The Multinational Monitor

July 1980 - VOLUME 1 - NUMBER 6


Jamaica At the Crossroads

An interview with Michael Manley

On August 25, Multinational Monitor interviewed Jamaican Prime Minister Michael Manley in New York. Manley was thoughtful, if somewhat tired, after a long day of private meetings and speech-making at the United Nations. For Manley, however, the U.N. trip could have served as a respite from the economic hardships and polarized politics now wracking Jamaica.

Jamaica, and Michael Manley, are at the crossroads. The past six years have brought deepening economic distress, marked by negative growth rates, rising unemployment and the flight of local capital and technical expertise. The country entered 1980 with its foreign exchange coffers empty, U.S.$ 1 billion in external debt, and an across-the-board "bad risk" rating from the international banks.

In March of this year, Manley's People's National Party government upped the ante by breaking off loan negotiations with Jamaica's perennial lender of last resort, the International Monetary Fund (IMF). Manley denounced the Fund as a cure more dangerous than Jamaica's ills. The government accompanied the dramatic step with an announcement of early national elections to seek a mandate for its policies.

The Jamaican economy has continued to muddle through since the break with the Fund, neither confirming the doomsayers nor showing any substantial evidence of a rebound. Unemployment hovers around 30 percent-the highest level in the Western Hemisphere. Eighty factories have shut down since the start of the year, largely due to a lack of imported inputs. Shortages of basic commodities are the rule.

The political contest, only several months ago judged an easy victory for Edward Seaga's Jamaican Labor Party, is now viewed by island pollsters as heading for a photo finish. The significance of the outcome will extend far beyond the shores of the island-nation of 2.1 million people. The economic woes of Jamaica are emblematic of those facing most non-oil producing Third World countries. And the current election campaign offers a battle between two fundamentally different development strategies for dealing with the island's economic problems.

Essentially, a Seaga government would accept the current international division of labor and economic order, and would aim to have Jamaica "out-compete" other developing countries in winning the potential benefits of investment by the industrialized countries. Manley is a leading international proponent of a New International Economic Order (NIEO), based largely on increasing the economic power of Third World countries, as group, through greater economic cooperation among them

Manley's PNP continues to draw its support from the rural population, as well as the urban poor. A PNP victory would mean a renewed mandate for Manley's program of Democratic Socialism, which has challenged the country's local oligarchy and foreign-owned bauxite companies while redistributing wealth to the island's massive underclass. In the international arena, it would mean a continuance of Jamaica's policy of non-alignment, through which Manley has sought to maintain friendly relations with both of the island's close neighbors, the U.S. and Cuba.

JLP leader Seaga, Finance Minister before Manley came to power in 1972, argues that the island should pursue the "Puerto Rican" model of development. With the support of the local business class and the vast majority of Jamaicans now residing in the U.S., Seaga favors utilizing Jamaica's proximity to North America and its relatively "cheap" labor to attract industries fleeing the United States. He would seek a drop in U.S. tariff barriers to the entry of Jamaican goods, and would seek closer political ties to the U.S. while rejecting relations with the Cubans.

Prime Minister Manley is currently expected to set the election for no later than mid-October. His victory would serve as an inspiration for Third World nations attempting to buck the-present international economic order; his defeat would indicate, in part, just how difficult such efforts are. '

MULTINATIONAL MONITOR: Last summer, you told an interviewer that in deciding whether or not to support your reelection, the Jamaican people would have to weigh their social and political gains against the economic difficulties wracking the island. You added that they would have to determine "how much of the economic dislocation was perhaps unnecessary, how much was inescapable, and how much was the consequence of the world situation to which Jamaica is very sensitive." We'd like you to address that question.

PRIME MINISTER MICHAEL MANLEY: Number one, Jamaica has one of the most structurally dependent economies in the world. This can be summed up very simply by the extent to which the export-import equation dominates GNP. We don't need to worry about how it came to be that way; that is just the way it happens to be. So Jamaica is extraordinarily vulnerable to a hostile international economic order.

We are also a surprisingly heavy user of energy. In the years that we went for import substitution-largely the years 1952 to 1972-we developed a crust to the economy, a crust of factories that use energy and are also heavily dependent on imported raw materials. So we became a heavy energy user, and therefore, apart from structural dependence, we became heavily dependent on the price of energy.

Thirdly, Jamaica has had a very firmly established, a historically established, oligarchy. It was a very elitist society; it really was not a society characterized by anything we would loosely call social justice. And we firmly addressed that issue. It had to be addressed; it was not negotiable in terms of our principles. We found that this led to a very hostile reaction by the people with money, the people from the entrepreneurial class, the landed people. I mention the last factor because when the crunch came in 1973, an inner crunch came as well. That inner crunch came because this oligarchy largely took off, and took a tremendous amount of money out of the society. Now a lot of things that we've been accused of in terms of mismanagement really arose because, added to all the other shocks to the economy, the departure of these people really was a heck of an extra blow.

MONITOR: A recent study co-authored by Planning Minister Norman Girvan identifies this tremendous exodus of Jamaican capitalists and the middle class after your i974 proclamation of Democratic Socialism as perhaps the major factor in the island's economic slide. Do you think your policies of redistribution could have been implemented without the exodus? Could you have taken steps to stem the flight of capital and skilled manpower?

MANLEY: First of all, let me tell you that there is a m* stake in the Girvan analysis. He fails to recognize that the exodus started well before the declaration of Democratic Socialism. The exodus, in fact, started in 1973, the minute we began to address issues of land reform, wealth, and taxes. It may be that the declaration stimulated the exodus.

There is no question that we did not anticipate-and I will have to take full responsibility for this-the extent of the reaction. I do not say for one moment that we would have done differently, but the fact is we didn't anticipate the magnitude of the flight. We assumed there would be some: nobody challenges an oligarchy without consequences. That's one of the problems with this type of colonial system. The oligarchy is not really a patriotic, indigenous part of the society. It is an oligarchy created by the nature of colonialism and ;imperialism. It came for the purpose of advantage, it was the beneficiary of the whole of the colonial system, the 18th and 19th century experience. And the minute something challenges the sources of its wealth and power, it tends to migrate rather than to stay and fight. The oligarchy tends to run.

I will confess that we anticipated there would be a problem. And we were very careful to explain that we weren't expropriating, that there was a place for the private sector, that we were dealing with social justice in a legal and constitutional way. Because we went to such lengths to assure people, we thought it would have had a more steadying effect than turned out to be the case.

MONITOR: To follow up you said that if you could have anticipated the exodus, you would, not have done anything differently ...

MANLEY: When I say I wouldn't do things differently, I speak in terms of the policies we pursued, or in terms, for instance, of whether we set out to develop a consciously ideological movement. None of this would have been done differently.

I do not doubt that if we had anticipated the skilled manpower problem, we would have addressed our minds to how to better speak to this constituency. No question. Because that loss has hurt us badly.

MONITOR: Many of your supporters have stated their belief in the policies you have enunciated, the strategies you have pursued. But because of the shortage of skilled manpower-professionals, technicians-they worry that the people are just not there to implement the strategy. Looking beyond the election, do you think it would be possible to reach out to people now outside the island, to call for their return? Do you think (Jamaican Labor Party Leader Edward) Seaga could bring them back?

MANLEY: First question. Very few people who migrate ever come back. That is an historical fact. Some will return, but no development strategy could be based successfully on the thought that there would be a great reverse flow. We are getting some people back, they see that the things they feared would materialize on the island have not. We're glad about that: we encourage it; we are not uptight about people returning. Really though, the future depends on the rate at which we can turn out new trained people. We must develop a new leadership cadre that is patriotic in terms of a different kind of society. To bridge the gap, we no doubt need a certain amount of skilled manpower from abroad. Some of that has happened already-Cuban construction workers, doctors from India and from the U.S.

So much for us. Where the opposition is concerned, skilled-manpower will not return if Seaga wins. You'll find that the kind of person who will return is the kind that during the 1960's became a land speculator, a person who might have been a millionaire by the age of 23, you know. This kind of person will, definitely want to come back. It's not for me to say what kind of effect that would have on Jamaica; I just hope Seaga doesn't win and we don't have to find out.

MONITOR: Let's move on to the inevitable issue-the International Monetary Fund. Looking back over your relations with the Fund, do you feel your government faced a harsher negotiating stance, was asked to make more drastic sacrifices, because your opposition was on the right rather than the left?

MANLEY: That is a very difficult question to answer, for if it is so, it would mean that the IMF takes an interventionist ideological position. Before I could make such a charge, I would have to ; examine very closely what has happened in countries with left opposition. Therefore, I don't want to make that charge, since I have not had the opportunity to do that. What I do know, is that prescriptions proposed by the IMF didn't work, and I don't think could have worked.

MONITOR: Let's discuss the issue of prescriptions. Speculation about your government's willingness to return to the Fund is obviously tied closely to your analysis of the shortcomings of the Fund's approach. How fundamental is the issue of conditionally? If the IMF were to demand terms comparable to those specified in recent negotiations, but offered substantially more capital in the early years of the agreement, would you be prepared to return?

MANLEY: It's not that simple; both aspects are important. I think the conditionality question is much wider than what is the degree of deflation or.. devaluation upon which they insist. It has more to do with whether conditionality is geared to cure your problem-a productive capacity problem-and not merely adjustment problems. At the heart of the problem really, at the heart of seeing what the IMF ought to do, lies the question of distinguishing between developed economies with sufficient productive capability and developing economies.

If the industrialized countries need adjustment, that's fine. In our case, the minute you look at a Third World economy suffering from structural dependence, inadequate productive capacity, and try to impose a demand management solution, you are imposing the wrong medicine on that patient.

You may need a measure of demand management; maybe somebody got careless and let some factors get out of control. But the more important issue is how to provide foreign exchange for the economy within the context of a long-term development plan.

MONITOR: You've criticized the Fund for providing 'insufficient capital. Certainly, though, that's true with every IMF agreement. What is unique about the Jamaican case is that agreement with the Fund failed to unlock access to commercial loans. Have your dealings with the IMF been based on the assumption that private loans would be forthcoming? Had you known that commercial loans would not materialize, would you have adopted a different negotiating posture, or suspended discussions earlier?

MANLEY: Number one, we always tried to explain to the Fund that Jamaica and other Third World countries are different from, say, Britain, when it was dealing with the Fund. We just could not get them to agree that this was so. The fact of the matter is we never got the commercial loans which they built into the economic models that resulted. Had we known that the millions that were supposed to come from the commercial system-which they're supposed to know--the millions that the IMF had built into its model, weren't going to come, we could not have entered into the same agreements. What that would have led to I don't know.

The fact of the matter is, in our early experience with the Fund-not the first time, but the 1978 experience which was really the crunch experience for Jamaica-we were sadly dissatisfied with the terms that arose. It was unquestionably the most agonizing political decision that any Jamaican government has ever made. The Cabinet records are there; they show the utter agony it was for everybody. But at the time, perhaps it now seems wrongly, we couldn't see a way to survive without the foreign exchange. I'm not defending what we did, because after all the sacrifice in '78 and '79, we finally came to 1980 suffering through such bitter experiences-for ideas we never thought would work anyway-we finally just flexed our stomach muscles and said no. So maybe we should have said no then. I don't know.

MONITOR: We've heard from reliable sources that at the very final moment, after the decision had been made, more or less, to break with the Fund, IMF officials got on the phone from Washington to offer more concessions. It was too late, however; the political consensus had formed within the party executive and the decision made. Could you comment on this report? What does it suggest about the way the Fund operates?

MANLEY: Well, let me say two things. One, I have heard that there was one contact made with one person. It was suggested that it might be possible-might be possible-to ask for one more concession. The person to whom the contact , was made-who was the obvious person-did not feel that such statements could possibly have been the basis for saying serious things in a serious movement and a serious government. To the extent that the IMF may now claim it had serious further offers to make, I could only say it is very wanting in responsibility. I want to see the Fund's managing director myself. They were intransigent throughout the negotiations.

MONITOR: To move beyond the Fund, to a discussion of alternatives. Throughout the last three years, you've stressed the need for personal sacrifice in efforts to promote local self-reliance. Where are the areas you feel even further foreign exchange can be conserved as a means of providing needed investment capital?

MANLEY: I think land programs are a critical area. In the local raw material program, there are one or two things that can really help, things where we have licked the basic problem and can get it rolling. For instance, the increased substitution of cassava-based flour for wheat flour can make very significant differences. Obviously, the country is going to have to take that kind of thing and explore every single possibility-more local canning, extracting every ounce possible of food potential. Rice production is starting, and there is quite a scope for foreign exchange savings there.

I think the community enterprise organizations we are trying to work with are a very important part of this. These seek to develop small community industries very heavily based on local raw materials and stressing the great craft skills that are enormous in Jamaica. There is a huge tourist market for these o products, and on export markets. But I must really say, and I know it's not your question, that it's going to be critical to refinance that debt load.

MONITOR: When the government of Elite Trudeau announced about $100 million in aid to. Jamaica during the 1976 elections, he was roundly criticized in Canada for intervening in the elections...

MANLEY: That was very unfair, you know. What he did was to open up a set of loan possibilities, some of which haven't even been drawn down yet. I think it was two years before we even drew down the first $15 million. That political charge was very unfair. It was wildly untrue.

MONITOR: Other Western governments are now using this same reasoning to justify postponing new aid until after the elections. Are these sentiments sincere?

MANLEY: As far as the U.S. and Britain are concerned, I think their response has nothing to do with the elections. Their response has been a strong objection to our decision to break with the IMF. They will tell you that by their rules, they do things with the I M F "seal of approval." But I do not think this is so. It is more an expression of their hostility to a country that would seek to challenge the system at all.

Where Canada is concerned,, that is not really the case. Canada has been much more helpful. Certainly,. they have been very careful to see they cannot be accused of being, you know, unduly helpful, lest that be the basis of a charge of intervention.

MONITOR: Have you been satisfied with the support provided by the OPEC countries thus far?

MANLEY: We are very, very far away from the Middle East. And the Algerians have committed 25 percent of the equity for a new alumina refinery. That's about $27.5 million dollars. Iraq has committed $40 million to the foreign exchange component of that same equity. Libya has lent $50 million in balance of payment support, Iraq another $10 million. This has been a tremendous general expression of cooperation and support.

MONITOR: What about the general role of OPEC vis-a-vis the non-oil developing countries. Do you think the Arab surplus states have been sufficiently cognizant of their responsibilities towards, or at least the effect of rising oil prices upon, the rest of the Third World?

MANLEY: Obviously, we would like them to do more. But let me say this. If you do a calculation of how the industrialized North has benefited from its economic relations with the South, and what now comes back in terms of support and aid, I can only say that OPEC is light years ahead.

MONITOR: Let's not talk then, in terms of aid. Greater direct OPEC investment in the developing world could be mutually beneficial.

MANLEY: I'm sure it would have been wonderful if there had been more. I only know this. In our own case, we have bauxite and they have energy, and we have decided to put them together. And tremendous benefits will result for both sides.

In general, I think the problem is twofold. Not all OPEC members have the same view of their responsibilities towards the Third World. There are some, unfortunately, who really are more interested in buying chunks of London and New York. So you have that problem. But even with the very progressive countries, you have a problem of stages of development. And there you get caught in the vicious circle of underdevelopment-Even where there is the political will, there may not be the sheer know-how needed to locate possible investments.

MONITOR: As a leader of the Third World, will you continue to press the issue of OPEC cooperation? Is your two tier pricing proposal still on the agenda?

MANLEY: Let's put it this way. Let's not go beyond what is possible. Venezuela and Mexico have pointed one way. Iraq spoke to that in Havana and supported the same kind of approach. I think it's very important that OPEC should pursue its plan to develop an OPEC bank to channel oil money to the developing countries. They were going to do it earlier this year, but with the problems over oil pricing, it slipped down on the agenda. I think this has to be done; it can make a big difference.

MONITOR: We'd like to pose a question on bargaining power vis-a-vis multinationals. In a lecture last year, you commented that multinationals have acted to reduce developing countries to a position "not unlike a pack of dogs snarling around the bone of survival." Your government has moved from a position of conflict with the 'leading foreign firms in Jamaica-the giant aluminum corporations of North America-to one of cooperation. Relations are now termed cordial. Agreement has been reached on reduction of the controversial 1974 bauxite levy and the companies have committed themselves to further investment in the bauxite/alumina sector. Does this reconciliation reflect a change in the attitude of these companies? Does it represent a change in your strategy of seeking a just share of the benefits from foreign investments?

MANLEY: No. The charge I made is based on our own experience, when these companies would look at our taxation levels and prevail upon possible competitors to lower theirs. That's the idea of dogs snarling around the bone-who will get expanded investment by being the cheapest producers.

In our case, what we did was sit down and weigh in our minds how far the local industry was inhibited by the decline in foreign investment. We were caught in several crises of foreign exchange. We sat down and decided, OK, if that's as far as we can carry the world for today, let's make a hard calculation. Let's see how much we have to ease up. What is the minimum price we'll have to pay for the expansion. It was a hard, pragmatic thing. It doesn't affect our policies, we just thought that reaching a new agreement was the best way to maximize what we could get out of the future.

In the meantime, the tremendous effort at South Manchester, the independent alumina plant, and the tremendous effort-which has also paid off-to persuade Norway to participate in a joint venture with Jamaica and Alcoa, were both being arranged. We were doing all that in parallel. So what the new agreement represents is our pragmatic response to how to maximize Jamaica's take from these activities given the objective situation that existed.

MONITOR: Could you offer a brief assessment of the future of the International Bauxite Association? Are there prospects for greater unity among bauxite producers?

MANLEY: I think so; we've made some progress. We've reached the point where we have a minimum transfer price for bauxite into North America from this part of the world. That's a start; and when you think that bauxite is not a hard product like oil, providing great leverage, it's much more difficult to develop these common determinations that lead to bargaining strength. And God, what I know about bargaining as an old trade unionist.

You know, one of the biggest problems that we've had is Australia. The Australian central government is very cooperative; it understands all these issues. But by their constitution they really don't control bauxite policy-it is a provincial matter. And it so happens that the provincial governments really aren't going with us. That's the biggest weakness in the whole bauxite association.

MONITOR: In the general area of North-South negotiations, how important is social and political change in the South as a means of strengthening the developing world's bargaining position. In many of the South's more powerful nations, those elites that have been challenged in Jamaica still rule ...

MANLEY: It weakens our bargaining position, it always weakens the position. Every single country that says the way to survive is an industrialization by invitation model, keeping the trade unions under control, disregarding social justice just to get some more capital, is just weakening the position of the South.

MONITOR: Over the past year, you have been on record as becoming more pessimistic about the possibility of achieving cooperation from political leaders in the North on the New International Economic Order (NlEO) issues. You've said industrialized country governments cannot or will not muster the domestic political support necessary to push for international economic reform on the basis of enlightened self-interest. Why?

MANLEY: You know, 1 think the real reason is that the industrialized democracies, as the beneficiaries of the industrial revolution, as the beneficiaries of the long process of colonialism and imperialism which coincided with that, as the beneficiaries of cheap labor, cheap raw materials and cheap energy which underwrote this unending vista of economic expansion, developed a psychology of constantly rising expectations. And liberal democracy became intertwined with rising expectations; so deeply intertwined that now that some of the opportunities are contracting, for all the obvious reasons, their political processes just aren't adjusting.

It seems to me that the political leadership either won't or can't try to show a new path towards the appreciation of reality. The people who dominate the political system, in the eternal clamor and competition of the two parties, are almost compelled by the system to compete in terms of promises. This is a lowest common denominator kind of politics. So the system itself makes educated and strong leadership very difficult. That is why nothing's happening; that's why you can sit down with so many leaders of the North who say they are really sincere, that the Scandinavians are right and that the NIEO is the only way. But then you say, `how about a concession?' and they say, '`well, we can't carry our people.'

MONITOR: What is your assessment of prospects for greater economic cooperation among developing countries?

MANLEY: I believe that this is the real root of the thing. It's going to be a long, hard struggle, but at least our record is eloquent testimony to our belief in it. The key to it is to cooperate inside South-South and slowly lay foundations. And it's a nuts and bolts game, as we learned with our alumina plant. It took seven years but we had the will, we never stopped trying.

If it has to take a generation let it take a generation. That's how we can build our own bargaining strength.

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