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Is CARICOM a necessity?
Published: Sunday | June 9, 2013 1 Comment
Edward Seaga
1 2 >
Edward Seaga
The relationship of ]Jamaica with its Caribbean neighbours in a regional organisation was first publicly discussed at a conference in ]Montego in 1947, called by the British secretary of state, Arthur Creech Jones, to discuss the question of regional political integration.From this opening discussion, 11 years later, the West Indies Federation was born, comprising 10 English-speaking ]countries, none independent. All were seeking independence through the federal structure.
The Federation was ill-fated from the start. It was based on the strength of a common heritage, from which was to be forged a common destiny of political, economic and social development, through integration. If the commonalities of the Federation were its strength, its diversities were its weakness: population size, wide income spread and economic performance, differences and distances between political power centres and, from Jamaica's point of view, lack of socialisation with the other member countries and their people.
The federal system was planned from the top down. The people were never consulted until the very end when a referendum was held in Jamaica on September 19, 1961 to determine its fate. That was the day that the West Indies Federation died. It was rejected by the people of Jamaica and, as so cogently phrased in the memorable words of Dr Eric Williams, premier of Trinidad and Tobago, "one from 10 leaves nought"; the Federation was promptly dismembered and abandoned. That acute analysis was more than a piercing truism. It spoke volumes to the strength of the central role of Jamaica in the federal scheme.
END OF POLITICAL INTEGRATION
The demise of the Federation put an end to political integration, but it did not destroy the concept of regional cooperation. Just as the founding of the University College of the West Indies in 1948 established a successful integrated structure of higher education, there were other areas which could be pursued.
The first step to further cooperation was the establishment, in 1965, of the Caribbean Free Trade Association (CARIFTA), an agreement among member nations to advance trade by eliminating trade barriers. The machinery was established to enhance regional trade with broad objectives to:
Promote the expansion and diversification of regional trade, particularly by the removal of excessive and unnecessary tariffs;
Ensure fair competition;
Foster harmonious development and liberalisation of Caribbean trade; and
Encourage the progressive development of economies in the region.
CARICOM was seen as the logical extension of CARIFTA. But, equally, it was the expression of a hopeful expectation that it would be a regional mechanism to enhance declining exports by facilitating economic expansion within a common market.
CARICOM was established under the Treaty of Chaguaramas in 1973. The larger scope of a common market would include eventual introduction of a Common External Tariff and free movement of labour and services, focusing first on professionals and university graduates and a single market for economic cooperation.
Against the background of high expectation, the performance of CARICOM trade with Jamaica must be addressed to assess the impact on the Jamaican economy and the potential of CARICOM for reviving the stagnant economic performance particularly since the CARICOM Single Market and Economy (CSME) was introduced in 1993 for this purpose.
Regional trade with Jamaica since CARICOM's inception has persisted as a low-impact economic activity, particularly in exports. In 1973, exports from Jamaica to CARICOM were 6.3 per cent of Jamaica's total exports and 5.2 per cent of total imports. By 2001, Jamaican exports to the region declined to 4.1 per cent and imports from CARICOM were a substantial 12.7 per cent.
Further, between 1995 and 2010, a period fully covered by the CSME, Jamaica's trade balance with Trinidad deteriorated by 295 per cent, while Trinidad's increased by 268 per cent. The fact that Jamaica's decline was virtually Trinidad's gain is considered by many to be just cause to insist that something be done to reduce the imbalance.
Indeed, during my term in office as prime minister in the 1980s when the shoe was on the other foot, I was approached by Trinidad's financial secretary at a conference in Barbados to determine whether Jamaica could ease the pressure. Realising that Trinidad was a valuable importer of Jamaican exports and supplier of oil, I responded positively.
OIL CONCESSION
There is a justifiable feeling that Trinidad should make a similar concession perhaps by a discounted price for oil, which could be passed through to exporters as an export rebate until the energy problem in Jamaica has been overcome. After all, without a Jamaican market, Trinidad's CARICOM trade would be virtually nil. This is a trump card that Bustamante would have played! It would so shake up CARICOM that we would stop talking the talk and walk the walk.
This, however, would only amount to temporary assistance. There must be a deeper probe to determine why this anaemic performance occurs.
Over the 30 years of CARICOM trade, Jamaica has moved from being a net exporter in CARICOM to a net importer.
This weak export performance is at the heart of queries now being raised as to whether Jamaica can overcome its weak export record and, if not, whether there is any purpose in extending its CARICOM involvement in the CSME.
The reason for this listless performance is not to be found in any lack of product acceptance by consumers. In a region where the producing countries carry much the same lines of production, preference is largely driven by competitive pricing.
Studies have found that the main contributors to the lack of price competitiveness in Jamaican exports are low productivity arising largely out of inadequate skills and macroeconomic instability.
Productivity, though of great importance as an underlying factor, is an index insufficiently used in assessing economic performance.
In a study of 10 countries by JAMPRO on the apparel industry, the downplaying of productivity measurements was eloquently stated:
"Despite the rhetoric about productivity, the country has not captivated the concept through measurement and procedures. Official statistics and publications, private and public, do not feature it. Hence, there is no imbibing of it by the general community, no utilisation in policy pronouncements, no inclusion of it in training and education programmes and no reference to it in organisation and industry planning".
One of the principal reasons for the negative movement of Jamaican productivity was that from 1973 to 2007, labour productivity, or output per Jamaican worker, declined at an average annual rate of 1.3%. This was attributed to output growing at a slower pace than employment. On average, output increased by 0.5% annually, while unemployment advanced 1.8% annually.
NO CULTURE OF PRODUCTIVITY
More broadly, there is no evident culture of productivity. Hence, Jamaica lags behind other countries. Jamaican exports are priced out of the market and domestic production is unable to adequately compete against imports while neighbouring and other countries of lesser potential lead the way.
This is not a viable scenario for participation in the CSME. Current conditions of economic frailty and little evident prospects for overcoming non-competitive performance will expose the Jamaican economy to still greater displacement of local production, with no greater ability to expand Jamaican exports. The trade gap will widen and the economy will worsen further with involvement in the CSME under these conditions.
Is the CSME to be abandoned, or is there room to improve productivity and competitiveness of Jamaican production to enable participation to be worthwhile?
Productivity is a measurement, not a function. It is the thermometer that measures the state of a critical aspect of economic health.
As a measurement, productivity, per se, is not the source of the problems which ail the economy. The source lies, chiefly, with human resource capability, and macroeconomic stability.
The impact of human resources and macroeconomic stability on productivity must be analysed to determine whether there is room for the improvement necessary to sufficiently redeem the weak export performance of the Jamaican economy and remain in the CSME.
Human capital formation is a critical link in the production process. Education, in particular, provides the training ground for skills to improve productivity.
Some of the embarrassingly weak performances of the education system will assist in reminding the authorities of the risks to which the country is exposed and the charge they bear to prevent further failure.
There has been a record of depressing performances, with consequential influences on economic production. According to the Ministry of Education:
About a third of the children leave early childhood system not ready for primary learning;
Forty per cent of the students that enter high school at grade seven perform below their grade level;
A fifth of the secondary cohort drop out by grade nine, and of those that make it to grade 11, only half sit five subjects at the Caribbean Secondary Education Certificate exams;
Of the 50% who did the CXC exams in 2012, only 52% passed English, and 38%, mathematics.
Of the 75% of the youngsters who seek entry into the institutions for vocational skills run by the training agency HEART cannot get acceptance because of their low levels of literacy and numeracy.
Little wonder Jamaica ranks third lowest on ratings in vital areas of the education system. UNESCO ranks Jamaica third lowest in the region for literacy at 79.9%.
It is not only the dismal performance of the education sector that matters in regard to productivity. The sector is itself a misfit in the society, producing, at one end, 70% school leavers with no skills at all, and at the other end, 80% of university graduates who, according to the World Bank, live abroad.
Grave Disadvantage
Surely little more need be said to confirm that the development of human resources in Jamaica, particularly the education system, is not benefiting the drive to prepare the economy for the demands of the competitive regional environment of the CSME, much less global trade.
Here again, Jamaica is at a grave disadvantage. The education system is not geared to lifting productivity and improving competitiveness, with no paradigm shift in sight.
In this context, the determination of Minister of Education Ronald Thwaites to overhaul the education system is a spark of light.
To facilitate trade and investment in the CSME, it is proposed that a Caribbean Monetary Union (CMU) be established within the framework of the CSME. The CMU would be regulated by a Caribbean Monetary Authority (CMA). This concept originated among regional central banks in 1990 with a target date for implementation in 2000.
Central to the concept of a CMU is the creation of a single Caribbean currency.
The criteria framed for participation in the CMU require member countries to maintain a minimum of:
(1) Three months' import cover in foreign-exchange reserves for at least 12 months;
(2) A stable exchange rate against the US dollar for 36 months;
(3) An external debt service ratio of no more than 15% of the value of exports.
A number of the proposed participating countries in the CMU, including Jamaica, could meet all these criteria.
A second reason is that the CMA would be introduced as a regional monetary institution to administer a fixed exchange-rate regime with a single currency. This would enable monetary and fiscal stability to be established for the region.
LITTLE INCENTIVE
But with the exception of Jamaica, Guyana, Haiti, and Suriname (and possibly Trinidad), this macro-stability already exists, based on the fixed exchange rate of the OECS countries and the pegged currencies of Barbados, Bahamas and Belize.
What incentive would exist, then, for these stable economies to be involved in a CMU which offers nothing better than what they have already achieved? Worse yet, the distinct possibility of weakening their own macro-credibility, by involvement with the instability of Jamaica, Guyana, Haiti and Suriname, would be a great threat.
On the basis of the above criteria of lack of productivity, a dysfunctional education system and monetary policy which is discordant, Jamaica cannot fit the CARICOM regime. CARICOM is, therefore, not a necessity to Jamaica. However, to reach definite conclusions on such a project, it would be better to have a proper study done on CARICOM to determine whether necessity, if any, does exist.
Edward Seaga is a former prime minister. He is now chancellor of UTech and a distinguished fellow at the UWI. Email feedback to columns@gleanerjm.com and odf@uwimona.edu.jm.
Published: Sunday | June 9, 2013 1 Comment
Edward Seaga
1 2 >
Edward Seaga
The relationship of ]Jamaica with its Caribbean neighbours in a regional organisation was first publicly discussed at a conference in ]Montego in 1947, called by the British secretary of state, Arthur Creech Jones, to discuss the question of regional political integration.From this opening discussion, 11 years later, the West Indies Federation was born, comprising 10 English-speaking ]countries, none independent. All were seeking independence through the federal structure.
The Federation was ill-fated from the start. It was based on the strength of a common heritage, from which was to be forged a common destiny of political, economic and social development, through integration. If the commonalities of the Federation were its strength, its diversities were its weakness: population size, wide income spread and economic performance, differences and distances between political power centres and, from Jamaica's point of view, lack of socialisation with the other member countries and their people.
The federal system was planned from the top down. The people were never consulted until the very end when a referendum was held in Jamaica on September 19, 1961 to determine its fate. That was the day that the West Indies Federation died. It was rejected by the people of Jamaica and, as so cogently phrased in the memorable words of Dr Eric Williams, premier of Trinidad and Tobago, "one from 10 leaves nought"; the Federation was promptly dismembered and abandoned. That acute analysis was more than a piercing truism. It spoke volumes to the strength of the central role of Jamaica in the federal scheme.
END OF POLITICAL INTEGRATION
The demise of the Federation put an end to political integration, but it did not destroy the concept of regional cooperation. Just as the founding of the University College of the West Indies in 1948 established a successful integrated structure of higher education, there were other areas which could be pursued.
The first step to further cooperation was the establishment, in 1965, of the Caribbean Free Trade Association (CARIFTA), an agreement among member nations to advance trade by eliminating trade barriers. The machinery was established to enhance regional trade with broad objectives to:
Promote the expansion and diversification of regional trade, particularly by the removal of excessive and unnecessary tariffs;
Ensure fair competition;
Foster harmonious development and liberalisation of Caribbean trade; and
Encourage the progressive development of economies in the region.
CARICOM was seen as the logical extension of CARIFTA. But, equally, it was the expression of a hopeful expectation that it would be a regional mechanism to enhance declining exports by facilitating economic expansion within a common market.
CARICOM was established under the Treaty of Chaguaramas in 1973. The larger scope of a common market would include eventual introduction of a Common External Tariff and free movement of labour and services, focusing first on professionals and university graduates and a single market for economic cooperation.
Against the background of high expectation, the performance of CARICOM trade with Jamaica must be addressed to assess the impact on the Jamaican economy and the potential of CARICOM for reviving the stagnant economic performance particularly since the CARICOM Single Market and Economy (CSME) was introduced in 1993 for this purpose.
Regional trade with Jamaica since CARICOM's inception has persisted as a low-impact economic activity, particularly in exports. In 1973, exports from Jamaica to CARICOM were 6.3 per cent of Jamaica's total exports and 5.2 per cent of total imports. By 2001, Jamaican exports to the region declined to 4.1 per cent and imports from CARICOM were a substantial 12.7 per cent.
Further, between 1995 and 2010, a period fully covered by the CSME, Jamaica's trade balance with Trinidad deteriorated by 295 per cent, while Trinidad's increased by 268 per cent. The fact that Jamaica's decline was virtually Trinidad's gain is considered by many to be just cause to insist that something be done to reduce the imbalance.
Indeed, during my term in office as prime minister in the 1980s when the shoe was on the other foot, I was approached by Trinidad's financial secretary at a conference in Barbados to determine whether Jamaica could ease the pressure. Realising that Trinidad was a valuable importer of Jamaican exports and supplier of oil, I responded positively.
OIL CONCESSION
There is a justifiable feeling that Trinidad should make a similar concession perhaps by a discounted price for oil, which could be passed through to exporters as an export rebate until the energy problem in Jamaica has been overcome. After all, without a Jamaican market, Trinidad's CARICOM trade would be virtually nil. This is a trump card that Bustamante would have played! It would so shake up CARICOM that we would stop talking the talk and walk the walk.
This, however, would only amount to temporary assistance. There must be a deeper probe to determine why this anaemic performance occurs.
Over the 30 years of CARICOM trade, Jamaica has moved from being a net exporter in CARICOM to a net importer.
This weak export performance is at the heart of queries now being raised as to whether Jamaica can overcome its weak export record and, if not, whether there is any purpose in extending its CARICOM involvement in the CSME.
The reason for this listless performance is not to be found in any lack of product acceptance by consumers. In a region where the producing countries carry much the same lines of production, preference is largely driven by competitive pricing.
Studies have found that the main contributors to the lack of price competitiveness in Jamaican exports are low productivity arising largely out of inadequate skills and macroeconomic instability.
Productivity, though of great importance as an underlying factor, is an index insufficiently used in assessing economic performance.
In a study of 10 countries by JAMPRO on the apparel industry, the downplaying of productivity measurements was eloquently stated:
"Despite the rhetoric about productivity, the country has not captivated the concept through measurement and procedures. Official statistics and publications, private and public, do not feature it. Hence, there is no imbibing of it by the general community, no utilisation in policy pronouncements, no inclusion of it in training and education programmes and no reference to it in organisation and industry planning".
One of the principal reasons for the negative movement of Jamaican productivity was that from 1973 to 2007, labour productivity, or output per Jamaican worker, declined at an average annual rate of 1.3%. This was attributed to output growing at a slower pace than employment. On average, output increased by 0.5% annually, while unemployment advanced 1.8% annually.
NO CULTURE OF PRODUCTIVITY
More broadly, there is no evident culture of productivity. Hence, Jamaica lags behind other countries. Jamaican exports are priced out of the market and domestic production is unable to adequately compete against imports while neighbouring and other countries of lesser potential lead the way.
This is not a viable scenario for participation in the CSME. Current conditions of economic frailty and little evident prospects for overcoming non-competitive performance will expose the Jamaican economy to still greater displacement of local production, with no greater ability to expand Jamaican exports. The trade gap will widen and the economy will worsen further with involvement in the CSME under these conditions.
Is the CSME to be abandoned, or is there room to improve productivity and competitiveness of Jamaican production to enable participation to be worthwhile?
Productivity is a measurement, not a function. It is the thermometer that measures the state of a critical aspect of economic health.
As a measurement, productivity, per se, is not the source of the problems which ail the economy. The source lies, chiefly, with human resource capability, and macroeconomic stability.
The impact of human resources and macroeconomic stability on productivity must be analysed to determine whether there is room for the improvement necessary to sufficiently redeem the weak export performance of the Jamaican economy and remain in the CSME.
Human capital formation is a critical link in the production process. Education, in particular, provides the training ground for skills to improve productivity.
Some of the embarrassingly weak performances of the education system will assist in reminding the authorities of the risks to which the country is exposed and the charge they bear to prevent further failure.
There has been a record of depressing performances, with consequential influences on economic production. According to the Ministry of Education:
About a third of the children leave early childhood system not ready for primary learning;
Forty per cent of the students that enter high school at grade seven perform below their grade level;
A fifth of the secondary cohort drop out by grade nine, and of those that make it to grade 11, only half sit five subjects at the Caribbean Secondary Education Certificate exams;
Of the 50% who did the CXC exams in 2012, only 52% passed English, and 38%, mathematics.
Of the 75% of the youngsters who seek entry into the institutions for vocational skills run by the training agency HEART cannot get acceptance because of their low levels of literacy and numeracy.
Little wonder Jamaica ranks third lowest on ratings in vital areas of the education system. UNESCO ranks Jamaica third lowest in the region for literacy at 79.9%.
It is not only the dismal performance of the education sector that matters in regard to productivity. The sector is itself a misfit in the society, producing, at one end, 70% school leavers with no skills at all, and at the other end, 80% of university graduates who, according to the World Bank, live abroad.
Grave Disadvantage
Surely little more need be said to confirm that the development of human resources in Jamaica, particularly the education system, is not benefiting the drive to prepare the economy for the demands of the competitive regional environment of the CSME, much less global trade.
Here again, Jamaica is at a grave disadvantage. The education system is not geared to lifting productivity and improving competitiveness, with no paradigm shift in sight.
In this context, the determination of Minister of Education Ronald Thwaites to overhaul the education system is a spark of light.
To facilitate trade and investment in the CSME, it is proposed that a Caribbean Monetary Union (CMU) be established within the framework of the CSME. The CMU would be regulated by a Caribbean Monetary Authority (CMA). This concept originated among regional central banks in 1990 with a target date for implementation in 2000.
Central to the concept of a CMU is the creation of a single Caribbean currency.
The criteria framed for participation in the CMU require member countries to maintain a minimum of:
(1) Three months' import cover in foreign-exchange reserves for at least 12 months;
(2) A stable exchange rate against the US dollar for 36 months;
(3) An external debt service ratio of no more than 15% of the value of exports.
A number of the proposed participating countries in the CMU, including Jamaica, could meet all these criteria.
A second reason is that the CMA would be introduced as a regional monetary institution to administer a fixed exchange-rate regime with a single currency. This would enable monetary and fiscal stability to be established for the region.
LITTLE INCENTIVE
But with the exception of Jamaica, Guyana, Haiti, and Suriname (and possibly Trinidad), this macro-stability already exists, based on the fixed exchange rate of the OECS countries and the pegged currencies of Barbados, Bahamas and Belize.
What incentive would exist, then, for these stable economies to be involved in a CMU which offers nothing better than what they have already achieved? Worse yet, the distinct possibility of weakening their own macro-credibility, by involvement with the instability of Jamaica, Guyana, Haiti and Suriname, would be a great threat.
On the basis of the above criteria of lack of productivity, a dysfunctional education system and monetary policy which is discordant, Jamaica cannot fit the CARICOM regime. CARICOM is, therefore, not a necessity to Jamaica. However, to reach definite conclusions on such a project, it would be better to have a proper study done on CARICOM to determine whether necessity, if any, does exist.
Edward Seaga is a former prime minister. He is now chancellor of UTech and a distinguished fellow at the UWI. Email feedback to columns@gleanerjm.com and odf@uwimona.edu.jm.
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