Jamaica’s economy - Assignment Example

Firstly, the government of Jamaica has quite a large amount of corruption which has so far proven to be unstoppable. It’s corruption index is at 74 (1 being the least and 145 most corrupt)1. Since gaining independence from the British Commonwealth in 1962, its political power has shifted between the Peoples National Party (PNP) and the Jamaica Labour Party (JLP).

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Before JLP took power, PNP, with Michael Manley as prime minister, declared their government socialist even though most of the sectors of the economy were dominated by private enterprises (many foreign investors ceased investment because of the claim that Jamaica was a ‘socialist government’). Manley created a land reform program to fight unemployment in which land was redistributed and some business schemes were introduced to the people. This program also nationalized all of the previously foreign-owned utility companies that controlled telephones, public transportation and electricity.

Because Manley raised the taxes (to be less dependant on foreign companies) on bauxite production (one of Jamaica’s greatest exports) in 1974, he got himself in a conflict with many foreign aluminum production companies. Because of this dispute, many international aluminum trade agreements were cancelled and a new tax was imposed on bauxite. This brought a lot of money into the economy, raising Jamaica’s GDP but in the long run Jamaica suffered from a decline in investment.

On his second term, Manley decided to try to get aid from the IMF, which was helpful in the short-run but many of the policies eventually led to the collapse of the economy. In 1980, Seaga was elected (almost forcefully) and he fixed relations with Cuba and the U. S. government under Reagan. He took many extreme measures one of which was the devaluation of the Jamaican dollar. Under Seaga, corruption and unemployment soared which put the lower class into a bad position. Even after PNP won back the election, Jamaica’s economy went downhill and corruption kept rising.

Now, almost every single part of the economy suffers from corruption. This corruption is mainly caused by the carelessness of the press; accounts of how politicians are spending the nation’s funds are not brought out the public. Also, there is bad communication between political parties, which leads to many oppositions and collapsed long-term plans. Another index that is particularly important in Jamaica’s economy is unemployment. In the last decade, Jamaica has experienced a major brain drain because Jamaicans are not happy with the poor conditions in their country.

Although the government has placed quite a lot of emphasis on education as we can see from the Literacy Index (male literacy: 84. 1%, female literacy: 91. 6%)2 , the employment rate is still very low because Jamaicans are seeking opportunities outside of their homeland. The people who go elsewhere to find work usually don’t come back because of the harsh conditions. Jamaica’s unemployment rate is at 15%(2004)3, which is quite high compared to most countries. Jamaica is heavily dependent on services.

Even though Jamaica’s climate allows for efficient farming, the agriculture sector is weak due to bad work ethic, faulty management, and high unemployment and also to the fact that Jamaica is so dependant on export goods that due to inflation the prices of the goods in Jamaica are greater than those of exported goods. Almost all of the products consumed by Jamaicans are foreign goods.

The government. The fact that Jamaica relies so much on services can be shown as the Labor force (by occupation) index. 63. % of the labor force works for services, 20. 1% agriculture and only 16. 6% account for the industry4. Probably the only real stable service that Jamaica’s economy is relying heavily on is tourism, which is dependant on weather and good tourism conditions. This sector of the economy does not suffer as greatly from the corruption and high crime rate as the others. Another dominant sector in the Jamaican economy is Bauxite and Aluminum extraction and export. Another interesting index in Jamaica’s economy is the high crime rate.

Jamaica has the third highest crime rate (per capita) in the world at 0. 32 per 1000 people5. This creates a negative impact on the economy for multiple reasons. Firstly, because Jamaicans grow up surrounded by crime, the hard living conditions cause them to leave the country whenever they get a chance to (brain drain). After they have seen life outside of Jamaica, people tend not to go back. Also, the crime rate affects outside investors who want to invest in a safe nation with a low crime rate so that their profits will actually return to them.

Jamaica spends somewhere around 4 percent of their annual GDP on crime reduction, which js quite significant considering their GDP is quite low in comparison to the rest of the world. Even though there are so many factors that limit Jamaica’ growth and the creation of job opportunities along with crime reduction, there is still hope for this potentially successful economy. However, in order to experience growth and development, the Jamaican government has to make some decisions that are crucial for the well-being of the nation. Firstly.

The government should work on necessary crime reduction efforts. The money that is spent on other sectors of the economy can be invested into the crime efforts of the government. Primarily, the information that is reported about crime should be more accessible to people around the nation. This communication between the people and government officials is something that will reduce crime and in turn reduce the high rate of migration that has been experienced lately. Crime reduction efforts will also improve the foreign investment that Jamaica is strongly in need of at the moment.

Because of the low standards of safety and inefficient police force, Jamaica is seen as a dangerous place to invest and potential investors will look for other places that do not have the 3rd highest crime rate in the world. Also, crime makes it more expensive to do business in Jamaica because the companies have to spend money on such things as security guards, cameras, and other security measures. Eventually the companies can decide that they do not want to spend this amount of money on crime and would rather move to another country where they can do business for cheaper and thus make more profits.

Even though Jamaica experienced an economic crisis in 1995 which resulted in a negative effect on the GDP, poverty has gone down quite a lot between the years 1995 – 1999 (27. 5%- 1995 to 17%- 1999). This drop may have been caused by several factors, Firstly, the output of the economy has grown faster than the yearly GDP. Also, after 1995 the informal sector has somewhat grown and this provided jobs for people who could not find/get a job in the formal sector. Job opportunities lead to an increase in the money supply. Lastly, inflation has gone down which has affected the poor sector of the population quite dramatically.

However, the fact that poverty has been reduced in these few years does not necessarily mean that poverty will keep going down in the future. In order to be sure that poverty will be decreased, the Jamaican economy will have to experience some sort of growth. This growth is a necessary component in the reduction of poverty. This growth can be achieved by some policies that can encourage private sector labor, access to social services, increase the confidence of the poor sector, and improve access to education. A more realistic approach would be to try to lower the prices on food.

This has been proven to work between 1995 and 1999, reducing Jamaica’s poverty. One way would be to change the subsidy laws for agriculture. Just like the rich world, Jamaica should be able to subsidize their products. He subsidies will not only decrease the price of food that is produced domestically, but also delete the ‘gap’ that the government is forced to pay for when relying so heavily on imported goods.

This shows a positive effect for Jamaica and would encourage Jamaicans to buy domestic goods rather than foreign goods. The fact that foreign goods are more expensive than domestic ones can also be solved by a similar way. If the government would implement a higher tariff on foreign goods then in turn they would increase the prices of those goods and perhaps some of the foreign companies would import less of their goods into Jamaica because it would have too much an opportunity cost. The decrease of this foreign competition can in turn increase the competitiveness of Jamaica’s economy.