A week ago, Governor of the Bank of Jamaica (BoJ), Richard Byles, said that Private Sector companies should be mindful of the inflationary impact of wage settlements. His comments brought widespread public ire and rebuke.
In a piece entitled An open letter to Richard Byles – governor of the Bank of Jamaica and published on Tuesday August 22, 2023 (available at http://leadershipreimagination.com/uncategorized/an-open-letter-to-richard-byles-governor-of-the-bank-of-jamaica/), I questioned whether all Mr. Byles cares about is protecting the political class and macro-economic indicators and whether he places the comfort of the political class over improving the quality of life of the population. I pondered whether there is a balancing act which considers the stability of the macro-economic foundations and simultaneously the well-being of citizens.
A report carried by nationwideradiojm.com on Friday, August 25 noted that Chartered Accountant and financial commentator Dennis Chung is of the opinion that the Mr. Byles, ‘was out of line when commenting on potential salary increases in the private sector’ since such remarks could have ‘far reaching consequences’. According to Development Economist Chris Stokes, though the BoJ has a right to advise that high wage increases can worsen inflation, he is of the view that Byles went outside his ambit by making the remarks he did.
President of the Private Sector Organisation of Jamaica (PSOJ), Metry Seaga while acknowledging that Byles’ statement is factual, deemed it to be insensitive. President of the Jamaica Confederation of Trade Unions (JCTU), Helene Davis-Whyte, indicated that she understands the theoretical principle that led to Byles’ concern. Nonetheless, she asserted that the need for liveable wages and the ability to retain skilled and competent staff remain.
The common thread in reactions was that it was inappropriate or insensitive for the Governor to make such remarks.
In a statement seeking to clarify his comments, a few days later, and in an article published in the Gleaner on Sunday August 27, 2023, Byles said he was not directing companies on how to settle wages nor trying to influence them, but he repeated that high wage settlements would have inflationary impact.
Unsurprisingly, in the Gleaner of Tuesday, August 29th, the headline read WAGE DAMPER and the opening sentences revealed that more than 40,000 private sector employees represented by three of the country’s bargaining unions could be adversely affected by the BoJ’s recent pronouncement cautioning businesses to refrain from offering significant wage increases to workers given the country’s current challenges with rising inflation.
In effect, the governor’s words have had the precise impact he said his words were not intended to have and the precise impact that critics said it would have. The question we must ask is: Was the governor unaware that his words would have had this impact? My answer is: The governor is no fool, and he knew, or ought to have known, that his words would have had this precise impact. Expressed more bluntly, it is my considered assessment that a man in a position of governor of a country’s central bank could not have NOT known of the weight and impact of his utterances on matters related to the control of inflation. If he did not know his words would have this effect, then he would be a simpleton. I do not hold the view that the governor is a simpleton.
Journalists and political analysts in America often refer to the power of the words of a president, with a commonly used statement that “A president’s words have the power to move markets, start wars, broker peace, tank markets….” A similar assertion can be made of the words of a governor of a central bank. A governor’s words have the power to raise interest rates, cause run on banks, trigger devaluations, spike prices, and dampen workers’ wage settlements.
Keeping inflation low is a task for which the governor is paid and so it is quite understandable that he would have an interest in this matter. But many things drive inflation, not just the wages of workers, so for the governor to have focused on this single variable, and in such a highly skewed manner is deeply troubling and raises questions about the governor’s commitment to the well-being of all Jamaicans, not just the business and political classes.
The Governor’s convoluted arguments
The more I think and talk about the governor’s comments is the more their deep fallacies become evident. Let me illustrate. Think of a company which employs 300 workers. That company is doing well or claims to be doing well. That company decides to give increases to all its workers ranging from 200 to 300%. Given what the governor has said, would he not be worried that other companies may follow suit and do the same or similar?
But what is the governor’s position? The company (the political class) which employs about 300 people (Members of Parliament and Senators – from whom Cabinet Ministers are drawn, and Councillors) gave itself an increase in the order of 200 to 300%, but the governor said their increase will not have an impact on inflation. But almost right after that, the said governor is telling small, medium-sized, and large corporations not to give large increases. As I said in my earlier piece, the governor’s position is unethical at several levels.
Factors which drive inflation
Perhaps the major problem with Governor Byles’ recent utterances and his confused backtracking and simultaneous doubling-down, is that it suggests that the major driver of inflation about which we should be concerned is workers’ wages. Classical economic theory suggests that the five major causes of inflation are increase in wages, increase in the price of raw materials (which would include additional factors such as supply chain delays, weather conditions etc), increase in taxes, decline in productivity, and increase in money supply.
There is, however, a sixth factor which neoliberal economic theory will not list and that is the greed for more and more profits by the merchant class. Two weeks ago, I bought Tropical Rhythms pineapple ginger drink at one supermarket for $362.00 per bottle. A few days later I was in another supermarket and saw the same product for $297.00, a difference of $65.00 or 21%. Similar stories could be told of many products.
Over the last year, September to date, Jamaica has had inflation running above the government’s targeted upper limit of 6%. In at least two months, August and November, the rate was above 10%, while October 2022 and January 2023, the rate was just under 10%. At the same time, food inflation has also been running well above the targeted 6%, maximum in the range 4 – 6%. Food inflation in November 2022 was over 14% over November of 2021. In January 2023 it was almost 13% over January 2022, and July 2023 it was over 11% over July 2022.
These high levels of inflation have decimated the purchasing power of the worker and as such the suggestion that wages should not be raised to levels to enable the worker to experience a better quality of life, are unconscionable. This unconscionable position is flanked by the illogic of the government’s position.
But what is worse is that the country is experiencing these levels of inflation when workers wages are depressed; thus, the driver of inflation cannot now be said to be wages. Given this fact, the attention of the governor ought to be turned to those non-wage factors, one of which is the rate of return that the mercantile class insists on getting at the expense of the working and struggling middle classes. They need an advocate.
Canute Thompson (PhD) is Professor of Educational Policy, Planning, and Leadership at the University of the West Indies (UWI) and Project Director of the UWI’s Governance Recommendation Implementation Committee. He is author of eight books, eighteen journal articles, and over 200 newspaper columns.
His most recent academic achievements include:
2023: Principal’s Award: Research Activity generating the most funds made to the Caribbean Centre for Educational Planning.
2022: Bronze place winner in the 2022 Independent Publisher Book Awards for the book, Education and Development: Policy Imperatives for Jamaica and the Caribbean.
2021: Finalist in The Vice-Chancellor’s Award for Excellence for all-round excellent performance.