The Political Economy of Development Finance: Public Sector Expansion and Economic Development in Jamaica by Anders Danielson

Author:Anders Danielson [Danielson, Anders]
Language: eng
Format: epub
Tags: Political Science, General
ISBN: 9781000304497
Google: 6kyfDwAAQBAJ
Goodreads: 52397131
Publisher: Routledge
Published: 1993-01-01T00:00:00+00:00

Industrialization in Jamaica: The Record

While the development of a manufacturing sector has been a high-priority item in Jamaica at least since independence, it would be incorrect to conclude that the policies towards that end have always been successful. While the manufacturing sector certainly grew rapidly during the 1950s and most of the 1960s, the situation during the 1970s was, as we suggested in Chapter 3, bleaker. Between 1950 and 1968, the real rate of growth of the manufacturing sector averaged about 14 per cent per annum. Outstanding subsectors were cement and cement products, and textiles and garments (Jefferson, 1972).8 During the same period, the real rate of growth of the GDP averaged some 11 per cent per annum, so the share of manufacturing output in the GDP increased from less than 14 per cent in 1950 to approximately 16 per cent in 1968. The larger part of this increase is clearly attributable to the implementation of various incentives.

"This performance of the manufacturing sector [during the 1960s]", notes Mahmood Ali Ayub (1981, 32), "was largely the result of a process of import substitution fostered initially by the industrial incentives ... The growth rate of these industries, however, slowed down significantly after 1966, when opportunities for easy import substitution became less abundant." During the 1970s manufacturing production fell in absolute terms but less so than the GDP, so the share of manufacturing output in the GDP increased—from less than 16 per cent in 1970 to a peak of over 18 per cent in 1977 (NIP, 1981, 18-19). When the GDP in the early 1980s once again showed positive growth, the share of manufacturing fell as the bulk of the increase in the GDP was attributable to expansion of other sectors such as insurance and banking (NIP, 1984, 20-21).

One major hypothesis of the present study is that the stagnation discussed in the previous chapter is largely attributable to the behavior of the government. In particular, it was suggested in the introduction to this chapter that through various mechanisms, the government's search for revenue has led to a fall in the volume of investments. Once the PNP assumed power in 1972, public expenditures increased rapidly and significantly. This, in turn, lowered private sector profitability and consequently affected private sector investment negatively.

As we saw in Table 3.5, taxation during the 1970s became increasingly concentrated on manufacturing and mining. This affected profitability negatively. Consequently, the flow of foreign direct investment languished. If we use the share of profits in value added as a measure of profitability, Table 4.1 depicts the development of profitability and taxation in the manufacturing sector both annually between 1970 and 1984 and by regime.

Two things emerge rather clearly from the table. First, profitability in manufacturing fell during the 1970s. Apart from occasional upswings the share of profits declined from 36 per cent of value added in 1971 to a bottom value of 14.4 per cent in 1979. This development of profitability is closely associated to the party in power: as can be seen in the lower part of the table, profitability in the 1980s was restored to its pre-1972 level.

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