Caribbean Islands - Jamaica Economy

Economy

Jamaica is a middle-income, oil-importing country that attempted diverse economic development strategies during the 1970s and 1980s. Jamaica had the second largest GDP of the Commonwealth Caribbean, behind only Trinidad and Tobago, an oil-exporter. The island's GDP for 1985 was US$1.7 billion, or US$940 per capita. The major sectors of the economy were bauxite (see Glossary) and alumina (see Glossary), tourism, manufacturing, and agriculture. Bauxite and alumina, in particular, set the pace of Jamaica's postwar economic growth through new investment and foreign exchange earnings. Bauxite production declined rapidly in Jamaica in the 1980s, however, because of the prolonged recession in the world aluminum industry, global oversupply, and the departure of multinational producers. Tourism declined in the 1970s, but recovered between 1980 and 1986, thus becoming the second most important sector of the economy. Manufacturing, a quite diversified sector, underwent structural changes in the 1980s when production was refocused on exports rather than on the domestic market. Agriculture, the heart of the Jamaican economy for centuries, has been in relative decline since World War II.

Jamaica enjoyed rapid growth rates during the 1950s and 1960s as the bauxite industry boomed. Real GDP growth averaged about 4.5 percent during these two decades. Economic growth was sporadic and weak from 1972 to 1986, however. Indeed, the Jamaican economy did not register two consecutive years of significant growth during that period. Between 1973 and 1980, the island experienced seven consecutive years of negative growth. The economic downturn in the 1970s demonstrated the highly mobile nature of both labor and capital in Jamaica, as skilled labor and investment capital left the island. The democratic socialist government of Michael Manley from 1972 to 1980 was popularly blamed for the poor performance during the 1970s (see Political Dynamics, this ch.). Nevertheless, Manley's successor and conservative political opponent, Edward Seaga, was also unable to turn the economy around during his first six years in office. The economy experienced sporadic and unsustained growth in the early 1980s. GDP declined by 4.5 percent in 1985 but rose again in 1986 by more than 2 percent. In the mid1980s , the Jamaican economy was about where it was in 1980 in terms of real GDP. Negative growth in the 1980s was generally attributed to the acute decline in the world bauxite market.

Most Jamaicans enjoyed a relatively high quality of life when compared with their neighbors. For example, in the early 1980s, Jamaica's physical-quality-of-life index computed by the Overseas Development Council was higher than that of Mexico and Venezuela and equal to that of Trinidad and Tobago. Nevertheless, Jamaica still suffered from severe social problems resulting from the skewed distribution of the country's wealth, often said to be the legacy of colonialism and slavery. For example, in 1960 the top 20 percent of society received 61 percent of the national income, and after independence income distribution continued to worsen. Land tenure was also highly inequitable. In 1961, the year before independence, 10 percent of the population owned 64 percent of the land; this pattern continued in the 1970s, despite the implementation of a land reform program. Less than 1 percent of the country's farms covered about 43 percent of the land in 1978. Jamaicans in urban areas had much more access to piped water, sanitary plumbing facilities, and high quality health care than their rural counterparts. These disparities in income and service were believed to have widened even more as a result of the austere economic policies of the 1980s.

Jamaica was hardly immune from the structural economic problems affecting other developing countries in the era. Beginning in the mid-1970s, inflation was generally double-digit, caused primarily by the increase in world oil prices, expansionary fiscal policies, and entrenched labor unions. Chronic unemployment and recession coexisted with high inflation during the 1970s, causing stagflation. Unemployment averaged roughly 25 percent during the 1975-85 period, affecting women and urban youth the hardest. The country also faced rapid urbanization as economic opportunities in rural areas deteriorated. In 1960, about 34 percent of the island's population was considered urban, but by 1982 that figure had risen to about 48 percent as opportunities in rural areas declined. Like other countries in the Western hemisphere, Jamaica quickly compiled a large external debt in the 1970s and 1980s; by the end of 1986, it amounted to US$3.5 billion, one of the highest per capita debts in the world.

In the 1980s, Jamaica's economy was generally defined as free enterprise, although major sectors were government controlled. The PNP governments in the 1970s were the most active in increasing state ownership. Although some private companies were purchased, the more usual pattern was to create joint public-private enterprises or to increase government regulation of the private sector, especially of foreign multinationals. In the 1970s the state ownership was largely financed by a levy on bauxite production, introduced in 1974, and by deficit spending.

In 1980 Seaga was elected on a platform of denationalization and deregulation of the economy. In his first six years in office, however, Seaga achieved mixed results. Denationalization did occur in tourism and agriculture, but the role of government actually increased in oil refining and bauxite production after several large firms unexpectedly left the island. As of early 1987, the structural adjustment (see Glossary) of the economy was nearly completed and increased government divestments were forecast.

Jamaica's economy was rather open. Trade as a ratio of GDP was estimated to be over 50 percent in the 1970s, a percentage believed to be increasing in the 1980s. As part of structural adjustment policies to further open up the economy, the Jamaican dollar was devalued several times in the early 1980s. Although imports fell as a result, the country's overall trade deficit actually increased as prices collapsed for its major primary product exports, bauxite and sugar. The country's trade deficit rose to over US$500 million during 1985. The island's direction of trade changed, with a greater share going to the United States and less to the Caribbean Community and Common Market (Caricom--see Appendix C), particularly to Jamaica's major trading partner in the community, Trinidad and Tobago.

Growth and Structure of the Economy
Patterns of Development
Role of Government
National Income and Public Finance
Labor Force and Industrial Relations
Industry
Tourism
Banking, Financial Services, and Currency
Agriculture

For more recent information about the economy, see Facts about Jamaica.

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