised the residentiary sectors, creating what Latin American economists termed a 'new dependency'. Model IV was the 'anti-model' when dependency on metropolitan capital and life styles would recede, and the economy would be transformed to a growth path of endogenous capital accumulation and equitable social development. The ideology which underpinned these models was a West Indian nationalism which conceived the former British West Indies as one nation, and by extension, the whole Caribbean as one unique society, sharing a common history of five centuries of exploitation by metropolitan capital. The plantation models were an attempt to construct a different way of seeing Caribbean reality — a way to turn the centre-periphery relationship on its head; placing the rich popular culture of Caribbean people — with roots in Africa, Asia and Europe — at the centre of Caribbean reality. It was an intellectual construct designed to 'free the mind' from mimicry of metropolitan lifestyles and values. The objective was economic decolonisation by transferring the locus of economic decision-making from external to domestic sources. The plantation models, and the New World Movement with which the plantation economists were closely associated, was a critical response to W.A. Lewis and policies of 'industrialisation by invitation', attributed to him. In the Lewis model, the 'traditional' sector was a passive reservoir Building Bridges Across the Caribbean

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of cheap labour for the modern capitalist sector, whose profits were assumed to be the only source of capital accumulation. Incentive legislation was drawn up to encourage foreign investment. In the 1960s, these policies failed to produce the anticipated employment. Unemployment increased, and income differences widened. Mark Figueroa has talked about generations of Caribbean economists. The 'plantation economists' targeted Lewis as their intellectual adversary, much as the Latin American 'dependistas' of the 1960s targeted Cepal and Prebisch. In retrospect, the differences between contesting generations were small when contrasted with the resurgent neo-liberalism of the 1980s and 1990s. Lloyd Best and George Beckford were the two most important West Indian economists of their generation. Best contributed his profound knowledge of Caribbean history to the central idea of the plantation as the fundamental economic and social institution whose legacy persists to this day — most clearly in Jamaica and Haiti, two countries in profound crisis of economic stagnation. It was Beckford who picked up on the Caribbean peasantry as the embodiment of the culture of independence, survival and self-reliance. European Marxism identified the wage employed industrial working class as the agent of radical social change. The plantation economists saw the Caribbean peasantry — interpreted more broadly as the popular classes — as the agents of change and social transformation in countries of the region which remain locked into social structures and hierarchies of race and colour deriving from their plantation origins. My own contribution to this work was in the area of the statistical construction of multisectoral planning frameworks, which was, at that time, the subject of my technical specialisation. From 1969 to 1973 I worked for the Government of Trinidad and Tobago in the compilation of a new system of national economic accounts which embodied some of the features of the accounting framework of Model III. This work was abruptly terminated in 1973, when a flood of petrodollars lifted the resource constraint, and economic planning was abandoned. I welcome the interest which Vanus James has shown in carrying forward the initial purpose of the plantation economy work to serve as a planning tool for a mixed Caribbean economy. My only comment is to stress the need for careful thought to be given to the appropriate way to integrate the production accounts of a SAM with monetary stocks and flows on the one hand, and social indicators to capture the impact of policies on 376

The Right to Development

the well being of the population, on the other. These are challenging areas of research. I think our work of 20 years ago produced useful insights which have not lost their relevance. The formal private sector continues to manifest dysfunctional characteristics inherited from plantation origins. Among these is the excessively short view; a low rate of savings; large overheads of overstaffed and overpaid management; a preference for placing funds in the metropole; and a profound contempt for the ordinary people. There was merit in our work. But it is my opinion that the value of the plantation economy approach of Best and Levitt, Beckford and Girvan is less in the substance of the analysis than in our insistence on an approach to economics which situates the economy within the social and political institutions of Caribbean reality. What is so distressing about current trends in economics teaching and research is a sterile and excessively formal approach which abstracts from the institutional setting within which markets function — or malfunction. This brings me to some brief comments about methodology and ideology. ACE is breaking important new ground in opening up a discussion on the methodology of economic theory and research. The positive response to the interventions by Denis Pantin and Pat Northover indicate general agreement on the importance of opening up a discussion of the philosophic basis of social scientific investigation. My position, briefly is that: 1) 2) 3) 4) 5) 6)

7)

Economics cannot and should not replicate the methodology of natural sciences. Economics is about economies. All economies are embedded in social support systems, which are to some degree unique. All modern economies are 'mixed economies' but there is one 'correct' relationship between state, market and society. Ready-made solutions of presumed universal application which claim to be 'scientific' and 'value free' are neither scientific nor value free. Neoclassical (mainstream) economics is based on methodological individualism which denies the existence of society as a specific set of social relationships which affect individual motivation and choices. All economic theories carry implicit ideologies and values.

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377

The mainstream of the academic economics profession has lent scientific validation to an economic paradigm which reduces all human activity to 'capital' and reduces the complexity of human motivation to the desire for unlimited accumulation, and defines freedom in terms of the rights of private property. We are currently faced by a hegemonic doctrine of the superiority of private enterprise over all other forms of economic organisation, and of the market as the best mechanism of allocative efficiency. We are told that we are entering a new world order of globalisation and intensified international competition in which only the strong will survive. We must be careful to distinguish between the globalisation of markets and the marketing of globalisation. We must distinguish between globalisation as a phenomenon to be studied and understood and globalisation as an agenda of transnational capital. Experience has shown that excessive liberalisation of markets, most especially financial markets, is seriously destabilising. Since the beginning of the 1990s, we have witnessed three successively more serious episodes of the destabilisation of economies due to surges of international movements of short-term funds. The first was in Europe in 1992, which forced several currencies, including the pound sterling, to devalue, and set back the agenda of the introduction of a common European currency. The second was the Mexican peso crisis of 1994, followed by the 'tequila effect' on Argentina and other Latin American countries. The third and most serious is the financial collapse in East Asia of 1997 whose international repercussions are not fully played out at this time. Experts who are well-informed fear that the whole edifice of international finance will, one of these days, implode. I believe that some form of control over international capital flows must return. It is significant that the World Bank has recently revised its extreme 'market-friendly' doctrines of the 1980s. The World Development Report for 1997 has done a turnabout concerning the role of the state. I suggest that this revisionism is due to three factors: conflicting views concerning the role of the state in facilitating the remarkable spurt of economic growth in East Asia; the dramatic failures of attempts to introduce instant capitalism in the former Soviet Union; and the recognition that health services and education are a basic prerequisite to economic development, which cannot be provided for the masses of the people by private enterprise. There is a role for the state beyond facilitating the private sector, and the nation state remains the only way to protect 378

The Right to Development

societies against the economic imperialism of the 'free' and unconstrained market. In that context, recent experience with structural adjustment in Latin America and the Caribbean region indicates that the removal of controls should be carefully phased. Once removed, they cannot easily be re-imposed. In the Caribbean there is a new appreciation of the need for closer economic integration and cooperation to protect the social gains of the post war period against a battering down by the assault of international capital. Never has there been such conflict on an international scale between the interests of capital and the needs of people for security of economic livelihood. As Gandhi said, there is sufficient for everybody's need, but not everybody's greed.

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Appendix

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Table 1: Jamaica:

JamaicaBalance of Payments in the 1970s and 1980s (us

Trade Balance Exports f.o.b. Imports f.o.b. Service Balance

Tourism, travel etc. net Investment income Other Services Balance on Goods and Services (net) Private Transfer Current Accounts Balance Sources of Finance Official -Grants -Net Loans (incl. SDRs) Total Official Private (incl. Errors and omissions) Total Finance Change in Reserves Total Finance Memo Item: GNPUSS

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

-107 342 449 -167

-131 343 474 -61

-145 363 508 -70

-195 427 622 -105

-117 693 811 -74

-195 810 970 -150

-132 660 792 -177

84 751 667 -139

44 795 750 -160

-68 815 883 -155

-75 963 1038 -182

323 974 1297 -138

-442 767 1209 -97

-439 686 1124 -144

-335 702 1037 -77

-436 567 1004 -81

-247 590 837 -74

-356 709 1065 36

-395 834 1228 224

-597 970 1567 70

80

93

110

117

97

76

47

94

136

184

229

271

306

274

385

375

481

55

470

553

-98

-103

-121

-145

-68

-103

116

-129

-179

-203

-252

-202

-184

-266

-259

-306

-314

-399

-407

-475

-49

-51

-59

-78

-103

-123

-108

-104

-115

-137

-159

-208

-219

252

-204

-151

-93

-116

161

-9

-174

-192

215

300

191

-309

-309

-55

-122

-228

-257

-461

-538

-582

-412

-517

-173

-319

-171

-527

25

26

32

38

34

21

2

15

15

70

82

123

135

95

81

153

112

117

136

149

-149

-166

-183

-262

-157

-288

-303

-40

-98

-153

-175

-338

-404

-488

-332

-364

-62

-202

-35

-378

-4

-5

-6

-8

-9

5

4

5

11

10

9

1

16

7

40

68

37

54

70

145

5

10

28

40

90

124

79

-6

179

81

226

240

446

3301

363

174

-28

215

117

229

I

5

22

32

81

129

83

-1

190

91

235

241

462

308

403

242

9

269

187

374

169

205

109

198

136

78

-42

25

-170

-79

-111

6

28

-109

154

50

28

140

26

-132

170

210

131

230

217

207

41

24

20

12

125

246

490

199

557

292

37

409

213

242

-21

-44

52

32

-60

81

262

6

78

141

50

92

-86

289

-225

72

25

-207

-178

136

149

166

183

262

15

288

303

40

98

153

175

-338

401

488

332

364

62

202

35

378

1334

1470

1761

1862

2432

2882

2890

3142

2474

2279

2488

2590

2803

3137

2144

1742

2147

2528

N/A

N/A

Table!:

Debt Transactions with Official and Private Creditors (US$ millions)

1980 | 1981 Official Creditors Multilateral Bilaterals Private Creditors(l) Short Term (2) Total Disbursements %GNP %Merchandise Imports

304 93 212 21 25 351 14 34

Official Creditors Multilateral Bilaterals Private Creditors(l) Short Term (2) Total Disbursements %GNP %Merchandise Imports

56 29 26 55 10 121 5 12

Official Creditors Multilateral Bilaterals Private Creditors(l) Short Term (2) Total Disbursements %GNP %Merchandise Imports

68 39 29 69 22 159 6 15

Official Creditors Multilateral Bilaterals Private Creditors(l) Short Term (2) Total Disbursements9 %GNP22 %Merchandise Imports

249 63 185 -34 15 230 9 22

Official Creditors Multilateral Bilaterals Private Creditors( 1 ) Short Term (2) Total Disbursements %GNP %Merchandise Imports

181 24 156 -103 -7 71 3 7

1982 1983 | 1984 | 1985 | 1986 | 1987 | 1988 Disbursements 397 377 634 201 310 616 478 232 179 330 218 178 100 265 150 338 196 260 219 199 101 45 82 285 104 89 17 84 47 70 63 30 7 56 34 35 35 10 10 471 471 739 530 255 470 296 705 17 27 12 19 11 27 26 22 47 47 44 24 54 61 45 30 Repayments 97 r 112 257 361 369 99 106 210 62 89 159 70 67 86 288 293 40 26 120 98 76 29 35 73 59 23 82 47 92 50 38 50 7 69 10 40 10 10 15 32 317 371 418 427 166 167 150 231 18 16 9 6 5 7 17 15 44 14 15 14 39 35 18 31 Interests 220 206 125 165 185 203 85 112 84 127 103 116 145 46 68 101 41 62 84 87 75 79 39 43 49 47 69 77 81 78 63 55 24 19 19 15 22 33 18 21 279 293 225 289 284 276 151 195 17 12 6 7 13 10 7 13 27 29 12 16 20 34 28 22 Net Resource Flows (3) 168 -51 -137 528 381 285 -57 517 273 156 93 89 -59 -23 -143 260 7 225 192 79 3 -28 256 256 57 -3 20 40 45 -35 -20 -43 25 25 -5 -59 -24 46 27 -40 474 320 154 52 -130 573 363 -116 12 9 -5 2 -5 18 20 15 36 47 32 15 -14-271 5 -11 31 Net Transfer (4) -17 432 416 256 120 -260 -271 -343 204 214 72 -12 -176 -168 -10 184 -84 -103 217 212 130 -5 -72 -41 -69 -49 -120 -32 3 -51 -98 -59 10 3 -38 -85 -43 27 6 41 -135 -400 -242 378 138 -406 323 2 -19 -15 12 13 4 -8 -10 4 12 -13 -48 -23 -33 25 31

Source: World Bank, World Debt Tables, 1989-90

384

Reclaiming Development

Table 3:

Medium and Long-Term External Public Debt of Jamaica by Creditor Category (US$ millions) 1975 Total External Debt (end of year) Multilateral IMF IBRD IDB Other Bilateral USAID CIDA/EDC Commercial Banks

1980 1981

1982

1983

1984

1985

1986

1987

1988

1867

2293

854 470 212 74 98 718 80

2740 1102

16 44 21 137 25

545 309 176 60 467 57

275

3267 123 627 368 113 115 1246 382

-

409

413

421

396

3262 1275 629 412 123 111 1256 451 57 415

3587 1376 693 436 125 123 1463 482 52 393

3576 1498 665 480 247 106 1568 450 91 390

4013 1734 578 462 297 397 1686 471 90 393

4009 1562 464 490 506 102 1841 464 111 392

688 81

Source: World Bank, Bank of Jamaica

583 322 108 89 1036

Notes

Introduction 1.

All per capita income data cited here is taken from publications of the International Monetary Fund, in current US dollars.

Chapter 1 - 'Capitalism and Slavery': Institutional Foundations of Caribbean Economy 1.

2. 3. 4. 5.

6.

7. 8.

9.

Revised version of a paper presented to the conference on 'Capitalism and Slavery' Fifty Years Later: Eric Williams and the Post Colonial Caribbean. University of the West Indies, St Augustine, Trinidad. September 24-28, 1996. Kari Levitt, Silent Surrender: The Multinational Corporation in Canada (Toronto: Macmillan Company of Canada, 1970). Eric Williams, From Columbus to Castro: The History of the Caribbean 1492-1969 (London: Andre Deutsch, 1970). Eric Williams, Capitalism and Slavery (Chapel Hill: University of North Carolina, [1944] 1994). The long-run outlook for non-oil commodity prices is not particularly favourable. In real terms, the non-oil index is projected to decline on average by about two per cent a year in 1996-2004, metals and minerals by about one per cent, agricultural commodities by about 2.5 percent, and beverages by five to six percent (World Bank: Global Economic Prospects (1995): 19. The materials intensity of industrial production in OECD countries has fallen since the 1960s, declining by an average of 0.61 per cent a year in the 1980s. (World Bank: Global Economic Prospects 1995), 19. The changed world economy was well summarised by Peter Drucker, (1986). 'Globalisation' first appeared in a supplement to the (complete) Oxford English Dictionary in 1972. The earliest recorded use of the term was in 1961-2. World Development Report (1995):54. The World Development Report of 1991 entitled 'The Challenge of Development' set out the globalisation agenda of 'integration in the global economy', but the new buzz word first appeared in the World Development Report of 1995. The phrase was first used by John Williamson of the Institute of International Economics. It refers to consensus among 'both the political Washington of Congress and senior members of the administration, and the technocratic Washington of the international financial institutions, the economic agencies of the US government, the Federal Reserve Bank and the think tanks'

10.

11.

12. 13. 14.

15.

16. 17. 18.

19. 20. 21.

(Williamson 1990). Ajit Singh: 'Growing Independently of the World Economy: Asian Economic Development Since 1980'. UNCTAD Review (1994): 91-106. For a well documented example of the lengths to which the World Bank will go to fit reality into dogma, see Robert Wade, 'Japan, the World Bank and the Art of Paradigm Maintenance: The "East Asian Miracle" in Political Perspective'. New Left Review (1996):217. A study cited by the World Bank has found that host country growth is the most important single determinant of EDI inflows. A one percentage point increase in the average GDP growth rate of developing countries is found to raise EDI inflows by about US$10 billion.(World Bank: Global Economic Prospects 1995), 13. 'Reverse Linkage: Growing Together'. Chapter four of Global Economic Prospects (1995): 57-67. United Nations: UNCTAD, 1995. Silent Surrender: The Multinational Corporation in Canada. Chapter two was reprinted as 'The Old Mercantilism and the New'. Social and Economic Studies, December 1970. In this book I suggested that industrial organisation, not 'comparative advantage' hold the key to understanding patterns of trade and foreign direct investment. There has been much controversy among historians on the contribution of the fortunes made by the West Indian planters and merchants to the English industrial revolution. My own reading of the evidence points to eighteenth century agrarian capitalism as the 'missing link' in the story. In so far as merchant and planter profits were invested in lands in the metropole, and the 'agricultural revolution' raised the real wages of agricultural labourers and generated a domestic market for simple manufactured wage goods, the 'primitive accumulation' of the mercantile era contributed to the industrial revolution, whether directly as export markets in the triangular trade, or perhaps more importantly, indirectly as suggested above. Capitalism and Slavery (1970): 52. This refers to the export of sugar in a raw unprocessed state. Lloyd Best, 'Model of a Pure Plantation Economy'. Social and Economic Studies, 1968; Best and Levitt, 'Export Propelled Growth and Industrialization in the Caribbean' 4 vols, mimeo (Montreal: McGill University, 1969); George Beckford, Persistent Poverty, OUP, 1972; Levitt and Best 'Character of the Caribbean Economy' in G. Beckford ed. Caribbean Economy, Institute of Social and Economic Research, 1975. See also Levitt and Witter eds. The Critical Tradition of Caribbean Political Economy (Kingston, Jamaica: Ian Randle Publishers, 1996). H. Beckles, 'Eric Williams's Capitalism and Slavery and The Growth of West Indian Political Economy'. Paper presented to Capitalism and Slavery Conference, Belagio, Italy, 1984. See E.E. Rich's Introduction to E.E. Rich and C.H. Wilson ed. The Economy of Expanding Europe in the Sixteenth and Seventeenth Centuries, vol. 4 of the Cambridge Economic History of Europe, 1967. 'It is inherent in the concept of capital... that it begins with money and hence with wealth existing in the form of money... that it appears as coming out of

Notes

387

22. 23.

24. 25.

26. 27. 28. 29.

30. 31. 32. 33.

34. 35. 36. 37. 38.

circulation, as the product of circulation. The formation of capital thus does not emerge from landed property ... or from the guild... but rather from merchants and usurers'. (Marx: Grundrisse, Pelican, 1973), 505. Capital, chapter 26. 'The capitalist has prepared neither the raw material nor the instrument, nor the means of subsistence of the weaver or the spinner. All he has done is to restrict the latter, little by little, to one kind of work in which they become dependent on selling to the buyer, the merchant, and ultimately produce for and through him. (Marx: Grundrisse), 510. World Development Report (1995): 53-54. The best 20 years of US growth in the nineteenth century (1870-1890) took place when its trade policy was highly protectionist (average tariffs 45 per cent) while that of its major competitor (UK) was liberal. (Bairoch 1993). Other nineteenth century latecomers (Germany, Russia) also practised protectionist policies. According to the United Nations Human Development Reports, the ratio of incomes of the world's poorest 20 per cent to the world's richest 20 per cent was 160:1 in 1990. Global and Economic Prospects 1995, 5. The Economist, October 7 (1995):6. Since the demise of the UN Centre For Transnational Corporations in New York and the transfer of its functions to UNCTAD, the World Investment Report has served two functions: 1) comprehensive data source on TNCs, and 2) advocacy of TNC interests in the policy area. World Investment Report (1994): 11. WIR (1995):193. WIR (1995):4. 'India, with the second largest population in the world, ranked as the sixth largest economy in 1992, using purchasing power parities, and projected to become the fourth largest by 2020, stands to become one of the world's leading host economies for PDF (WIR 1995), 63. WIR (1995): 8. WIR (1995):217. WIR (1995): 9. WIR

(1995): 82.

41. 42.

WIR (1995): 50. The figures for FDI to China may be exaggerated because it is believed that Chinese domestic investment may be 'round tripping' through Hong Kong to re-enter China as FDI to benefit from incentives to foreign investors. In this case the proportion of FDI from the United States, Japan and Europe may be underestimated. About three quarters of FDI flows to China in the early 1990s were reported as relating to manufacturing activities. (World Bank: Global Economic Prospects 1995), 55. For a summary description of the sociology of the network of business transactions and investments within the Greater Chinese Area comprising Southern China, Hong Kong and Taiwan, see J.H. Mittelman, 1995. WIR (1995): 18. WIR (1995): 70.

388

Reclaiming Development

39. 40.

43. 44.

45. 46. 47.

48. 49. 50. 51. 52. 53.

54. 55. 56. 57. 58. 59.

60.

61. 62. 63. 64. 65.

WIR (1995): 14. The relocation of manufacturing plants from high to low wage countries has however had important effects in weakening the bargaining power of labour and reducing average wages in the industrialised world. WIR (1994) : 14. Sanjay Lall, 'TNCs: Custodians of Development?' Paper presented at a Colloquium in honour of Gerald Helleiner. Ottawa, June 1994. Joseph Schumpeter. The Fundamental Phenomenon of Economic Development, The Theory of Economic Development: An Enquiry into Profits, Capital, Credit, Interest and the Business Cycle (Cambridge Mass.: Harvard University Press, 1934 [Translated by Redvers Opie]). Lall, 19. In 1920, Moody's rated bonds were issued by 50 governments. Ten years ago only 15 governments were borrowing in the US capital market. Only recently did this number reach 50 again (The Economist, 1995). See Karl Polanyi's now classic The Great Transformation (New York: Reinhart, 1944). Between 1970 and 1979, monetary reserves increased by $842.8 billion, while the corresponding figure for the previous decade was $21.9 billion. The Economist, October 7, 1995. Prior to September 1982, when Mexico announced its inability to service its external debt, private capital inflows to Mexico were running at levels higher than any previous year. From 1979 to 1983 the banks loaned an additional $115 billion (net) to the 15 countries later known as the 'most highly indebted' countries, while $94 billion in capital flight left the same countries over this period (IMF and World Bank data in Loxley, 1994:5). It is salutary to note that in no year from 1964 to 1980 did the Latin American region as a whole grow by less than 4 per cent per annum. (IDB Economic and Social Report, 1983). Global Economic Prospects (1995): 5. For a trenchant critique of the result of finance over production in Britain, see W. Hutton, The State We're In. London: Jonathan Cape, 1996. Global Economic Prospects (1995): 7. Global Economic Prospects (1995): 10. Eric Helleiner documented the role of Britain and the United States in the progressive liberalisation of finance from the 1950s to today in States and the Re-Emergence of Global Finance: From Bretton Woods To the 1990s (Cornell: Cornell University Press, 1994). Although the United States is now the world's largest net foreign debtor, and accounts for only 14 per cent of world trade, 60 per cent of the world's foreign exchange reserves are still held in dollars (The Economist, October 1995). In 1990, France and Italy abandoned exchange controls, Britain having led the way in 1979. Spain and Portugal hung on to their controls until 1992. Global Economic Prospects (1995): 57. Global Economic Prospects (1995): 53-4. Global Economic Prospects (1995): 59. It is sobering to recall that the long nineteenth century terminated in two

Notes

389

66.

67. 68.

69. 70.

world wars and the Great Depression of the 1930s. An example of 'paradigm maintenance' in the face of conflicting evidence and opposition to prevailing World Bank doctrine by Japan, is the now famous case of the 'Asian Miracle' report of 1993. For an authoritative and comprehensive account, see Robert Wade, 'Japan, the World Bank and the Art of Paradigm Maintenance: The East Asian Miracle in Political Perspective, New Left Review (May/June 1996): 217. Alice Amsden, 'Why Isn't the Whole World Experimenting With the East Asian Model to Develop?' World Development Report (1994):22. Taylor, Lance (with Uti Pieper). 'The Revival of the Liberal Creed: The IMF, the World Bank and Inequality in a Globalized Economy'. Paper presented at an Economic Policy Institute Conference on Globalization and Progressive Economic Policy. Washington, June 1996. Global Economic Prospects (1995):5. See W. Demas. West Indian Development and the Deepening and Widening of the Caribbean Community (Kingston, Jamaica: Ian Randle Publishers, 1997).

Chapter 2 - The Plantation Economy Models: My Collaboration with Lloyd Best 1. 2. 3. 4.

5. 6. 7.

Revised version of 'The Plantation Economy Models: My Collaboration with Lloyd Best', Marronage: Plantation Economy Revisited 1, no. 1 (1998): 1-26. William Demas, The Economics of Development in Small Countries with Special Reference to the Caribbean (Montreal: McGill University Press, 1965). Kari Levitt and Lloyd Best, 'Export Propelled Growth and Industrialisation in the Caribbean', 4 vols, mimeo (McGill University: Centre for Developing Area Studies, 1969). Volume 4 of 'Export Propelled Growth and Industrialisation in the Caribbean' contained two major studies of the Mineral Export Sector by Norman Girvan: 'The Caribbean Bauxite Industry' (1- 205); and 'The Caribbean Petroleum Industry' (350-424). Celso Furtado, Economic Growth of Brazil: A Survey from Colonial to Modern Times (Berkeley: University of California Press [English translation], 1963). See 'Economic Developments in Venezuela in the 1950s', Economic Commission for Latin America Bulletin For Latin America, 1961. Seers drew the attention of English speaking economists to Latin American debates on 'inflation and growth' of the late 1950s and early 1960s. In The Political Economy of Extended Nationalism, (Oxford: Oxford University Press, 1983) written shortly before his death, Seers revealed the permanent influence of Latin American structuralism on his life's work. Although his approach of 'economic nationalism' on a regionally extended scale was unfashionable at the time this book appeared, the current trend toward the formation of large sub-continental regional trading blocs in the Americas is not inconsistent with Seers's 'extended nationalism'.

390 I Reclaiming Development

8.

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

Dudley Seers, 'The Model of an Open Petroleum Economy', Social and Economic Studies 13, no. 2 (June 1964): 233-242. We also acknowledged the influence of Prebisch, Innis (in Canada), Myrdal, Chenery and William Demas. See Raul Presbich, 'The Economic Development of Latin America and its Principal Problems', Economic Bulletin for Latin America 7, no.l (1962): 57-139 (Originally published in Spanish). My home in Montreal was under constant surveillance, and a former student of mine was shocked to note that my file at CIDA was tagged with instructions to block a request from UWI for my appointment by 'delay'. Kari Levitt and Lloyd Best, 'Export Propelled Growth and Industrialisation in the Caribbean', vol 3. Kari Levitt and Lloyd Best, 'Externally Propelled Growth in the Caribbean: Selected Essays', mimeo. (Montreal, McGill University: Centre for Developing Area Studies, 1967). Ibid. Ibid. Ibid., 14. Edwin Carrington's study was published as 'Industrialisation in Trinidad and Tobago since 1950', New World Quarterly (Croptime 1968): 37-43. Kari Levitt, 'Canada: Economic Development and Political Disintegration', New World Quarterly (Croptime 1968): 57-139. Kari Levitt, Silent Surrender: The Multinational Corporation in Canada (Toronto: Macmillan of Canada, 1970). A chapter was published in Social and Economic Studies as 'The New Mercantilism and the Old' (1970). Kari Levitt and Lloyd Best, 'Export Propelled Growth and Industrialisation in the Caribbean' 4 vols. See Havelock Brewster's, 'Exports, Employment and Wages: TrinidadTobago' and Dudley Seers's 'Model of Open Petroleum Economy', Central Statistical Office, Research Papers no.5 (April 1968): 1-21. See Charles Kennedy, 'Keynesian Theory in an Open Economy', Social and Economic Studies 15, no. 1 (1966) and 'Domar -Type Theory in an Open Economy', Social and Economic Studies 15, no.3 (1966). 'A Model of Pure Plantation Economy', Social and Economic Studies (1968). Quoted from 'Metropoles and Hinterlands', 'Export Propelled Growth and Industrialisation in the Caribbean', vol 3. Ibid. Ibid. Ibid. Ibid. Ibid. Quoted from 'Metropoles and Hinterlands', Export Propelled Growth and Industrialisation, vol 3. Ibid. In preparing this chapter, I reread all of the Best-Levitt work: 'Externally Propelled Growth in the Caribbean, Selected Essays'(1967); 'Export Propelled Growth and Industrialisation in the Caribbean' volumes I, II, and III (1969, mimeo); and the four chapters of 'Pure Plantation Economy' (1975, mimeo). They are described here in detail because they are the least known of

Notes

391

31.

32.

our work. It is my considered opinion, that the Best-Levitt work on plantation economy should be published, as it stands, together with critiques of our work, and responses by Best and by Levitt. This work is an important chapter in the history of economic thought of the Caribbean, and the vulgarisations of 'plantation economy' which served to popularise our work in the 1970s, do not do justice to it. The fault however is largely ours, because we made no efforts toward publication. My reason was misplaced perfectionism. Lloyd had other priorities. See 'Export Propelled Growth and Industrialisation in the Caribbean,' 4 vols, mimeo (Montreal, McGill University: Centre for Developing Area Studies, 1969) and 'Externally Propelled Growth in the Caribbean: Selected Essays' (Montreal, McGill University: Centre for Developing Area Studies) for further reading. Lloyd Best, 'Independent Thought and Caribbean Freedom', New World Quarterly (Croptime 1967): 13-35.

33.

34.

35.

See Eric Williams's Capitalism and Slavery (Chapel Hill: University of North Carolina Press [1944], 1994; Kingston, Jamaica: Ian Randle Publishers, 2004) and C.L.R. James's Black Jacobins (London: Seeker and Warbug, 1938; revised edition New York: Vintage Books, 1963). The extent to which the slave trade assisted in the financing of the industrial revolution has been debated by historians. The enduring effects of the institutionalisation of racism in the course of three centuries of plantation slavery is beyond debate. Williams showed that racism was the result, not the cause of the use of unfree African labour on New World plantations. Among the legacies of plantation slavery, the most enduring may prove to be the deeply embedded racism in the psyche of Europe and mainstream North America. Kari Levitt and Lloyd Best, 'Pure Plantation Economy', chapter 3, mimeo (Institute of International Relations, University of the West Indies, St Augustine, Trinidad, 1975).

Chapter 3 - In Search of Model IV 1. 2. 3. 4. 5.

392

Revised version of 'In Search of Model IV. Paper presented at the conference in Honour of Lloyd Best. University of the West Indies, St Augustine, September 2002. See 'Size and Survival', New World Quarterly 2, nos. 3&4. See chapter 10 'The Michael Manley-Kari Levitt Letters' (Originally published in Small Axe 1, no. 1 (1997). See Lloyd Best's The Model of a Pure Plantation Economy', Social and Economic Studies 17, no.3 (September 1968): 283-326. See 'Plantation Economy in Contemporary Perspective' in Marguerite Mendell ed. Reclaiming Democracy: The Social Justice and the Political Economy of Gregory Baum and Kari Polanyi Levitt (Montreal: McGill Queens University Press, forthcoming).

Reclaiming Development

Chapter 4 - The Persistence of the Plantation Legacy in Contemporary Jamaica 1.

2. 3. 4. 5. 6.

Revised version of 'From Decolonisation to Neo-Liberalism: What have we learned about Development?' Inaugural lecture by the George Beckford Professor in Caribbean Economy, George Beckford Foundation, November 1995. Reprinted in Levitt and Witter eds. The Critical Tradition of Caribbean Political Economy (Kingston, Jamaica: Ian Randle Publishers, 1996). George Beckford, 'The Social Economy of Bauxite in the Jamaican ManSpace.' Social and Economic Studies 36, no. 1 (1987):l-56. George Beckford, Persistent Poverty (London: Oxford University Press, 1972). The four public lectures delivered by William Demas were published by the McGill University Press, Canada, as Economic Planning in Small Countries (1965). Human Development Report, 1995. Based on data obtained from the Ministry of Finance (Trinidad and Tobago); from the Ministry of Finance and Planning (Jamaica) and the Jamaica Employers Federation. Conversion to US dollar at exchange rates prevailing over the review period.

Chapter 5 - Facing Up to the IMF in Trinidad and Tobago 1. 2. 3.

Revised version of 'Debt Adjustment and the IMF', Caribbean Affairs 3, no. 3 (July - September): 29-35. J. Sachs, 'The Debt Crisis at a Turning Point', Challenge 31, no. 3 (May/June 1988):17-26. Hans Singer, Lessons of Post-War Development Experience:1945-1988 (Sussex: University Institute of Development Studies, 1999).

4.

All dollars in this text are US dollars, unless otherwise stated.

5.

W. Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon & Schuster, 1989).

Chapter 6 - The Origins and Consequences of Jamaica's Debt Crisis, 1970-1990

1.

2. 3. 4. 5.

'The Origins and Consequences of Jamaica's Debt Crisis 1970-1990.' Revised text of a study commissioned by the North-South Institute, Ottawa, Canada, as a contribution to a larger study of Growth and Adjustment in Highly Indebted Countries (Consortium Graduate School of Social Sciences, University of the West Indies, Mona). World Bank: Jamaica: Adjustment under Changing Economic Conditions (April 26, 1989). All dollars in this text are US dollars, unless otherwise stated. World Bank: Medium Economic Framework for 1990/91-1992/93 (January 19, 1990): 67. While these five-year periods correspond reasonably well to the changes in

Notes

393

6.

7. 8. 9. 10. 11. 12. 13. 14.

sources of external finance to cover Jamaica's balance of pay-ments, it will be interesting to rearrange these periods to start with 1971-75, and end with 1986-90, when the balance of payments for 1990 becomes available. This text beginning from 'Bilateral donors' to p. 135 ending 'observe such policies' was drawn from 'Debt Adjustment and Development: A Perspective on the 1990s' reproduced here as chapter 7, and thus appears twice in this volume. In the interest of the integrity and coherence of the two pieces, the duplication has been intentionally retained. Omar Davies, 'An Analysis of the Management of the Jamaican Economy: 1972-1985. Social and Economic Studies 35, no. 1 (March 1986): 87. World Bank: Programme Performance Audit Report: Jamaica, Structural Adjustment Loans II and III and Overview of Structural Adjustment Loans I to III (August 1989): xvii, 51. GOMEZ is a chart used to grade children who are weighed and measured to determine the incidence and extent of malnutrition. Gomez I - mild malnutrition; Gomez II - moderate; Gomez III - severe. Engendering Adjustment For The 1990s. Report of a Commonwealth Expert Group on Women and Structural Adjustment (Commonwealth Secretariat, June 1989). Ibid., 5. All figures are in constant 1987 dollars. Carl Stone. The Gleaner (April 11, 1990). Statement by Senator the Honourable David Coore, Minister of Foreign Affairs and Foreign Trade, at the 18th Special Session of the United Nations (New York, April 23, 1990).

Chapter 7 - Debt, Adjustment and Development: A Perspective on the 1990s 1.

2.

3.

4.

394

Revised version of 'Debt Adjustment and Development: A Perspective of the 1990s'. Eighth Lecture in the Dr Eric Williams Memorial Lecture Series, Central Bank of Trinidad and Tobago, Port of Spain, May 1990. (Reprinted by the Friedrich Ebert Stiftung for the Association of Caribbean Economists, Kingston, Jamaica, 1990 and Vierteljhares Berichte: Probelms of International Cooperation December (1990), 403-19. Enzo Grilli and Maw ChengYang, 'Primary Commodity Prices, Manufactured Goods, and the Terms of Trade of Developing Countries: What the Long Run Shows.' The World Bank Economic Review 2, no. 1 (1988): 1-47. See Raul Presbich, 'The Economic Development of Latin America and its Principal Problems, Economic Bulletin for Latin America 7, no. 1 (February 1962): 1-22 and Joseph Schumpeter, The Fundamental Phenomenon of Economic Development, The Theory of Economic Development: An Enquiry into Profits, Capital, Credit, Interest and the Business Cycle (Cambridge, Mass.: Harvard University Press, 1934). See Dudley Seers, The Political Economy of Extended Nationalism (Oxford: Oxford University Press, 1983).

Reclaiming Development

5. 6. 7.

8.

All dollars in this text are US dollars, unless otherwise stated. World Debt Tables 1989-90: 'External Debt of Developing Countries.' Debt and International Finance Division, International Bank for Reconstruction and Development (Washington: The World Bank, 1989). This text beginning 'Bilateral donors' to p. 209 ending 'observe such policies' also appears in chapter 6 from pp. 131-35 and thus appears twice in this volume. In the interest of the integrity and coherence of the two pieces, the duplication has been intentionally retained. Statement by Sen the Hon David Coore, Minister of Foreign Affairs and Foreign Trade at the 18th Special Session of the General Assembly on International Economic Co-operation (New York, April 1990).

Chapter 8 - The 'Lost Decade' of the 1980s 1.

2. 3. 4. 5. 6. 7. 8. 9. 10.

11. 12. 13. 14. 15. 16.

Revised version of 'Perspectives on Adjustment-type Programmes and Economic Development in the Third World, with Special Reference to the Caribbean.' Feature address, Symposium on Regional Public Policy, May 1992. Hosted by MCT and Associates, Port of Spain, Trinidad. All dollars in this text are US dollars, unless otherwise stated. See chapter 6, 'The Origins and Consequences of Jamaica's Debt Crisis 19701990.' See From Columbus to Castro: The History of the Caribbean, 1492-1969 (London: Andre Deutsch, 1970). See Silent Surrender: The Multinational Corporation in Canada (Toronto: Macmillan,1970). World Bank. Adjustment Lending: An Evaluation of Ten Years of Experience. Country Economics Department, Policy and Research Series, no.l (1988). Jacques J. Polak, 'The Functions of the IMF and the World Bank.' Paper delivered at conference on Global Disequilibrium (McGill University, May 1989). Ibid. John Williamson, 'What Washington Means by Policy Reform.' Paper prepared for a conference on Latin American Adjustment: How Much Has Happened? (Institute for International Economics, November 1989). World Debt Tables, 1990-91.The net transfer is a cash flow concept and records the difference between capital inflows in the form of new loans and outflows of debt service due on previous borrowing. Debt service is composed of interest and repayment of principal. When debt service exceeds new borrowing, net transfers are negative, resulting in a cash flow from debtor to creditor countries. World Debt Tables, 1991-92. Figures pertain to 1983-89. Roy Culpepper, 'The Multilateral Creditors and the Debt Crisis.' (Ottawa: North-South Institute, April 1992). Roy Culpepper, The Great Debt Crisis of the 1980s Round Table on Third World Debt.' Ottawa: North-South Institute, March 1992. Financial Times. March 16, 1991. Stephanie Griffith Jones, 'Re-Integration of Eastern Europe and the Soviet

Notes

395

17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

31. 32. 33. 34. 35.

Union: Implications for Developing Countries: A Perspective from Latin America. CEPAL Review, September 1991. World Debt Tables (1990-91): 22. IMF Staff Paper (1990): 2. United Nations Commission for Africa, 'African Accelerated Framework for Structural Adjustment Programmes for Socio-Economic Transformation (April 1989). World Bank, 'Adjustment Lending: An Evaluation of Ten Years of Experience.' Country Economics Department, Policy and Research Series no.l (1988). Ibid., 4. Ibid., 6. Ibid., 2. World Bank: World Development Report, 1991. Ibid., 4. Ibid., 9. Ibid., 114. Ibid., 115. Albert O. Hirschman, 'The Political Economy of Latin American Development: Seven Exercises in Retrospection', Latin American Research Review 22, no.3 (1987): 25. Eprime Eshag, 'Successful Manipulation of Market Forces: Case of South Korea, 1961-78. Economic and Political Weekly. Annual Number. (March 1991): 629-644; Fernando Faynzylber, 'Some Reflections on South-East Asian Export Industrialization. CEPAL Review, September 1991. Far Eastern Economic Review (March 12, 1992). Levitt, 'The Origins and Consequences of Jamaica's Debt Crisis'. D. Nordhaus, 'Slowing the Greenhouse Express: The Economics of Greenhouse Warming' in Henry Aaron ed. Setting National Priorities. Washington DC: Brookings Institution (1990):193. Ibid., 196. World Bank: World Development Report, 1992.

Chapter 9 - Democratic Socialism in Jamaica: Manley's Defeat - Whose Responsibility? 1. 2.

396

Revised version of'Jamaica: Manley's Defeat-Whose Responsibility?'in Jill Torrie ed. Banking on Poverty: The Global Impact of the IMF and World Bank (Toronto: Between the Lines, 1983). See Richard Bernal, 'The IMF and class struggle in Jamaica, 1977-1980', Latin American Perspectives 11, no. 3 (1984): 53-82.

Reclaiming Development

Chapter 10 - From Socialism to Neo-Liberalism: The Michael Manley-Kari Levitt Letters

1. 2.

Originally published as 'The Michael Manley Kari-Levitt Letters' with an Introduction by Rex Nettleford. Small Axe: A Journal of Criticism, no. 1 (Kingston, Jamaica: Ian Randle Publishers, 1997). Note that this letter was written by Kari Levitt before she received Michael Manley's letter of April 26.

Chapter 11- Lessons of the Seventies for the Next Generation 1. 2. 3. 4. 5. 6. 7.

Revised version of 'Lessons of the Seventies for the Nineties in International Context'. Paper presented to the symposium on 'Jamaica in the Seventies', University of the West Indies, Mona, 1998. 'From Decolonisation to Neo-Liberalism: What have we learned about Economic Development?' George Beckford Foundation. Kingston, Jamaica. April 1996. [now chapter 4] Maroon Press Jamaica 1983. Reprinted from 'Manley's Defeat - Whose Responsibility?' in J. Torrie ed. Banking on Poverty: The Global Impact of the IMF and the World Bank (Toronto: Between the Lines, 1983). 'Manley's Defeat - Whose Responsibility?' All dollars in this text are US dollars, unless otherwise stated. Dani Rodrick, 'Globalization, Social Conflict and Economic Growth.' (Presbisch Lecture delivered at UNCTAD, Geneva. October 24, 1997). , 'Who Needs Capital-Account Convertibility?' Essays in International Finance No. 207 (Princeton University: International Finance Section, Department of Economics, May 1998).

Chapter 12 - The Right to Development: The W.A. Lewis Legacy 1. 2. 3. 4. 5. 6.

7. 8. 9.

Revised version of 'The Right to Development: The W.A. Lewis Legacy' (Paper presented at the Fifth Sir Arthur Lewis Memorial Lecture, Eastern Caribbean Central Bank [ECCB], St. Lucia, 2000; ECCB St. Kitts, 2001). United Nations: Universal Declaration of Human Rights, 1986. Universal Declaration of Human Rights, Article 2. Universal Declaration of Human Rights, Article 8. Universal Declaration of Human Rights, Article 3. W. A. Lewis, 'Autobiographical Note'. Special Issue in Honour of Sir Arthur Lewis, Social and Economic Studies 29, no.4. December 1980. See also 'W. Arthur Lewis' in W. Breit and R.W. Spender. Lives of the Laureates: Thirteen Nobel Economists, 3rded. (Cambridge Mass.: MIT Press), 1995. 'Economic Development with Unlimited Supplies of Labour'. Manchester School of Economics and Social Studies (Mayl954):139-91. Arthur Lewis, Economic Survey 1919-1939. (London: G. Allen & Unwin [1949] 1950). Arthur Lewis, Growth and Fluctuations 1870-1913 (London: G. Allen & Unwin, 1978). Notes

397

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

See Arthur Lewis's Labour in the West Indies (London: Fabian Society, 1939). Arthur Lewis, Labour in the West Indies. Arthur Lewis, 'The Industrialisation of the British West Indies'. Caribbean Economic Review (May 1950). 'The Evolution of the International Economic Order'. (Schumpeter Memorial Lectures, Princeton, 1977). See Arthur Lewis's 'Economic Development with Unlimited Supplies of Labour' (London: Manchester School of Economics and Social Studies, 1954). Sir Alister Mclntyre, 'Negotiating the Export Economy', Third Sir Arthur Lewis Memorial Lecture (Eastern Caribbean Central Bank, St Georges, Grenada, November 1998). For further reading see Louis Emmerij, 'World Economic Changes at the Threshold of the 21st Century' in J.N. Pieterse ed. Global Futures: Shaping Globalization (London: Zed Books, 2000). Dani Rodrick, The New Global Economy and Developing Countries: Making Openness Work (Washington DC: Overseas Development Council and Johns Hopkins University Press, 1999). Louis Emmerij, 'World Economic Changes at the Threshold of the 21st Century'. Jose Antonio Ocampo, '"Developing Countries" Anti-Cyclical Policies in a Globalized World', Temas de Coyuntura Series no. 13. CEPAL (Nov 2000). Robert Wade, 'Showdown at the World Bank', New Left Review 7 (JanuaryFebruary 2001). David Dollar, World Bank Research Paper March, 2000. Fantu Cheru. 'Effects of Structural Adjustment Policies on the Full Enjoyment of Human Rights'. Economic and Social Council. United Nations: Commission on Human Rights. February 24, 1999. E/CN.4/1999/50. Devesh Kapur and Richard Webb, 'Governance Related Conditionalities of the International Financial Institutions.' G-24 Discussion Paper Series no.6. (August 2000). Dani Rodrick, The New Global Economy and Developing Countries: Making Openness Work (Washington DC: Overseas Development Council and Johns Hopkins University Press, 1999). Ibid. Barbara Stallings and Wilson Peres. Growth, Employment, and Equity: The Impact of Economic Reforms in Latin America and the Caribbean. (Washington DC: Brookings Institution, 2000). Human Development Report (2000): 34.

Chapter 13 - William Demas: Primus Inter Pares 1. 2. 3.

398

Revised version of 'William Demas: Primus Inter Pares', Trinidad and Tobago Review (December, 1998). William Demas. The Economics of Development in Small Countries, with Special Reference to the Caribbean. (Montreal: McGill University Press, 1965). Kari Levitt, Alister Mclntyre. Canada-West Indies Economic Relations (Montreal: Canada Trade Committee Private Planning Association of Canada and Centre for Developing Area Studies, McGill University, 1967).

Reclaiming Development

4. 5. 6.

7.

Kari Levitt, Silent Surrender: The Multinational Corporation in Canada (New York: St Martin's Press [1970]. Toronto: Macmillan Publishers, 1970). Tripartite Economic Survey of the Eastern Caribbean (London: Her Majesty's Stationery Office, 1967). The passage is reproduced from text of an obituary 'We'll miss Willie's wisdom', which contained extensive quotations from the Third Five Year Development Plan, described by the author as one of the most important economic documents to be produced in Trinidad and Tobago. Third Five Year Development Plan (1969-73).

Chapter 14 - Reclaiming Economics for Development 1.

2. 3. 4. 5. 6. 7. 8.

Revised version of 'The Case for Relevance and Creativity in Economies'. Paper presented at the Workshop on the Demand for Economists in the Caribbean in the 21st century, University of the West Indies, St Augustine, Trinidad. October 9-10, 1995. I doubt whether one in 100 citizens of the United States or Canada have the faintest idea of what the IMF is; quite sophisticated people in North America think that the World Bank is the largest commercial bank in the world. Arthur Lewis. Presidential address to the American Economic Association. Princeton, 1983. Kenneth Arrow, Sam Bowles and Amartya Sen. 'Economic Reasoning and Social Objectives'. Ibid. Ibid. Development from Within ed. Osvaldo Sunkel and Joseph Ramos (Boulder and London: Lynne Rienner Publishers, 1993). Ibid.

Chapter 15 - Building Bridges Across the Caribbean 1. 2.

3. 4. 5. 6. 7.

Revised version of 'Building Bridges Across the Caribbean'. Acceptance Address of the George Beckford Award. Fifth Conference of the Association of Caribbean Economists. Havana, Cuba, December 1997. Principally to Celso Furtado's Economic Growth of Brazil: A survey from Colonial to Modern Times. Berkeley: University of California Press, 1963; and writings by Dudley Seers who introduced English-speaking economists to Latin American economic literature in the late 1950s. The work was published as The George Beckford Papers by the University of the West Indies Press, Mona in 1998. George Beckford ed. Caribbean Economy: Dependence and Backwardness. Mona, Jamaica: Institute of Social and Economic Research, University of the West Indies. Cited in the Introduction to The George Beckford Papers, xix. Ibid. Ibid. Dudley Seers, 'Model of an Open Petroleum Economy', Central Statistical Office Research Papers No. 5 (April 1968): 1-21. See also 'The Mechanism

Notes

399

8. 9.

400

of an Open Petroleum Economy'. Social and Economic Studies 13, no. 2 (June 1964): 233-242. 'The Plantation Economy Models: My Collaboration with Lloyd Best', Marronage: Plantation Economy Revisted 1, no.l (1998): 1-40. Lloyd Best, 'Outline of a Model of Pure Plantation Economy, Social and Economics Studies, no. 3 (September 1968).

Reclaiming Development

Index

Abrams, Elliot: and the sovereignty of small Caribbean economies, 299-301 'Adjustment With A Human Face', 228 Africa (Sub-Saharan): collapse of growth in, 338-339; debt servicing by, 340; decline in investments in, 197; ESAFs in, 341; failure of SALs in, 226; indebtedness, 196; net transfers to developed countries from, 223 African Accelerated Framework For Structural Adjustment Programmes for Socio-Economic Transformation: evaluation of SAPs, 226-227; growth rates in, 337 Afro-Saxon: description of, 54 Agricultural Credit Bank (ACB): and conditionalities of agricultural SAL (1990) to Jamaica, 150 Agricultural imports: World Bank SAL to Jamaica and the restriction of, 206 Agricultural products: decline in trade in, 187-188 Agricultural sector adjustment loan (1990): to Jamaica, 149-153, 205-208 Antigua: economy of, xxi Argentina: liberalisation and the economic collapse of, 64 Arthur Lewis Memorial Lecture, Sir (2000): x,327-348 Asian economic bloc: emergence of the, 9 Asian economies: crisis in east, 320-322, 329-330; and the debt crisis, 338-339; development and, x; domestic investments in, 21; financial growth rates in (1960s1970s), 337; financial liberalisation and destabilisation of, 378; IMF and the, 312-313, 321-322; success of, 185-186, 217-218,229-230,343-344,360-361,

362; and trends in FDI flows, 17-19,2021 Association of Caribbean Economists (ACE), 369-374, 377 Association of Caribbean States (ACS): and regional integration, 34 Attorneys: role in plantation economy, 47 Balance of payment deficit: Jamaica's (1984-88), 128 Baker plan, 196 Barbados: economy (1973), xi, xiii, xxi, 345, 347; foreign exchange crisis, xviii; political decolonisation in, x Bauxite industry: Jamaican, 37, 82,118, (1970s), 313, 315, (1980s), 139 Bauxite levy: Jamaica's imposition of a, xiii, 82,120,243-244,262,268, 315 Bauxite-producing cartel: formation of the, xiv Beckford, George: and the ACE, 371- 374, 376; background of, 57; and Cuba, 371372; legacy of, 69-70; and Michael Manley, 314; philosophy of Caribbean peasantry, 57-59 Bernal, Richard: and Jamaica's agreement with the IMF, 247 Best, Lloyd, 72; background of, 57-59; and Caribbean economic development, xii; on European economic hegemony, 8; and plantation economy models, 35, 376; political activism of, 64-65 Best-Levitt models of plantation economy, xii-xiii, 35-59; highlights of, 65-67 Bilateral organisations: debt reduction by, 224-225 Black Power Revolution, 73; and social unrest, 81; in T&T (1970), xiii

Brady initiative: and bank debt reduction, 100 Bretton Woods system: breakdown of the, 13, 81,190-193,218,219,256,315, 338-339; description, 93-95; and the IMF, 23, 24 Britain: and the NIEO, 269 Burnham, Forbes: and Guyana's nationalisation programme, xiv

small, 299-301, 303-304; transition in the 1970s-1990s, 63 Caribbean economists, xiii, 62-63, 71-72; role of, 355-368 Caribbean Free Trade Area (CARIFTA): establishment of the, xi CARICOM Single market and Economy (CSME): creation of the, xxii-xxiii Caroni Limited, 37 Central Planning Unit (Jamaica): creation Cadbury, George: economic philosophy of, of the, 79 79 Children: impact of SAPs on Jamaican, Canada-Jamaica relations: 245 161-163 'Canada: Economic Dependence and Chinese economic area, 87 Political Disintegration', 41 Class: globalisation and, 33; and income Canadian International Development inequity in Jamaica, 117,153-156; and Agency (CIDA): and Jamaica, 110,182 plantation culture in Jamaica, 73-74; and poverty, 70, 75-76; and race in the Capital: globalisation and mobility of, 7 Caribbean, 58; and race in Jamaica, 345; Capital markets: rise of (1970s), 200 and standard of living in Jamaica, 317Capitalism: capitalists and, 253; 318 globalisation and, 5, 6-7,12-14; IMF Class structure: in Jamaica, 311 bias towards, 247-248; Marx's Cold War: and the allocation of US description of, 49; mercantile origins of, development assistance, 192 10-ll;TNCsand, 14-15. See also Mercantilism Colombia: social deal in, 88 Capitalism and Slavery, 3,8; analysis of Community councils: Manley mercantile capitalism in, 34; and the administration and, 287 plantation economy paradigm, 10, 54 Commercial banks: and loans of private Caribbean: economic collapse of the, xiv; capital to developing countries, 194,198, FDI flows to the, 16-17; growth of 200 financial institutions in the, 357-358; Compensatory Fund Facility (CFF): growth rates in the (1960s-1970s), 337; extended to Jamaica, 122 industrialisation in the, 333-334; poverty Competition: and globalisation, 6 in the, 75-76,153-158, 357; and the Cost of living: in Jamaica, 157 plantation system legacy, ix, 54 Crime rates: and erosion of values in Caribbean Basin Initiative (CBI): Jamaica, 176-177 globalisation and the, x; and preferential Cuba: and the Caribbean, xv; and access, xv CARICOM, xxii; George Beckford and, Caribbean Community (CARICOM): 371-372; human development in, 369achievements of the, xxii; background of 370; impact of structural adjustment on, the, xi; and Cuba, xxii; establishment of, 369-370 79; globalisation and, 34; and Haiti, xxii; Cuba-Jamaica relations, 281,283,286; and trade liberalisation, xxiii USA and,243-244 Caribbean Development Bank (CDB): Culture: Manley administration's support Demas and the, 351 of, 28 8 Caribbean economies: developing a theory for understanding, 40-41; sovereignty of

402

Reclaiming Development

Daily Gleaner: opposition to democratic socialism, 241,249,250,251 Debt cancellation: need for, 347 Debt crisis: 1980s, 3, 97-100; in developing countries, 338-339; Jamaica's, 100,105106,109-182,316 Debt servicing: by developing countries, 222-223; by Jamaica, 113-115,127-131, 213-214; by the Third World, 93,194199. See also External debt Demand management: definition, 102; IMF policy of, 134,202 Demas, William, 36, 72; and the Caribbean, 350-354; and economic development, xi; and regional integration, xxiii Democratic socialism: definition of, 285; Jamaica and, 239-256 Destabilisation campaign: against democratic socialism, 313; against Manley administration and democratic socialism, 245-246,261,268 Developing countries: and the debt crisis, 98-100,104-105,183-184,194-199, 338-339; economic growth in post-war era, 200; FDIs and, 14-17; and the IMF, 219. See also Third World Development: definition of, 20, 327; export and, ix-x; and ISI, 151, 336-337; and globalisation, 336; globalisation and the language of, 4; import trade and, 29-30; and the role of the state, 328; TNCs and, 19-22 Development assistance. See International development assistance Development economics: Lewis and, 336 Development From Within, 368 Development policies: need for national, 346-348 Devaluation: of the Jamaican dollar, 84-86, 104; and poverty in Jamaica, 158 Devaluation policy: IMF's, 133,248 Divestment policy: World Bank's, 204-206 Domestic consumption: pricing strategies and,48-49 Domestic credit: IMF and reduction in, 202-204

Domestic investments: in Asian economies, 21 Eastern Caribbean Central Bank: performance of the, 345 Eastern Europe: and development assistance, 192 Economic collapse: Caribbean, xiv, 76-78 Economic Commission for Latin America and the Caribbean (ECLAC): evaluation of the free market programme, 345 Economic decolonisation. See Economic self-reliance Economic development: definition of, 20, 327 'Economic Development With Unlimited Supplies of Labour': by Sir Arthur Lewis, 331,336 Economic models: evolution of, 61-63 Economic self-reliance: development of Caribbean, x-xi Economic survey 1919-1939: by Sir Arthur Lewis, 332 Economic theory: in the Caribbean, xvii; developments in, 365-368 Economics of Development in Small Countries With Special Reference to the Caribbean, The: by William Demas, 350 Economics training: in the Caribbean, 363364 Economists: Caribbean, xiii, 62-63; role of Caribbean, 355-368 Economy: historical overview of Jamaica's, 118-124,317 Education: status of Jamaica's, 87-88,161167,171-174 Education reforms: by Manley administration, 267,286-287 Employment levels: in Jamaica (1990s), 6364,152-153 Employment creation: by TNCs, 195 Enhanced structural adjustment facilities (ESAF),341 Enterprise of America Initiative (EAI): Jamaica and the, 214, 271 Eric Williams Memorial lecture (1990), xvi, xxiii, 3, 7,217 Index I 403

'Eurodollar': emergence of the, 23,256 European economic hegemony: Lloyd Best on, 8-10 European Monetary Unit: establishment of a, 27 European Union: global influence of the, 65 'Evolution of the International Economic Order': by Sir Arthur Lewis, 335 Exchange control: Jamaica and the case for effective, 254 Exchange rate policy: of the IMF, 104, 133-134,203; liberalisation of Jamaica's, 214-215 Export bias: of neo-liberal policies, 339340; in plantation economy models, 4849, 50-53, 55-57, 66 Export dependency: of plantation economies, 50-57 Export performance: and debt servicing, 201; and development, ix-x, 80-81; and exchange rate adjustment, 104; Jamaica's, 110-112,116,129,118, (1980s), 139, 145,181 Export Propelled Growth (Vol. 1), 54 Export Propelled Growth and Industrialisation in the Caribbean: and the plantation economy theory, 43-44 External debt: Caribbean, xv; Jamaica's, xiv, xvi, xx, 213, 84,109-182,265-267, 303 Extended Fund Facility (EFF): Jamaica's, 121-123,137,248 Externally Propelled Growth in the Caribbean: Selected Essays, and the plantation economy model, 40, 54 Federation. See West Indies Federation Financial liberalisation: consequences of, 102; in Jamaica, 84-86,271-273,278, 280-301: Jamaica and consequences of, 312 Financial sector: fallout in the Jamaican (1990s), xix-xxi, 74, 317; growth of the Caribbean, 356-357 Financial Sector Adjustment Company (FINSAC): establishment of the, xix

404

Reclaiming Development

Financial system: transnationalisation of the, 96-100 Food security programme: Jamaican, 156, 158-161 Food stamp programme: Jamaican, 156, 158-161 Food subsidies: IMF and removal of, 158 Foreign direct investments (FDIs): and capital flow to developing countries, 14— 17; economic growth and, 6; in Jamaica (1990s), 86-87; trends in flows of, 17-18, 66. See also Foreign investment Foreign exchange auctions: Jamaica and IMF-imposed, 140,141 Foreign exchange crisis: Manley administration and Jamaica's, xviii, 282283 Foreign investment. See also Foreign direct investments (FDIs) Foreign policy: Manley administration's, 287-288 Free market system: negative impact of the, 361. See also Market liberalisation Free Trade Area of the Americas (FTAA): and CBI preferences, x; global influence of, 65 From Columbus To Castro: The History of the Caribbean 1492-1969, 3: and regional integration, 34 'GATT think': and international trade, 28 Gender equality: in Jamaica, 77 General Agreement on Tariff and Trade (GATT); role of, 94 General Agreement on Trade in Services (GATS): World Bank and, 30 Generalised food subsidy (GFS): World Bank SAL to Jamaica and introduction of a,149-150,206 George Beckford Memorial Lecture (1995), xxi,311 General consumption tax (GCT): Jamaica and the introduction of a, 148 Ghana: foreign investment in, 197 Gilbert. See Hurricane Gilbert Girvan, Norman: and the ACE, 371

Global finance: re-emergence of, 22-28. See also International financial institutions Globalisation: and accountability, 342-343; agenda, 340-341, 369; of Caribbean economies, 63; and continuities in capitalism, 10-11; and competition, 6; description of the new, 4-7,270; and development, 336; historic perspective of, ix; Jamaica and, 297-99; marketing of, 30-34; and mercantilism, 29-30; Nettleford on, 259; poverty and, 345; and sovereignty, 328; World Bank and, 31-32 Gold exchange standard: global finance and the, 23,24 Great Depression: 1930s, 22-23 Grenada: and the NJM, xv; US invasion of, xvi Grenada revolution: decline of the, xvii Growth and Fluctuations 1870-1913: by Sir Arthur Lewis, 332 Guyana: economy (1973), xi-xii, xiii, xiv, xxi; foreign capital in (1960s), 37;and human development, 357; nationalisation programme, xiv; political decolonisation

Indebted countries: categorisation of, 196 Independence: and development in Jamaica, 75; in the English-speaking Caribbean, x Industrialisation: Caribbean governments and, xii, 333-334 'Industrialisation by invitation', xii; Lewis and, 334-335

Institute of Social and Economic Research (ISER, UWI): Study on Living Conditions in Jamaica, 156 Inter-American Development Bank (IDB): adoption of World Bank conditionalities, 201; and conditionalities of agricultural SAL to Jamaica (1990), 150,214 Interest rate policy: criticism of, 226; developing countries and IMF's, 97-98, 104-105,133,202,203,205; international, 26,27; Jamaica's, 298 International Bank for Reconstruction and Development (IBRD): debt collection by the, 195 International Development Agency (IDA): assistance to Sub-Saharan Africa, 223 in, x International development assistance (IDAs): decline in, 190-193 Haiti: and CARICOM, xxii International finance: negative impact of, Housing: status of Jamaica's, 175 347,361 Human development: in the Caribbean, 370 International financial institutions (IFIs): Hurricane Gilbert: and Jamaica's economy, and continuities in the metropolitan 146 exchange standards, 66; and the debt crisis, 194; developing countries and globalisation agenda of, 32, 341; and Ideology: and the plantation economy globalisation, 5, 6; Third World models, 54-57 indebtedness to, 223-224 IMF standby agreement: Jamaica's first International financial system: and the debt (1970s), 137 crisis, 191,194; liberalisation of, 28 Imperial preferences, 66 International markets: plantation economy Imperialism: foundations of, 8,12 and the pricing strategies of, 48-49, 56 Import control: Manley administration and, International Monetary Fund (IMF): and 286 Africa, 341-342; and Asian economies, Import liberalisation: consequences of, 102 321-322, 329-330; and Barbados, xviii; Import substitution (ISI): and development, and the Caribbean, xvi-xvii; declining 336-337 credibility of the, 312-313; debt Income inequity: in Jamaica, 88,110, 117, collection role, 191,193-195,221-223, 123-124,134-135,154-155,318-319, 270; Jamaica and the, xiv, 84-85, 121, 345, 357; transnationalisation of 122,132-135,137; and Latin America, production and, 95. See also Wages Index

405

327,341-342; macroeconomic policies, 132-135,202-204; and the Manley administration, 239-256, 314; and the People's Plan (Jamaica), 283-284; and the private sector, 202,203; role of the, 23, 218-220; structural adjustment and stabilisation programmes, 101-108; and Third World debt servicing, 93; International trade: capitalism and, 11; liberalisation of, 28-30; 1950s ratios in, 23-24; TNCs and, 14-15. See also Regional trading blocs International Trading Organisation (ITO), 94

Khan, Mohsin: evaluation of SAPs, 225227 Kissinger, Henry: and Michael Manley, xiv, 82,244 Korea: economic growth in, 343-344; and the IMF, 330; and the World Bank, 229231

Labour: continuities in adjustments by, 66; export performance and, 56-57; globalisation and the division of, 9; Lewis's theory on the price of, 331; liberalisation and the division of, 65-66; plantation economy paradigm and the division of, 10; pure plantation economy Jamaica: bauxite levy by, xiv; and CIDA, and the sourcing of, 50-51; Third World 110; and the debt crisis, xiv, xvi, xx, 100, as a cheap source of, 189-190 105-106,109-183,213; devaluation in, Labour in the West Indies: by Sir Arthur 86-88,104; economy (1973), xi-xii, xiii, Lewis, 332 76-78; and the IMF, xiv; industrialisation Land reform programme: PNP's (1990s), and, xii; foreign capital in (1960s), 37; 263 foreign exchange liberalisation (1990s), Latin America: collapse of growth in xix; and human development, 357; (1960s-1970s), 338-339; FDI Levitt's evaluation of 1970s, 266-277, privatisations in, 18-19; growth rates in, 280-301; 1970s, 313-315; and the 337; IMF and, 341-342, 345; plantation economy paradigm, 73-76; indebtedness, 196 69-90; political decolonisation in, x; Lewis, Sir Arthur: economic philosophy of, poverty in, 75-76,153-158; and 79; on economic growth, 360; and the socialism, 83; World Bank SAL to, 205international economic order, ix-x; and 208 Levitt, 330; memorial lecture, 326-348 Jamaica Commodity Trading Company Levitt, Kari: career path of, 65; and Sir (JCTC):roleofthe, 149,150 Arthur Lewis, 330-333; Manley on the Jamaica-Cuba relations, 281,283,288; PNP and, 302; and the TSNA, 65 USA and, 243-244 Liberalisation: criticism of IMF policy of, Jamaican economy: 1990-2000, 63 226; consequences of, 102-103, 378; of Jamaica Labour Party (JLP): and the Jamaican economy, 214,264,270democratic socialism, 241,268; and 275,278,280-301; 297- 301, 317. See Jamaica's external debt, 109,113; and the also Financial liberalisation and Trade Reagan administration, 109,127-128 liberalisation Jamaica Manufacturing Association (JMA), Lightbourne, Robert: and the PSOJ, 151 151-152 LOME Convention: and preferential access, Japan: and the World Bank, 231-232 46,193 London: as centre of international finance, 27 Kanbur, Ravi: and the World Bank, 341 Lustig, Norma: study on income inequality Keynes, J.M.: and the role of the IMF, 23; in Jamaica, 88-89 and macroeconomics, 330-331

406

Reclaiming Development

Macroeconomic policy: IMF, 132-135; instruments of, 103; and social conflict, 344_346 Malnutrition: in Jamaica (1980s), 156-158 Manley administration: 1972-1980,120121,123-124; and the debt crisis, 125129; education reforms by, 267,286-287; and the IMF, 314; social reforms of the, 312,313 Manley, Michael: and Cuba, 281,283,288; defeat of, xiv; and democratic socialism, 82-83,239-256,258; economic policy of, xxi-xxii; election of, xiii; on Jamaica's external debt, 265; and the IMF, 146149; on JLP's destabilisation programme, 261; on Levitt and the PNP, 302; Levitt's evaluation of legacy of, 265-301; and liberalisation of Jamaica's economy, 270275,278,280-301 Manley-Levitt letters, 261-310, 312 Market-driven model: economists and the, 232-234 Market liberalisation: development and, 222 Marshall Plan, 23 Marxism: and the supremacy of the state: 284 Mclntyre, Alister: collaboration between Levitt and, 350 Mercantilism: origins of, 10-11; patterns of new, 29; in plantation economy, 50; of slavery, 37; of TNCs, 3, 7. See also Capitalism MERCOSUR: establishment of, 34 Metropolitan exchange standard: IFIs and continuities in the, 66; and monetary control, 9-10,46 Mexican peso crisis, 378 Microeconomics: of the World Bank, 135137 Migration: of Jamaicans, 117,119-120, 177,245,267, 314, 316; Manley on, 261 Monetary control: metropolitan exchange standard and global, 9-10 Monetary reserves: Third World indebtedness and international, 96-97 Montreal New World Group, 35

Multilateral organisations: Third World indebtedness to, 223-224 Multinational corporations. See Transnational corporations (TNCs) 'Muscovado Bias': and the international division of labour, 9,45,46 National development policies: Caribbean governments and, ix, x; need for, 346-348 National Housing Trust: establishment of the, 291 National planning: foreign investment and, 20 National Planning Council: establishment of a, 263, 291 Nationalisation: Guyana's programme of, xiv; T&T programme of, xiv Nationalism: liberalisation and, 5 Navigation Acts: and European economic hegemony, 9,45 Nettleford, Rex: on Manley-Levitt letters, 257-260 New International Economic Order (NIEO): Caribbean and the, 329; Levitt on Manley and the, 268-271; Lewis and the, ix; of the 1970s, 313 New Jewel Movement (NJM): and Cuban influence, xv New World Movement, 59, 71,257, 375 New World Quarterly, 71 Nobel Prize (1979): awarded to Sir Arthur Lewis, 335 North American Free Trade Area (NAFTA), 9; global influence of, 65 Oil boom: T&T, xvi Organisation for Economic Cooperation and Development (OECD): and developing countries, 189 Organisation of Petroleum Exporting Countries (OPEC): impact on financial system, 96; and international trade, 200; Manley on the failure of, 276-277; price hikes (1973), xiv Paris Club: and cancellation of Polish debt, 225

Index

4fT

Peasantry: emergence of independent, 70; Lewis and development of the, 333, 334; plantation economy and labour of Caribbean, 56-57; regression of Jamaican, 75, 80 People's National Party (PNP): defeat of (1980), 82,138,249-250; and democratic socialism, 241-256; and Jamaica's external debt, 109,119-121;and the liberalisation of Jamaica's economy, 270275, 278, 280-301; Manley on Levitt and the, 302; victory (1989), 83, 84,146 People's Production Plan: failure of the, 314, 315; IMF and the, 283-284, Manley and the, 306 Persistent Poverty, 70 Plantation economy: Best-Levitt models of, xii-xiii, 42-44; Jamaica and the legacy of the, xxi; Jamaican class structure and continuities of, 311-315, 334: Williams's analysis of, 8 Plantation economy models, 35-39; and Caribbean dependence, 372, 374-378 Plantation economy model IV, 61-68 Plantation economy paradigm: the Caribbean and the, 10-12; development of the, 72-73; Jamaica and the, 69-90 Plantation hinterland: creation of the, 5556 Plantation slavery. See Slavery Plantation system: legacy in the Caribbean, 54; post-emancipation, 38; post-World War II, 39; slave, 37-38 Plantation surplus: composition and distribution of, 51-53 Planter: in the plantation system, 47, 54-56 Poland: and cancellation of debt by Paris Club, 225 Political decolonisation: in the Englishspeaking Caribbean, x Political partisanship: in Jamaica, 109-110 Poverty: in Jamaica, 75-76,153-158 Poverty alleviation: economic growth and, 360 Poverty reduction and growth facilities, 341 Prebisch, Raul, 82,188

408

Reclaiming Development

Preferential access: Caribbean dependence on, 46; continuities in, 66 Press freedom: in Jamaica (1980s), 251 Pricing strategies: in plantation economy, 48-49,56 Primary commodities: Caribbean trade in, 3-4; decline in importance of, 186-189 Private capital: globalisation and the liberalisation of, 5 Private sector: democratic socialism and Jamaica's, 241,245,247,249,254-255; destabilisation campaign of Jamaica's, 313-314; and development, 378; JLP and Jamaica's, 109-110; SAPs and the role of the, 117; IMF and the role of the, 202, 203; World Bank bias to, 205 Private Sector Organisation of Jamaica (PSOJ): and the free market system, 151 Privatisation: Third World FDI, 18-19; PNP programme of, 263,288-289 Privatisation policy: criticism of, 226 Production: internationalisation of, 65, 95; Productive economy: basis for development of a, 346 Productive sector: decline of Jamaica's (1990-2000), 63-64 Public enterprise: World Bank and, 204-206 Public health: in Jamaica (1970s), 76,120, 166-171 Public transportation: status of Jamaica's, 74,175 Puerto Rican Model: of development, 7879; Lewis and, 333, 334 Pure plantation economy model: characteristics of, 46^47 Quality of Life: of Jamaican peasantry, 7475; measuring, 60-61. See also Standard of Living Race: and class in Jamaica, 311 Reagan administration, xv; and the international finance system, 27; and the JLP 109,127-128,178

Regional integration: CARICOM and, xxii-xxiii, 79; Demas and, 350, 351; emergence of, xi; Lewis and, 334 Regional Negotiating Machinery (RNM): creation of the, xxii Regional trading blocs: emergence of, 98 Research and development: in Asian economies, 21 Residentiary production: in plantation economy, 50-53 Residentiary sector: decision making by the, 67,73 'Right to Development': UN declaration on the, 327 Roderick, Dani: and accountability of globalisation model, 342-343; study on economic disintegration in selected countries, 319-320 School feeding programme: in Jamaica, 158,161 Schumpeter, Joseph: definition of economic development, 20,188 Schumpeter Memorial Lecture: by Sir Arthur Lewis, 335 Seaga, Edward: and Jamaica's external debt, 109,113,266-267, 303; opposition to democratic socialism, 248,249,250, 251; and Reagan, xv, 109,127-128 Seaga administration: 1980-1989,121124, 129; and the IMF, 138-142 Seers, Dudley, 36-37 Sen, Amartya: theory of economics, 359360 Services: liberalisation of trade in, 30 'Shiprider Solution: Policing the Caribbean, The', 299-300 Silent Surrender: The Multinational Corporation in Canada, 3, 42 Singapore: economic development in, 2122,362 Slave trade: and the plantation economy, 10 Slavery: globalisation and, ix; mercantilism of, 37 Slaves: in plantation economy, 47

Small economies: globalisation and, x Smith, Adam: Michael Manley on, 292 Social capital: Jamaica's deficit in, 87-88 Social conflict: and macroeconomic adjustment, 344-346 Social consensus: Jamaica and need for, 318 Social inequity: in Jamaica, 345 Social reforms: by Manley administration, 242,262,267,286,312,313 Socialism: globalisation and the decline of, 13-14; in Jamaica, 83 Sourcing: in plantation economy, 50-51 Sovereignty: globalisation and, 328; of small Caribbean economies, 299-301, 303-304 Stabilisation: definition, 101; IMF programme of, 101-108 Standard, Sir Kenneth: and Jamaica's public health service, 76 Standard of living: IMF's impact on, 204; in Jamaica, 117,153, 317. See also Quality of life State: cross border flows and the, 31; democratic socialism and the, 285-286, 290-291; economic development and the role of the, 22, 328, 378-379; Marxism and the, 284 Stiglitz, Joseph: and the World Bank, 341 Structural adjustment: definition of, 101 Structural adjustment loans (SALs): to Jamaica, 143-145; World Bank, 135, 204-210; World Bank evaluation of, 226 Structural adjustment programmes (SAPs): Caribbean economy and the IMF's, xvi— xvii; evaluation of, 225-227; IMF's, 101108; failure of, 221,222, 328-329; in Jamaica, 84-86,116-118,123-124,128, 131-132; liberalisation and, 5; in SubSaharan Africa, 196; World Bank evaluation of, 227-228. See also Macroeconomic policy Sugar industry: Guyana's, 37; Trinidad and Tobago's, 37 Jamaica Survey of Living Conditions, 154, 156,158-161,171

Index

409

Tate and Lyle, 37 Taxation: IMF and increased, 203-204 Teachers: status of Jamaica's, 76, 87 Telecommunications: globalisation and the privatisation of, 9; TNC's control of, 19 Tertiary education: status of Jamaica's, 174 Thatcher, Margaret, xv; and international finance system, 27 Third World: definition of, 8; and decline in primary commodities trade, 188-189; debt crisis, 96-100,222-223; debt servicing by the, 93,194-199; demise of the, 13; economic development of the, 81; employment creation by TNCs in the, 19; FDI privatisations in the, 18; and World Bank /IMF policies, 26. See also Developing countries Third World radicalism: rise of, xiii Tourism: and the Barbados economy, xviii Trade liberalisation: CARICOM and, xxiii; emergence of, ix; and primary commodities, 3-4; small economies and, x; World Bank and, 135,205 Trade policy: and globalisation, 340; and growth, 343 Trade preferences: globalisation and, x Trading relationships: changing international, 98 Training: of Caribbean economists, 363364 Transnational corporations (TNCs): capitalism and, 1415; control of telecommunications, 19; employment creation by, 19; FDIs by, 17,18, 24; globalisation and, 6-7,12-14; and international trade, 14; monopolistic control of, 9; new mercantilism of, 3, 7, 65 Transnationalisation: of production, 95 Transnationalised finance: debt crisis and, 100 Treaty of Chaguaramas, xi Trinidad and Tobago (T&T): and adjustment, 345; Black Power revolution in, xiii; Demas and the 5-year plan for economic independence of, 352-354;

410

Reclaiming Development

economy (1973), xi, xiii, (1980s), 106108, (1990s), xvi; external debt, xvi-xvii; foreign capital in (1960s), 37; nationalisation programme, xiv; political decolonisation in, x; political and social stability of, 83; unemployment and social disintegration in, 357 Trinidad and Tobago System of National Accounts (TSNA): Levitt and the, 65 Tripartite economic Survey of the Eastern Caribbean, 351 Trudeau, Pierre: support of Michael Manley, 245 Unemployment rates: among Jamaican women, 163; in T&T, 357 United Nations: declaration on the right to development, 327 United Nations Development Programme (UNDP): and Caribbean HDI, 76-78 United States of America (USA): and the Caribbean, xv, 267-267; decline in hegemonic status of the, 185,190-191; and the East Asian economies, 229; delinking from gold standard, 200; and democratic socialism in Jamaica, 240; globalisation agenda, 32; and the Great Depression of the 1930s, 22-23; and the international finance system, 24-25; and Jamaica-Cuba relations, 243,244; and the Manley administration, 246-247, 249; and the NIEO, 269; and the transnationalisation of production, 95 United States Agency for International Development (USAID): assistance to Jamaica, 115 University of the West Indies (UWI): studies on regional economic integration, xii; and Third World debt servicing, 93 Values: Jamaica and the erosion of, 176177 'Volker Shock', 97,191,200-201 Wages: in Jamaica, 88-89,110,117,120123,134-135,153-158; IMF and, 137,

140,146-147,203; Manley administration and, 242; transnationalisation of production and inequity in, 95; in T&T, 89 Washington: and international finance system, 27-28 Washington Consensus, 5,220-221,233234; and globalisation, 60; second generation, 341 Wedderburn, Judy: and the ACE, 372 West Indies Federation: failure of, xi, 79 Williams, Dr Eric: and the plantation economy paradigm, 10; and regional integration, 34; scholarship of, 3, 8; and T&T industrialisation, xiv-xv Williamson, John: and the Washington consensus, 220-221 Women: impact of SAPs on Jamaican, 161-163 Worker participation: Manley administration and, 288

World Bank: data on economic development, 360; debt collection role, 195,221-223; development policy, 341; and GATS, 30; and East Asian economies, 229-231; evaluation of SALs, 226, of SAPs, 227-228; globalisation and the agenda of the, 5; and IMF programmes, 342; index of prices, 187; Jamaica and the, xv-xvi, 131-132,143145; microeconomic policies, 135-137, 204-210; neo-liberal policy, 31; policy shifts (1980s), 26; revision of marketfriendly doctrines, 378 World Development Report: evaluation of SAPs, 228-229 World Investment Report: on FDI flows to developing countries, 14-17 World trade. See International trade World Trade Organisation (WTO): and developing countries, 348; and liberalisation, 327

Index

411