The term adjustment refers to the belt tightening that a country with chronic balance-of-payments problems faces. For Jamaica, adjustment began in the early 1970s as a result of the 1973-74 OPEC oil shock. Nearly half of Jamaican output was exported, and half of Jamaican exports went to the United States (about 75 percent of exports went to the United States, Britain, and Canada). The ensuing recession in the United States, and in the OECD economies more generally, thus had a substantial impact on the Jamaican economy.
The policies of the first government of Michael Manley (1972-80) only made a bad situation worse. Between 1976 and 1980, Jamaica experienced a net capital outflow estimated at somewhere over four hundred million dollars, so the current account deficit could no longer be financed. Adjustment was inevitable. As a result, economic growth deteriorated. Between 1965 and 1980, the average annual increase in real GDP was a miserable 1.3 percent, a truly dismal performance. For most of the 1980s, unemployment was above 25 percent, which is awful. The distribution of income deteriorated as fewer people worked and those who did earned less. A variety of stabilization and adjustment plans cut private consumption and government spending in an effort to correct external imbalances and to release resources for export. Popular living standards fell, but the returns to increasingly scarce investment capital rose. To anyone who lived in Latin America during the 1980s, the story sounds depressingly familiar. Yet Jamaicans somehow managed to cope.
Middle-class Jamaicans made a number of changes in the way they lived, some obvious, some not. As spending in the public sector fell, government jobs became less remunerative, and therefore less desirable. Teachers and nurses were earning less, while artisans, blue-collar workers, and merchants made relatively more because of economic liberalization. Notions of middle-class status changed as income became more important than occupation as a determinant of status. People settled for less housing than they might have liked and deferred maintenance on what they owned. Some people exhausted their savings in an effort to keep up appearances. Others simply picked up and left the island. Small farmers turned increasingly to outside employment to supplement what they earned from the land. The social consequences of economic adjustment were marked but not disastrous, for they produced winners as well as losers.
Given how poor Jamaica is, these findings surprised this reader a bit. Why were the consequences of adjustment not much worse? I suspect that two factors cushioned the blow. The balance-of-payments figures imply that Jamaicans living abroad sent a lot of money home. And Jamaicans borrowed substantially, at least until 1983. In 1987-88, Jamaica spent nearly half its export earnings on servicing the foreign debt. That is a staggering figure. The Economist puts the debt-service ratio at 25.5 percent in 1988, which is considerably less. Are the economic statistics presented in this useful study reliable?
