In the build-up to the 2011 general election, the People's National Party (PNP) pledged to shape a new agreement with the International Monetary Fund (IMF), "taking into account the present realities of the Jamaican society and the need to facilitate growth in our economy, if we are to make social and economic progress as a people".
In the midst of Finance Minister Dr Peter Phillips' feverish attempt to live up to his party's election promises, the minister with responsibility for the public service, Horace Dalley, is busy engaging public sector trade union leaders in discussions about a sign-off on the 2010-2012 wage negotiations, and how best to construct agreeable terms to a 2012-2014 wage agreement which public servants and their unions hope will preserve jobs while offering increases in wages, salaries and fringe benefits.
The truth is that Minister Dalley's attempt can advance very little unless Dr Phillips accomplishes his task -- one which can best be accomplished with the help of the trade union movement, fully mobilised to collectively provide the sine qua non for the finance minister's success. For unless the trade union movement sets about to develop a new conceptual framework for the discussions, on the present trajectory there is very little the Government can do to steer the Fund away from its mainstream policy prescription of a general contraction in public sector spending, with the resultant effects of wage freeze or cuts, layoffs and reduction in pension and other social benefits.
This is where the real meaning of 'people power' is to be played out, where the Government should be fully aware that the fiscal policies it pursues must recognise the workers as the proverbial canary in the coal mine for the Jamaican economy. Success can therefore only be measured by the indices of human development which point upwards to reflect the benefits of economic growth and development. This, of course, is not now the case, and certainly not evident in the IMF medium-term plans for Jamaica where the key architects for sustainable growth are an emphasis on labour market regulation and wage repression.
The failures of a profit-led growth strategy
Granted, Jamaica's present crisis was never the result of wage developments and labour market regulations, but they have become the focus of our solution simply because the economic model being pursued is decidedly neo-liberal. It is a model based on pro-capital distributional policies where the tools of labour market regulations have been used to distribute income from workers to the owners of the means of production because, intuitively, they invest rather than consume their wealth.
The propensity to save and invest among the capitalist class is the basis on which the income distribution is encouraged to induce greater investments, more jobs and eventually higher rates of growth. The emphasis on higher profits instead of higher wages, it is argued, would eventually redound to the benefit of the workers through the trickle-down effect of this neo-liberal theory.
This profit-led demand and supply regime has been the practice of both Jamaica Labour Party (JLP) and PNP administrations over many years, and the economic effects of the declining wage share have only been worse for the Jamaican workers. In fact, it is instructive to note that one of the salient causes of the global recession which was triggered by the United States' subprime mortgage crisis had to do with changes in functional income distribution.
Similar profit-led strategies pursued by the bastion of neo-liberalism, the US, led to a decline in real wages and a consequential decline in aggregate demand which could only have been satisfied through credit and loans. Workers found it increasingly difficult to service these loan payments because of the stagnation in real wages and the contradictions between distribution and growth.
Similarly in Jamaica, the effect on the demand side of this profit-led growth strategy has been a fall in consumption, with the obvious decline in profit margins, suppression of wage rates and laying off of workers. The use of pro-capital policies, including the hundreds of waivers and concessions granted to the business sector, was to encourage more investments with the expected outcomes of job creation and economic growth. This has failed to materialise.
On the supply side, improvements in labour productivity have eluded us, despite technological changes and liberalisation of the economy. Mainstream economic thinking, which portends that a competitive market is most conducive to growth, has certainly not been Jamaica's experience. In fact, labour market institutions, such as the trade unions, are generally seen as rigidities in the labour market which fetters investment opportunities. The irony is that the direction of causality points to everything except wage rates as the source of Jamaica's economic stagnation, but the solution seems always to place the burden on the backs of the workers, when in fact the structural deficiencies and bad policy prescriptions worsen the problem.
But when we examine the data on Jamaica and analyse the studies done in other countries, the structure of our economy and the social and labour market policies and institutions bear out the remarkable contradiction where income distribution has become unholy unequal in the face of marginal or negative economic growth. In Jamaica's case the growing income inequality would be evident in the movement in the Gini coefficient in the last decade, based on United Nations Development Programme (UNDP) statistics, which up to 2005 showed that the top 10 per cent of income earners in Jamaica earned 30.3 per cent of the wealth, while the bottom 10 per cent earned a mere 2.7 per cent of income.
Some comparison with Greece
The IMF has marked down its global growth forecast, reflecting the continued deterioration in the external environment, as well as the slowdown in domestic demand in key emerging economies. Take Greece, which has a Standby Agreement with the IMF since May 2010 and represents the worst aspect of the crisis in Europe. With the help of the Fund Greece has instituted a number of growth-enhancing structural reform measures "designed to improve competitiveness and enhance employment".
But none of these addresses the issue of spurring aggregate demand to stimulate growth and labour productivity. During last year, the Greek Government implemented a number of measures with the intention to further reduce the budget deficit by about three per cent of GDP. These measures included a reduction in public sector salaries by 20 per cent; an overall average cut in pension by four per cent as part of their pension reform; the creation of a labour reserve to which 30,000 public sector employees would move by the end of last year; expenditure cuts amounting to 0.6 per cent of GDP implemented retroactively from January 2011; and the introduction of a property tax.
The growth-induced strategy has nearly resulted in a doubling of the negative GDP growth from -3.5 per cent in 2010 to -6.0 per cent in 2011, and unemployment still remains stubbornly high despite measures to increase employment. In order to boost productivity, competitiveness, capital formation and growth in Greece, the need to pursue "a comprehensive structural reform agenda aimed at creating a well-functioning labour market" and to remove barriers to investment and exports as well as liberalise the service markets have been advocated.
The prescriptions are well rehearsed: labour market flexibility, wage flexibility, profit-led growth. Furthermore, the objective of creating and preserving jobs and improving competitiveness resulted in measures which suspended the extension of occupational and sectoral agreements until 2014.
A recent Reuters report revealed that despite the growth-enhancing measures, "the Greek economy shrank 6.8 per cent in 2011, leaving the level of output an estimated 16 per cent below its pre-crisis peak. Unemployment has soared to more than 20 per cent from 7.7 per cent in 2008...", and for ordinary Greeks the outlook is dire. "Some civil servants have seen their salaries cut by half. Retirement before the age of 65 is a fading dream for those still in work. Some drugs are now in short supply. Couples with children are being forced to move back in with their parents to save money. And across Greece, businesses are closing every day."
In fact, some of the key macroeconomic indicators were better in Greece than they are in Jamaica. Table 1 provides comparative data, which raises the question: why would the IMF want to impose different strictures on Jamaica than it did on Greece or elsewhere? This is precisely the direction in which the IMF wants Jamaica to be heading, and a comparison of the conditionalities with the two countries bears striking similarity in many respects.
Many economists and commentators have argued that there is a wider frame within which the crisis has to be understood, and certainly in Jamaica's case we have to avoid the pitfalls of the very same financial policy mistakes which have resulted in our present predicament. In an International Labour Organisation-sponsored workshop on 'Wages, Crisis and Economic Recovery', the conclusion was drawn that rising income inequality was at the root of the crisis. Academics from Delft University of Technology in The Netherlands postulated the view that "low wages and increased inequality depressed aggregate demand and prompted monetary policy to react by maintaining low interest rates -- cheap credit in turn allowed private household and corporate debt to increase far beyond sustainable levels".
But now Jamaica joins Europe in a global chain of policy errors which blames the rigid labour markets and advocates wage cuts in the name of increased cost competitiveness. And so, like Greece, the Government of Jamaica is told to, or has to decide on public spending cuts, tough reform of the labour market, and far-reaching reform of pension provisions. The sad truth is that this is where the IMF is going, which leaves very little wiggle room for Finance Minister Phillips to secure and protect the main planks of the PNP manifesto.
The canonical neo-liberal approach to the crisis will become the albatross around the necks of the Jamaican workers if the trade unions try to argue wage adjustments and social security protection in a profit-led growth strategy. The unions must resist any attempt at further stagnation of real wages as this will not create the conditions for a viable, sustained economic recovery, but will result in prolonged stagnation.
Wage stagnation presents a direct and immediate obstacle to economic recovery for Jamaica, and it serves to further entrench the structural problems that caused the crisis in the first place. We have seen where the country's growth model was predicated on demand accelerated through debt and asset price inflation rather than wage increases. The resulting effect was a severing of the link between wages and productivity growth, downward pressure on real wages, decline in aggregate demand, weakening of the labour market, reduction in social benefits and rights for workers, and flexibility in employment, wages and the production process to give management greater sway over the control of labour.
The approach to stabilise the economy by regulating the financial sector is certainly a good thing, but the further measures to suppress the demand and income-generation process will not help the recovery process whatsoever. A logic line of construct for our reasoning would not suggest that we continue on the path dictated by the IMF. The policy propositions are much at variance with the prescriptions of the Fund, and it is the trade unions to which we must turn to create an alternative response to the policies being pursued.
The minister of finance should not surrender to the orthodox argument that wage growth inhibits economic growth, a doctrinaire approach fully embedded in the policies, agendas and strategies of the multilateral institutions, like the IMF and World Bank.
The Planning Institute of Jamaica should do a study to advise the Government on the policy decisions it must make, based on a sound understanding of the impact of wages on aggregate demand and labour productivity. Wage-led growth economic strategies would improve the growth rate. This is clearly the struggle trade unions need to engage in at the bargaining table to mobilise collective action around a new set of paradigms that a wage-led economic strategy, supported by pro-labour policies, will result in real and sustained growth for the economy.
An increase in the wage share means higher income activity in the short term, faster accumulation of capital in the long term and higher investment expenditures. The pro-labour policies would result in a strengthening of social protection measures and labour market institutions, and include strengthening collective bargaining, trade unions, increased unemployment benefits and reducing wage and salary income inequalities.
There is a proximate link between wage growth and productivity growth since companies may react by investing in productivity-enhancing areas to maintain competitiveness, or through improved motivation of workers as well as improvements in health and nutrition. Studies in a number of OECD countries have proved this to be so.
In May 2009, Christi van der Westhuizen, in an Inter Press Service (IPS) article, warned developing countries about the IMF using the global financial crisis "to promote policies that exacerbate the recession rather than growing economies". The re-casting of the IMF agreement is therefore an opportunity which must be seized by the trade union movement to set the country on a wage-led economic growth strategy to give credence to 'people power'.
Danny Roberts is the head of the Hugh Lawson Shearer Trade Union Education Institute, UWI Open Campus, Mona.