The Caribbean in the Global Political Economy 9781685852191

Citation preview

The Caribbean in the Global Political Economy

The Caribbean in the Global Political Economy edited by

Hilbourne A. Watson

Lynne Rienner Publishers • Boulder & London Ian Randle Publishers • Kingston

Published in the United States of America in 1994 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU Published in Jamaica in 1994 by Ian Randle Publishers Ltd. 206 Old Hope Road Kingston 6 © 1994 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data The Caribbean in the global political economy / edited by Hilbourne A. Watson Includes bibliographical references and index. ISBN 1-55587-407-X (alk. paper) ISBN 1-55587-408-8 (pbk.: alk. paper) 1. Caribbean Area—Economic conditions—1945- 2. Caribbean A r e a Economic integration. 3. Caribbean Area—Commerce. I. Watson, Hilbourne A., 1943- . HC151.C314 1994 337.729—dc20 93-33333 CIP National Library of Jamaica Cataloguing in Publication Data A CIP catalogue record for this book is available from the National Library of Jamaica. ISBN: 976-8100-24 British Cataloguing-in-Publication Data A Cataloguing-in-Publication record for this book is available from the British Library.

Printed and bound in the United States of America

@

The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984.

This book is dedicated to all those in the Caribbean and around the world who recognize that the development of a worldwide consciousness for building a global civilization is integral to the historical struggles to liberate civil society from the culture of negative freedom that has tied it to the "realm of necessity"

Contents

Acknowledgments PART 1 1 2

Introduction: The Caribbean and the Techno-Paradigm Shift in Global Capitalism Hilbourne A. Watson Caribbean Economic Performance in the 1990s: Implications for Future Policy TrevorHarker

PART 2 3 4

6

ECONOMIC THEORY AND CARIBBEAN REALITY

Appropriate Economic Theory for the Caribbean Winston H. Griffith Techno-Industrial Policy in the Restructuring of the Caribbean: The Missing Link in Caribbean Economic Thought Dennis Pantin

PART 3 5

OVERVIEW

CRISIS AND RESTRUCTURING AT T H E NATIONAL LEVEL

Global Restructuring and the Prospects for Caribbean Competitiveness: With a Case Study from Jamaica Hilbourne A. Watson Free Trade and Underdevelopment in Haiti: The World Bank/USAID Agenda for Social Change in the Post-Duvalier Era Alex Dupuy vii

viii 1 8

Contents

The Cuban Economy in the 1990s: Problems and Prospects Miguel Alejandro Figueros and Sergio Plasencia Vidal The United States-Canada Free Trade Agreement, Semiconductors, and a Case Study from Barbados Hilbourne A. Watson

PART 4 9 10 11 12

13

127

GLOBALIZATION, RESTRUCTURING, AND R E G I O N A L ISSUES

Historical and Contemporary Restructuring and Women in Production in the Caribbean Cecilia Green Restructuring and Privatization in the Caribbean Linden Lewis Caribbean Trade Unionism and Global Restructuring Linden Lewis and Lawrence Nurse Puerto Rico and the Caribbean Basin Initiative: Uneasy Interdependence Richard Ruth, Sarah Grusky, and Jose Rodriguez

PART 5

109

149 173 191 207

CONCLUSION

Beyond Nationalism: Caribbean Options Under Global Capitalism Hilbourne A. Watson

225

Bibliography The Contributors Index About the Book

233 247 249 261

Acknowledgments

A number of the chapters in this volume grew out of papers that were presented at meetings of professional organizations, including the Caribbean Studies Association, the National Economic Association, and the Association of Caribbean Economists. I want to thank all of the authors for their support and willingness to contribute. The journal Social and Economic Studies graciously granted permission to publish Chapter 8, a previous version of which appeared there. Sheilah King-Watson provided excellent technical assistance. The index was ably prepared by Milena Hillman and Jackie Queen. Lynne Rienner deserves thanks for the confidence she showed in the project from the beginning, and the work of the staff at Lynne Rienner Publishers is greatly appreciated. —Hilbourne A. Watson

ix

Part 1 OVERVIEW

1

Introduction: The Caribbean and the Techno-Paradigm Shift in Global Capitalism Hilbourne A. Watson The essays in this book cover aspects of the political economy of the Caribbean in a changing global context. The core concerns revolve around theory and public policy; regionalization and international development strategies like the Caribbean Basin Initiative (CBI) and the CaribbeanCanadian Trade Agreement (CARIBCAN); technological change, industrial restructuring, and competitiveness; the state, privatization, and trade unions; and the ways restructuring affects women's roles in the production and reproduction processes. The book covers the Commonwealth Caribbean—the former British West Indies—Cuba, Haiti, and Puerto Rico. The chapters are connected by a theory of global capitalism that reexamines the historical tendency of capitalist accumulation under conditions of radical scientific and technological change (Mandel 1978:195198). By situating the Caribbean in the context of the global political economy, it is possible to account for the forces that define its global role. The new model of global capitalist accumulation evolves along with a great deal of restructuring—of science and technology, of the industrial base of the world economy, and of the international division of labor—and with a deepening of the socialization of production and material and intellectual culture. Driving the restructuring process is a techno-paradigm shift (Kodama 1991) that is marked by concrete transitions—in manufacturing (from emphasis on production to thinking)-, in business dynamics (from single technologies to technological diversification); in research and development ( R & D ) activities (from visible competitors to invisible enemies); in technology development (from linear progression to demand articulation); in innovation patterns (from technical breakthrough to technology fusion); and in technical diffusion (from technical change to institutional inertia) (Kodama 1991:4-14). The techno-paradigm shift obeys the laws of capitalist development. It is expressed in the third technologial revolution (Mandel 1978:184-222) and in transnational alliances in commodities 3

4

Overview

and applications such as semiconductors, fiber optics, computers, pharmaceuticals, automobiles, finance capital, and advanced materials like ceramics. These alliances mirror the concentration and centralization of capital, the development of the productive forces, and competition for shrinking markets. The new technological paradigms—microelectronics, new biotechnologies, and new materials technologies—are evident in the revolution in communications, telecommunications, industrial manufacturing, engineering (including genetic engineering), materials sciences, transportation, and time management. These technologies not only shrink production time, they also give birth to flexible production systems like Just-in-Time (JIT) production, marketing, and delivery and are forcing companies to reinvent themselves to remain relevant and competitive. The techno-paradigm shift demands a rethinking of long-wave cycles theory, due to the unprecedented reduction in the turnover time of capital, the rate of destruction of physical capital and labor power (skills), the scale and scope of the reorganization of firms, and the frequency of economic crises. The techno-paradigm shift leads to wrenching structural change in the technology foundation. It necessitates reforms in outdated science and technology policy in the private and public sectors, and in international business and international relations. The techno-paradigm shift and the globalization of high-technology production are integrally linked. The globalization process alters the structural configurations within the global economy by creating new contradictions in the motion of the productive forces: it disarticulates the international division of labor, propels new areas toward the center of the global economy, and tends to marginalize areas like the Caribbean. In order to understand the place and role of the Caribbean in the global political economy, it is necessary to grasp how this process affects national economic space, social classes, production, and the nation-state and its capacity for autonomous action in the new global environment. The restructuring of investment, industry, technology, production, and labor, and the declining significance of geography in global economic and financial transactions make it very difficult for the nation-state system to manage the global economy. The new technologies make traditional techniques of production archaic and they are transforming the global economy into one of interconnected production sites and platforms. The laws of capitalist development make this, worldwide, a very uneven process. Only a handful of less developed countries (LDCs) possess the capital goods foundation to readily exploit the new technological paradigms. Caribbean economies lack requirements such as a capital goods sector, the ability to absorb and exploit large amounts of productive capital, a modern industrial bourgeoisie with a record in technological

Introduction

5

innovation and links at critical junctures in the global economy, a critical mass of highly trained professional and technical labor, and other requirements to readily exploit the cutting-edge technologies that enhance productivity and competitiveness, and raise the standard of living. Caribbean countries are facing chronic problems such as shortages of productive capital, export of capital to service the external debt combined with trade and balance of payments deficits, high structural unemployment, and declining standards of living for large sections of the populations. Several governments have signed structural adjustment understandings with the International Monetary Fund (IMF) with the hope of solving many of these problems. This is illusory. Many foreign investors complain that wages are now too high in the Caribbean to continue to attract the low-tech industries that have tended to gravitate to the region. It is now clear that the traditional comparative advantage based on low wages and large reserves of raw materials, like bauxite, do not offer security in the new environment. Guaranteed markets for agricultural exports are weakening or disappearing as a result of global trade reforms and the new regionalization, both of which are influenced by the new technologies. The new technologies are giving (industry-specific) competitive advantage to companies, outdating (location-specific) comparative advantage. This works against the Caribbean. Merchant capital in the region is still largely tied to circulation (use values) rather than productive activity (exchange values). Chapter Summary The chapters are arranged under four headings, with a fifth—in conclusion—summarizing the region's options. Part 1 provides an overview: it opens with this introduction (by the book's editor) that defines the global context in which to analyze Caribbean political economy. Also in Part 1, Harker (Chapter 2) analyzes regional economic performance in the 1990s and implications for future policy. Harker emphasizes the global economic framework in which the Commonwealth Caribbean functions, regional social and economic developments, the limitations of regional economic integration under the Caribbean Community and Common Market (CARICOM), impacts on the lives of the populations, and the need for future policies that are mindful of the changing global context. The chapter also includes a useful listing of regional organizations, with descriptions of their functioning. Part 2 deals with issues of theory, technology policy, and the new global reality. Griffith (Chapter 3) points to the limitations of the economic theories that are informed by the Lewis Model (Lewis 1950,1954) to account for economic development in the Commonwealth Caribbean.

6

Overview

He argues that in the new global economic and technological environment, economic liberalization has become the dominant ideology informing economic policy and practice, and stresses that global economic and political changes are likely to weaken the attractiveness of the region as an investment site and a destination for Western aid. He also notes that Caribbean exports are likely to find it more difficult to gain access to Western markets. Griffith concludes that the region must revise both economic theory and policy to meet the challenges and imperatives of the new environment. Pantin (Chapter 4) stresses the theoretical and policy limitations of neoclassical economic theory in the region. To illustrate his point he examines the role of science and technology in economic development and identifies the paucity of technology and science in Caribbean economic theory and policy. Pantin analyzes the main factors and elements appropriate for a relevant techno-industrial policy for the Commonwealth Caribbean under global restructuring. Like Griffith's argument, Pantin's is prescriptive of both theory and policy. Part 3 addresses issues of crisis and restructuring at the national levels. Chapter 5 is another of my contributions. I examine the nature of the global economy that the Caribbean will face into the next century and the problems it must address in laying the foundation for restructuring for export competitiveness. I argue that Caribbean economies dominated by merchant capital lack the necessary dense frameworks of capital, technology, and skilled labor to achieve competitiveness based on the new technologies. The argument is buttressed by a case study of the garment assembly industry in Jamaica. In this chapter I have stressed that, although competitive advantages are available to LDCs that restructure their industries via the new technologies, Caribbean businesses are not equipped to exploit this potential. My conclusion is that cheap labor schemes will not bring Jamaica or the region competitive advantage in the global economy. In Chapter 6, Dupuy analyzes Haiti's development experience in the post-Duvalier period under the strategies of the World Bank and the U.S. Agency for International Development (USAID) in conjunction with the state and sections of the Haitian bourgeoisie. He analyzes the obstacles to economic development inherent in this export-oriented model and shows how the model fails to respond to the needs of the masses of Haitian agricultural and industrial workers. Dupuy proposes an alternative model—a basic needs or equity-with-growth model—to reflect the interests of the exploited masses of peasants and urban workers. In Chapter 7, Figueros and Plasencia Vidal examine the prospects and uncertainties confronting the Cuban economy in the 1990s. They discuss the goals of the economy and the main macroeconomic and social indicators against the backdrop of the U.S-imposed economic blockade, the deterioration of

Introduction

7

Cuba's terms of trade, and the collapse of so-called socialism in Eastern Europe and the USSR. The authors also discuss the strategy of industrialsectoral integration of the economic base into a complex whole to widen the production base, to raise efficiency, and to enhance competitiveness. The chapter concludes with an analysis of Cuba's role in regional cooperation, and prospects for regional economic integration in a highly unstable global economic and political environment. Another of my own contributions (Chapter 8) discusses the United States-Canada Free Trade Agreement (FTA), which I see as one of the most advanced forms of globalization and restructuring. In this chapter I challenge the view that world market blocs signify a trend to regional economic fortresses. My argument is that regionallzation signifies interregional capitalist integration and a worldwide decline in the significance of national economic borders. The chapter examines the implications of the FTA, relative to trade creation and trade diversion, for the Caribbean. Chapter 8 also includes a case study of the electronics assembly industry in Barbados. The evidence suggests that the FTA is unlikely to bring to the region any major benefits in electronics production, given the trends away from labor-intensive assembly techniques, toward automation, and the peculiarities of Canada's semiconductor industry. I argue that the i m p l e m e n t a t i o n of the North American Free Trade A g r e e m e n t (NAFTA), combined with rapid technological change, could intensify the erosion of any advantages the region now has in low-wage assembly production. Part 4 deals with regional issues of globalization and restructuring, with chapters on the economic and social roles of women, on privatization, on trade unionism, and on the CBI. In Chapter 9, Green traces historical and contemporary forms of industrial restructuring to show how public policy has been used to define and shape women's economic roles according to the needs of domestic and international capital. Green examines export-oriented production, the employment policies of governments, and education and training programs to benefit women, all within a framework in which men continue to control society's resources and women's lives. Her main argument develops around the experiences of working-class and peasant women in the context of gender relations in the eastern Caribbean. The chapter also provides insights into aspects of colonial and postcolonial capitalist patriarchy in the region. In Chapter 10, Linden Lewis discusses privatization as an aspect of global restructuring in the Commonwealth Caribbean. He situates the state in this process and argues that its role tends to mirror the balance of class interests in the relations of production. The author examines the rationale for privatization, the limitations of the argument, and the underlying ideological and political implications. Lewis points the way beyond the largely economistic and managerialist approaches to privatization. He

8

Overview

broadens the discussion of the concept of ownership commonly found in privatization discourse, suggesting ways for restructuring the public sector to improve economic performance without the dislocation that tends to accompany privatization programs. In Chapter 11, Lewis and co-author Lawrence Nurse analyze Caribbean labor and trade unionism under global restructuring. They discuss the main ways restructuring has increased capital's capacity to alter the labor process in its favor. The authors explore the nature of the adjustments made by the unions to remain viable. They stress that trade unions must broaden their horizons beyond their traditional economistic role as workers' representatives and help to formulate new regional strategies to deal with the challenges of global restructuring. Chapter 11 also looks at how restructuring is affecting relationships among the state, capital, and labor, its impacts on the workplace, and the new contradictions and trajectories emerging in the class struggle. In Chapter 12, Ruth, Grusky, and Rodriguez provide an overview of the mutual impacts of the CBI on Puerto Rico and Puerto Rico on the CBI. They include in their survey the political macrocontext, the legislative and paralegislative history, and the executive, bureaucratic and regulatory events that have informed these impacts. They argue that significant, identifiable sectoral shifts in the Puerto Rican economy have arisen out of the CBI, and that these shifts increasingly cast Puerto Rico in a unique role. This role they see as a regional intermediary force, articulated with U.S. strategic, political, and economic imperatives. The authors also analyze ways in which the CBI has generated a degree of growth in Puerto Rico's manufacturing sectors—both service and capital intensive—and look at the implications for the Caribbean of Puerto Rico's emerging role as a regional entrepôt—a center tightly articulated with U.S. and European production and circulation circuits. There are implications for Puerto Rico in NAFTA: the authors also stress the interest being shown by a majority of Puerto Ricans in statehood within the United States. The book concludes with my summation, looking beyond nationalism to unavoidable issues and options the Caribbean must deal with. I have argued that the Caribbean must start acting like a region, not because regionalization offers guarantees but because without it there may be little left to hold on to. I urge the region to redefine its relationship with the world by deepening its integration into the global economy. This final chapter stresses the importance of the development of education to exploit new technologies: in this way, the masses of people may in the next century develop the productive powers of their labor, raising productivity, advancing material culture, and raising the standard of living.

2

Caribbean Economic Performance in the 1990s: Implications for Future Policy Trevor Harker

It should come as no surprise that the idea of Caribbean integration is now receiving greater attention. With the ending of the Cold War, the competing tendencies of globalism on the one hand and the formation of regional blocs on the other have come to the fore. Regionalism, the mainstream of Caribbean thinking for almost four decades, is central to the dilemma faced by CARICOM countries as they confront the future. The issues of integration and national independence in the English-speaking countries have been closely intertwined and have developed into a complex relationship, combining complementary and conflictive elements. Yet the inexorable forces of globalism now challenge both the national and regional paradigms, further complicating the choices open to policymakers as they rethink their futures. The Caribbean region is in a phase of introspection and indecision. Its self-confidence has been shaken by a decade of painful adjustment that has weakened its capacity to compete globally in all its traditional export activities. Economic growth has not been sufficient to absorb the expanding labor force and prospects for the growing young population are dim unless new ways can be found to revitalize the development process. The search for an option to the national development model has prompted a renewed look at regional integration. Those within CARICOM seek a deepening of the relationship; those outside seek a closer relationship with it. Haiti and the Dominican Republic, traditionally isolated, and Cuba, after the demise of the Council for Mutual Economic Assistance (CMEA), are all exploring options for closer economic ties within the Caribbean. Even Puerto Rico, whose economy is integrated with the United States, sees potential benefit from closer regional production and financial structures. Yet regional integration as currently conceived may prove to be too little, too late. Regional policies implemented over the past three decades may prove to have contributed to the causes of the development problem rather than to finding its solution. As standards of 9

10

Overview

living fell, bolder initiatives might be needed to equip the region to penetrate larger global markets. An understanding of the renewed effort required can be provided by a review of recent economic performance, particularly the trade performance of the larger Caribbean countries. All major export-earning merchandise activities are in decline. Sugar is being phased out. Bananas have staged a comeback in output but still depend on the preferential market in the United Kingdom—and since this market might not be guaranteed for long after 1992, the industry will need to develop the means to stand on its own internationally. Minerals are of declining global importance, have unstable earning capabilities, and, even for those countries that retain viable minerals sectors, cannot provide the engine of growth. There is no future in dependence upon primary commodities. In the area of manufactures, performance has been poor and oriented to national and regional markets. Manufacturers have been unable to penetrate thirdcountry markets: they have declined with regional performance rather than helping to sustain it. Only tourism has shown steady growth throughout the region over the last five years. This summary outlines the cause of Caribbean difficulties in the past decade (see Figures 2.1 and 2.2). The summary explains also why the fortunes of the Caribbean people have not been as good as those in some other regions. Well-being in the Caribbean has varied even more significantly than would appear from the simple changes in gross domestic product (GDP), for while an analysis of the economic indicators provides a useful picture of economic trends, it is incomplete. It says little about the distribution of the costs and benefits of such economic performance. To the varying fortunes of the economies need to be added differing rates of population increase from country to country; also varying impacts of economic contraction, especially of the reduction of government services on varying groups within each country. While the changing fortunes of Caribbean economies are clearly illustrated by a survey of the economic data, it is more difficult to illustrate precisely how the poorest have been affected by these changes. It is possible to conclude that people in Cuba, the Dominican Republic, Guyana, Haiti, Jamaica, Suriname, and Trinidad and Tobago have become poorer in the past decade. The decline in personal wealth is made more onerous by the reduction in government services in all of these countries, given the high levels of public expenditures that prevailed and the need in some of them to earmark large portions of public resources for the repayment of the debt. The decline in economic activity has affected the lives of people in these countries. Jobs have been lost, and even for the employed standards of living have fallen. The most readily available symptom of such decline has been the steady depreciation of the currency, which in small, open economies has a much greater impact on all sectors than in larger countries with a large reservoir of domestic

Caribbean

Economic

Performance

in the

1990s

Figure 2.1 Index of Export Earnings Indax 1980 - 100

900 400 300

200 100

iÛ 1980

1981

1982

5 3 3 Baux/AI

1983

1984

Sugar

1986

1986

YZA Tourism

1987

1988

1989

EZZ3 Banana*

Source: Economic Commission for Latin America and the Caribbean, based on national data

Figure 2.2 Merchandise and Tourist Earnings t '000 nlllioa 8Ï

1080

1981

1982

1983

1984

1986

1986

1987

1988

1989

^ Exporta 853 Tourlam Sources: Economic Commission for Latin America and the Caribbean; Caribbean Tourism Organization Note: Figures exclude Cuba and Puerto Rico

12

Overview

production. In Jamaica, for example, local food production meets only an estimated 10 percent of domestic food needs. The high and sustained levels of unemployment for the larger countries is a major source of concern (see Table 2.1). Not only does unemployment create immeasurable human suffering, it also limits the levels of potential output and, in the face of a rapidly growing young population, threatens the viability of Caribbean society. For most countries, the backlog in housing is another manifestation of weakened economic performance. Urban slums and often illegal squatter settlements have grown. While high levels of unemployment have been endemic, the growth of the informal sector is a manifestation of the effort of the unemployed to devise and implement survival strategies. Yet the concentration on low-productivity activities, such as itinerant petty peddling and the provision of simple services, attests to the low levels of skills possessed by the hard-core unemployed. Against this backdrop of poor economic performance and its social consequences, there is a pervasive uncertainty about the measures that will be needed to resuscitate economic growth in the 1990s. This uncertainty is increased by a number of global developments having far-reaching implications for the traditional ways of operating, thus further complicating the choice of development options. In the face of this uncertainty, regional integration, which has been at the core of the development model espoused by Caribbean intellectuals for about three decades, has resurfaced as the prescription for the development dilemma. It is useful to review the rationale for integration in the Caribbean context and try to answer the question, "What is integration supposed to achieve?" The answer to that question is complex and consists of qualitative as well as quantitative elements. Qualitatively, it includes elements of culture and ethnicity, common legal and constitutional modes, and the strengthening of affinities and kinship that have grown across the region over time,

Table 2.1 Unemployment Rales (%) Country

1986

1987

1988

Barbados Belize Curaçao Jamaica Trinidad and Tobago Puerto Rico

19.0 15.1

18.9 15.0

17.3

15.7

14.7

—

—

—

—

—

23.7 17.2 20.5

21.0 22.3 17.7

24.4 18.9 21.9 15.9

21.1 18.0 22.0 14.4

19.8 15.3 20.1 14.3

Source: ECLAC, derived from national data.

1989

1990

Caribbean

Economic

Performance

in the 1990s

13

due to physical proximity, and that have created a shared view of the world. All these elements provide psychological comfort—but they also reinforce some of the traditional ways of behavior and might inhibit those social changes needed for transformation. At a more material level, integration is viewed as a mechanism for accelerating the rate of growth. A complex of issues is involved in this argument. Firstly, is the issue of a larger market. The present market, while recognized by some as still being too small by any objective measurement, is believed by most to provide a viable basis for infant industries to grow beyond the national level. For some, the rationale is ultimately to penetrate the global market; for others, the regional market—perhaps expanded to include the non-English-speaking Caribbean countries—will suffice. A second perceived element is to achieve intrastate and intrasectoral linkages to make a more rational use of factor endowments. In its simplest form, this might include idle labor moving to idle land in Guyana or Belize. More subtly, it might include a more rational distribution of skills across the region, a more diversified financial portfolio, and so on. Thirdly, benefits are expected from institutional rationalization, as a consequence of economies of scale: i.e., joint institutions. These have a further presumed virtue of being more stable and less subject to whim, simply because they are jointly controlled. Finally, there is the coordination of foreign policy, essentially with the objective of achieving some of the benefits of the economies of scale, translated into greater bargaining power, in the international sphere. This analysis of the rationale for integration will seek to answer a number of further questions. Firstly, what set of Caribbean countries is being discussed and what are the possible means for incorporating marginal actors into the group? Secondly, since integration has been fairly consistently advocated by the broad mass of the intellectual community for thirty years, how far towards this goal has the region progressed? Thirdly, what is the nature of the integration now being proposed? And finally, how does integration of the Caribbean countries fit with a world of emerging globalism and global blocs?

A Range of Interpretations There is a fairly broad consensus among the English-speaking (CARICOM) countries in favor of "Caribbean Integration" and demonstrated interest by the other countries for some form of association with it. Yet concealed within this seeming consensus is a broad range of interpretations about the intensity of cooperation and coordination and the trade regime that is desirable. Economic theory identifies several stages on the continuum to full economic integration and I will restate them very simply.

14

Overview

They are: 1. The Free Trade Area, where members retain their own tariffs against outsiders while removing them within the area 2. The Customs Union, where in addition to free trade within the group, common tariff nomenclatures are agreed and common external tariffs are applied 3. The Common Market, where, in addition to the two previous stages, restrictions are removed on the movement of all factors of production within the grouping 4. Economic Union, which goes beyond the provisions outlined above to include the harmonization of broad national economic policies; and finally 5. Economic Integration, which goes beyond economic union to include the coordination of macroeconomic policies such as monetary and fiscal policies. For the purposes of this discussion, the Caribbean referred to is that envisaged by Dr. Eric Williams at the sixteenth session of the Economic Commission for Latin America and the Caribbean (ECLAC) in May 1975 when he referred to a region "to embrace all Caribbean entities from Belize to Cayenne, irrespective of political status." Nevertheless, when developments in the area of integration are discussed, the focus will rest on the CARICOM countries. They form the nucleus around which either deepening or widening of the movement will need to take place. Some basic background information on the constituency being discussed is set out in Table 2.2. Setting aside the evident disparities in size and economic power, with the attendant fears of dominance on the part of the smaller actors, other difficulties such as linguistic barriers tend to reduce the pace at which interaction is able to proceed. The Caribbean is endowed with a range of institutions at the regional and subregional levels through which the process of familiarization and interaction can take place, some of the most salient of which are discussed below.

The Institutional Setting Cooperation and coordination in the Caribbean should be seen as a long-term process, unfolding for several decades mainly among the English-speaking countries. It includes a number of specialized institutions acting jointly and operating at different levels of specificity. These institutions operate with varying constellations of countries and at varying levels of concreteness, depending on the degree of cohesion existing

Caribbean

Economic

Performance

in the 1990s

15

Table 2.2 Selected Indicators—Caribbean Countries Population A v e . G r o w t h 1989 Population %

GDP/cap2 GDP/cap2 1974 1989

Country

Size Km2

CDCC3

632,833

33,604

Aruba British Virgin Islands Cuba4 Dominican Republic Haiti N e t h e r l a n d s Antilles Suriname Puerto Rico

193 150 110,860 49,000 28,000 800 163,265 8,800

62 12 10,495 7,002 6370 190 436 3,309

1.0 0.2

of which: CARICOM Bahamas Barbados Belize Guyana Jamaica Trinidad & T o b a g o

272,000 13,942 431 22,960 214,790 11,424 5,128

5,727 248 255 185 800 2,396 1,261

—

—

1.8 0.2 2.8 -0.1 1.0 1.4

4.3 2.7 3.0 -1.4 0.9 -3.0

of which: OECS Antigua & Barbuda Dominica Grenada St. Kitts and Nevis St. Lucia St. Vincent Montserrat

2,910 440 750 345 269 616 388 102

583 82 82 106 41 157 114 12

—

—

—

0.8 0.9 2.4 0.5 2.0 1.3 0.5

7.8 4.8 4.6 5.2 4.7 6.2 5.2

689 378 346 634 448 310 886

GDP1

—

—

1.4 1.1 2.5 2.2

7.0 2.8 2.2 0.2

—

—

-3.4 5.0

—

—

2,112 639 125 —

1,100 2,465

—

3,362 1,296 614 538 1,038 1,778

2,151 10,463 10,685" 2,582* 790 360 9,229 3,020 6,060

9,299 11,370 6370 1,720 340 1,260 3,230

2,132 3,810 1,690 1,900 286 1,810 1,360 4,516

Source: E C L A C ; I B R D . ' A v e r a g e g r o w t h rate of real G D P for period 1983-1988; Figure for Suriname relates t o p e r i o d 1983-1987. 2 I n c u r r e n t U.S.$; (»indicates d a t a for 1988). 3 C D C C ( C a r i b b e a n D e v e l o p m e n t and C o o p e r a t i o n C o m m i t t e e ) includes associate m e m b e r s . A v e r a g e G D P p e r capita figure for C D C C , C A R I C O M , and O E C S are weighted by p o p u l a t i o n size. 4 R e l a t e s t o G l o b a l social p r o d u c t c o n v e r t e d at official e x c h a n g e rates for 1974 and 1989.

within each constellation. Cutting across the geography of each institution, one must also factor in the functional scope of each as defined by its mandates. The more clearly circumscribed its mandate, the more likely that it will be empowered to act with concreteness, as in the case of the Caribbean Development Bank (CDB) or the Caribbean Tourism Organization (CTO). Yet the more diverse its mandate the more appropriate the institution for policy involvement. Thus, where a high degree of similarity and cohesion is

16

Overview

perceived to exist within a group, say, within the OECS, the institution acting on behalf of that group will be empowered to act with a high degree of concreteness and specificity (see ECLAC1989). Organization of Eastern Caribbean States (OECS) This is regarded as the tightest of the cooperation/integration institutions. O E C S comprises seven small islands, having a joint population of approximately 583,000 people, with an average GDP/capita in 1988 of about U.S.$2,132 and land area of less than 3,000 sq. km. The O E C S treaty, which was established in June 1981, covers foreign affairs, defense and security, and economic affairs very broadly defined. It has an administrative and institutional structure that comprises as the supreme body the authority of the heads of government, a foreign affairs committee, an economic affairs committee, and a central secretariat. The major objectives and activities are the promotion of economic integration, the issuance and management of a common currency through the East Caribbean Central Bank, the coordination of judicial activities through a joint supreme court, coordination of civil aviation activities, and the establishment of joint overseas missions. Discussions are currently underway to create a unified state. The Caribbean Development Bank (CDB) The bank, established in 1969, has seventeen borrowing members, comprising all C A R I C O M countries plus Anguilla, the British Virgin Islands, the Cayman Islands, and the Turks and Caicos Islands; and three non-borrowing regional members—Colombia, Mexico, and Venezuela. The bank has had a significant impact on regional financial cooperation, not only through the disbursement of its own funds but also as a coordinator of external funding emanating from the Caribbean G r o u p for Cooperation in Economic Development ( C G C E D ) to CDB members. It has also performed a valuable role in the training of regional specialists in subject areas such as project preparation, public finance, and economic management. While its geographic spread is wider than C A R I C O M , its mandate is fairly circumscribed and specific, which allows its activities to be concrete and an evaluation of its performance and impact to be straightforward. The Caribbean Development and Co-operation Committee (CDCC) This forum comprises twenty-one members and associate members and has a population of almost thirty-four million, an average per capita product of U.S.$2,151, and an accumulated land area of almost 633,000 sq.

Caribbean

Economic

Performance

in the 1990s

17

km. Its creation in November 1975 marked an important step in the evolution of Caribbean institutions. Not only did it initiate the process of dialogue and interaction between the countries of the wider Caribbean: at the same time it provided an opportunity for them jointly to advance their relations with Latin America and, at the operational level, with the United Nations system. The CDCC is not a part of an integration movement, although its activities by their very nature will facilitate it. It provides a forum for all the disparate actors to meet and exchange ideas and to agree upon areas for cooperation. While these initiatives had originally been intended to be Technical Co-operation Among Developing Countries (TCDC) activities, a lack of counterpart resources from the member governments has limited the extent to which these initiatives have been fulfilled. The Caribbean Community

and Common Market

(CARICOM)

Comprises thirteen countries with a total population of almost 5.8 million, and an average per capita product of U.S.$2,334, covering a land area of almost 272,000 sq. km. There is a greater disparity in size than that which exists among members of the OECS. For example, Montserrat is only 102 sq. km.; Guyana is almost 215,000 sq. km. Similarly, there is great difference in income and perceived interest: between, for example, Guyana at U.S.$340 per capita and the Bahamas at almost U.S.$11,350 per capita. In order to contain the antagonisms likely to be engendered by such disparities, and at the same time allow a fairly high degree of specificity in its programs, special provisions have had to be made for the lesser developed countries—the OECS members and Belize.

Evolution of Caribbean Integration The roots of CARICOM derive from the West Indies Federation, which began in the colonial era in 1958 and was discarded in 1962 when some of its members chose to exercise their national independence separately, as nation states, instead of within a federation. While many of the political imperatives seemed for a time to be satisfied by nation statehood, many economic, social, and administrative requirements calling for association remained unanswered. The formation of the Caribbean Free Trade Area (CARIFTA) in 1968 and the transition to CARICOM in 1973 were intended to address these outstanding needs. In an attempt to infuse the integration movement with new life, and expand the scope for trade, some have advocated the widening of the market to include some larger countries in the region. Others argue that the existing provisions must apply to current members before any initia-

18

Overview

tive is taken to expand them to a broader constituency. A tendency to widen CARICOM coexists somewhat uneasily with attempts to deepen the degree of intensity of CARICOM activities. The impetus for widening comes from countries inside and outside of CARICOM. Outsiders, not having the option of entering common trading arrangements elsewhere, and perceiving benefits to be derived from access to the CARICOM market, have sought association of various forms. Insiders interested in widening the market include those who seek a bigger market for their output and have sufficient confidence in their capacity to penetrate the expanded market. The application of Suriname is longstanding, beginning with a request for observer status in CARIFTA in 1973. "Liaison" status was granted at the council of ministers meeting in March of that year. It was stipulated that "Suriname would be allowed to participate in the technical committees in CARIFTA subject to the discretion of the chairman of the committee." Suriname later participated as an observer in a number of meetings of CARICOM institutions: for example, the conference of health ministers and standing committees for labor. In 1982 Suriname applied for observer status at meetings of heads of government, in the Common Market Council, and in the institutions of the Caribbean Community. Haiti's application for membership in the community and associate membership in the common market dates from 1974. The application was amended in October 1982 to that of "permanent observer" in the technical bodies of the community, particularly in those dealing with agriculture and health. It also requested observer status to the development bank. The Dominican Republic sought admission as "observer to the Caribbean Community" in May 1982. This was subsequently clarified to mean "observer status in the institutions that deal with functional co-operation." More recently, Cuba, Puerto Rico, and Venezuela have shown increased interest in regional association. Cuba has had a long and sustained interest in the region, although on the economic front its primary focus was with its economic integration into the CMEA. Puerto Rico renewed its focus on the Caribbean with the Caribbean Basin Initiative, perceiving complementarities as well as threat in other countries gaining improved access to the U.S. market. And Venezuelan interest in the Caribbean is longstanding, partly in recognition of the long coastline it has on the Caribbean sea. Recent indications are that this interest, which seemed to have declined in the 1980s as Venezuela coped with internal economic problems, is again on the ascendancy. Nevertheless, no significant moves have so far been made to widen the grouping. Among the reasons given for reluctance to admit new members are the differences in legal constitutional modes, language barriers, the CARICOM unanimity rule, and the need to achieve a deepening

Caribbean

Economic

Performance

in the 1990s

19

of association among the existing members. There are, however, indications that positions regarding widening may be softening in some countries. This is due largely to the formation or consolidation of world market blocs (see the West Indian Commission Report 1992). The reluctance springs from an unwillingness to introduce a greater degree of heterogeneity into a group that already has a wide diversity of perceptions as to the future of the institution. Cuba, Haiti, and the Dominican Republic each has a market (in terms of population size) greater than that of the existing CARICOM members. Also, these countries are perceived to have greater natural resources; and over time there has been only limited interaction with them, because of historical legacies. But it is the fear of economic dominance that perhaps plays the major role in explaining the existing members' reluctance to permit wider common market arrangements. The voices now in the ascendancy seem to be those calling for a deepening of CARICOM. The CARICOM heads of government have agreed to adopt a common external tariff, common rules of origin ( R O R ) pertaining to eligible imports within the region, and a harmonized scheme of fiscal incentives by 1991. Work has started to facilitate intra-CARICOM capital movements leading to a C A R I C O M stock exchange. Calls from outside of governments are being made for greater freedom in the movement of capital and labor and the establishment of a common regional currency. If these changes were made, with an intensification in policy formulation and coordination, they would move C A R I C O M further toward the goal of "the establishment and effective functioning of the single market by the agreed deadline of January 1, 1994" (Heads of Government of the Caribbean Community 1990). But this depends on assiduous implementation of all the measures to which governments have committed themselves. A number of countervailing forces are also at work. There is much fear about the free movement of labor, particularly unskilled labor—given the high rates of unemployment prevailing in some of the larger countries. This explains why the West Indian Commission Report stresses the movement of professional labor over the movement of all types of labor. More muted reservations are also being expressed about the freedom of movement of capital within the region. Moreover, a C A R I C O M currency is only likely to be workable if it is linked to the U.S. dollar, substantially backed by convertible foreign exchange and is, at least initially, limited to those C A R I C O M economies not in severe external disequilibrium (Worrell 1990). The common currency would function as a foreign exchange account in parallel with national currencies, the latter not being changeable to the former, in effect performing the role that the U.S. dollar currently does for the region, mostly illegally. Even greater pressure is being placed on the trade regime. At the level

20

Overview

of implementation, deadlines have slipped on policies that have been "agreed" by parties to the agreement. Pressures are also being placed on the trade regime, by the increase in informal trading activities designed to widen the range of choice available to consumers and to obtain better prices. The trend is most notable in areas of common consumption such as garments and footwear and in some food items, and is sustained by a fairly large contingent of suitcase traders seeking to evade tariff and quota provisions. In the absence of an organized domestic consumer lobby, disenchantment with the trade regime tends to manifest itself most clearly in the growth of the informal trade sector. Global Impacts on Caribbean Integration It is inevitable that the small, open-trading nations of the Caribbean will feel the greatest pressures from global developments. These developments are many and multifaceted, influencing and being influenced by diverse factors such as technology, culture, macroeconomic policy, and the nature of institutions, and even the nation-state. These developments hold out promise for those able to make the required adjustments to find their way in the complex networks of global trade, while threatening to marginalize those unable to adjust to them. In the area of policies, pressures are being felt to liberalize the trade regime in line with global trends through the various General Agreement on Tariffs and Trade (GATT) negotiations, and to reduce average tariff rates and nontariff measures such as quotas and quantitative restrictions. The ongoing Uruguay Round of the GATT deals, inter alia, with the trade in services for the first time. CARICOM countries are highly dependent upon services: these sectors contribute a large and growing proportion of GDP. 1 The negotiations, which seek to open the services sectors to international competition in the same way that the trade in goods has been so subjected, are seen by many in CARICOM as a source of great vulnerability, particularly as regards the survival of small entrepreneurs. Areas singled out by CARICOM countries as being of special interest to them are: financial services, tourism services, telecommunications services, professional services, and the culture industry. Discussions among service sector specialists reflect strong protectionist sentiments similar to those regarding the trade in goods in the early 1970s, and with the same arguments. Whatever the outcome of the negotiations, there will be significant fallout for the region. The region needs to find a trade-off that will allow the continued development of domestic entrepreneurial skills, but in a framework that will ensure they are able to hold their own at home in the face of new entrants into their market. The growth of regional trading blocs has gained significant momen-

Caribbean

Economic

Performance

in the

1990s

21

turn in the past two years—in Europe (which ultimately might encompass both Eastern Europe as well as the European Free Trade Area [EFTA] states); in the Western Hemisphere (with the Enterprise for the Americas Initiative [EAI] and the North American Free Trade Agreement); and in the Pacific (with the mooted East Asian Pacific Group). While it is sometimes argued that this is a precursor to trade conflict and exclusive economic groupings, it may well be that they represent a midterm stratagem on the part of some of the global traders to better place themselves to compete globally. Malaysia, for example, feels an East Asian bloc would promote free trade while protecting them from European Community (EC) and U.S. pressure (Journal of Commerce, 5 March 1991). Indeed, if free trade within the blocs becomes the norm and the incentive to reduce trade barriers between the blocs remains, the formation of blocs will immeasurably increase the pace of global integration. The Enterprise for the Americas Initiative (EAI) proposes the establishment of a free trade zone in goods, services, and capital for the entire Western hemisphere. Whether the E A I in fact represents a further step toward globalism or the strengthening of regionalism, the result for CARICOM will be the same—small economic subgroups such as C A R I C O M will be marginalized. The options open to the integrationists are few. They can refuse to enter into any agreement at all, although a rejection of possible benefits to be derived from capital flows and debt relief (which are linked to the proposal) will make this position difficult to sustain politically. Alternatively, they might try to negotiate a one-way free trade agreement similar to that agreed under the Lome agreements, or indeed similar to that which now obtains under the CBI. But if such concessions are obtained, C A R I C O M could deny itself the chance to fit into the global trade matrix, with all the potential development and welfare gains to be derived from greatly increased foreign earnings, access to cheaper and better quality inputs and consumer goods, technologies, and so on. The impending single market in the EC holds many dimensions for the Caribbean. On the one hand is emulation. C A R I C O M has for long gained inspiration from the rationale and the modalities of the European Community. With the E C seemingly on the brink of a breakthrough toward a single market, contradictions and all, there is pressure for C A R I C O M to achieve a breakthrough of its own. On the other hand, the prosperity of Europe is commonly attributed to the progressive integration of their market, and Caribbean people are asking themselves whether they might not also reap some rewards from integration. Since an inability of leaders to agree on necessary measures has in the past hindered progress toward that goal, some pressure is being put on the leaders to accelerate the process. Because of the recent economic (mis)fortunes of some of its members, and since the novelty of independence has for some begun to wear thin, there might now be a greater willingness to compromise.

22

Overview

Most importantly, however, "Europe 1992" creates profound insecurity for the future of traditional Caribbean exports to Europe. A similar crisis was faced in the early 1970s, when Britain sought to enter the EC. The traditional arrangements were secured at that time, and they still survive, but there is apprehension that 1992 will truly be a watershed. The long-heralded demise of traditional agricultural staples to Europe may come to pass. Major benefits from the EC currently derive from preferential markets for sugar, bananas, rice, and rum—the former two products going into the United Kingdom market. With respect to sugar the average price for 1989 was U.S.$483/ton, compared with the U.S. preferential price of U.S.$435/ton, and a world market price of U.S.$308-350/ton. C A R I C O M sugar producers were able to dispose of all their exports in one or other of these preferential markets. The United Kingdom banana market is reserved for Caribbean producers that are members of the African-Caribbean-Pacific (ACP) group. Where such supplies are not forthcoming, the market is opened to "dollar bananas," which also face a tariff. In 1990, dollar bananas accounted for 11 percent of the market, a decline from 50 percent in 1980. Since 1980, inroads into the market were made by Jamaica, the Windward Islands, and Belize (see Figure 2.3). In some cases the gains have been made at a cost of quality and productivity, marginal lands being put into cultivation. With European economic integration, the internal market constraints are likely to be removed and Caribbean producers—now not the most productive—will be forced to compete on the wider E C market. This is currently shared by the ACP (20 percent), EC producers (30 percent), and Latin America (50 percent). When it is realized that bananas and tourism are the twin pillars of growth for the Windward Islands, the former averaging 50 percent of Windward Islands export earnings (and 70 percent for Dominica), their fears for the future of the industry are justified. Moreover, the industry employs mainly small farmers, in plots ranging from 0.5 to 40 hectares, and as much as 30 percent of the labor force. The industry has great social and political importance. The situation regarding sugar is somewhat similar. Sugar is covered by a special protocol that reserves 430,000 tons per annum for the Caribbean. While this protocol is not in theory affected by European integration, the basis on which prices are to be determined might be affected. A unified market is likely to increase efficiency within the EC itself, and consequently internal subsidies that are linked to the import prices might fall. Production costs already squeezed at current prices are likely to come under greater pressure unless regional productivity can be increased. In the face of all this, it is noteworthy that CARICOM exports are falling (Table 2.3).

Caribbean

Economic

Performance

in the

1990s

Figure 2.3 The UK Banana Market Windward I s . 22% Be I i ze 4SS Sur I name 1% sSKSBBm^^^^MmSSStk

Jamaica 11X

Other S *

Do I I ar 50*

1980

1990 Source: Banana Export Co., Ltd. Note: Figures are percentages of total imports

In light of these developments, the imminence of the year 2000 reinforces a sense of urgency to the region's need to implement policies and institutions, in preparation for the twenty-first century in the Caribbean and the rest of the world. There is a common perception that the region (especially its larger members) has lost momentum—momentum gained in the 1960s, lost, and not regained in the 1970s or 1980s. Given the rapid changes underway toward the end of the twentieth century' and beyond, it is believed that prospects are not propitious for C A R I C O M countries, unless fundamental changes are made in policies and structures. This has been confirmed by a recent study making projections to that period (Bourne 1988; West Indian Commission Report 1992). The report has galvanized Caribbean leaders. One outcome has been their renewed hope in regional integration.

24

Overview

Table 2.3 Sugai Exports 1 Value U.S.S millions 1989

1990

Barbados 31 36 34 26 32 33 36 Belize 31 Cuba 1 4,069 3,987 4,087 3,914 157 Dom. Rep. 134 127 123 73 Guyana 83 80 68 Haiti 4 5 3 0 Jamaica 62 74 92 65 St. Kitts & Nevis 9 11 12 12 27 Trinidad & Tobago 23 21 31

34 43

Country

1986

1987

1988

Volume '000 tonnes

—

145 70 —

86 9 30

1986

1987

1988

1989

1990

99 70 68 52 99 79 75 77 6,697 6,479 6,975 7,119 514 449 553 491 205 171 214 170 11 7 7 0 143 133 153 132 26 23 23 22 58 50 55 57

66 95 —

365 129 —

146 14 62

Source: International Bank for Reconstruction and Development and E C L A C estimates, ' i n Cuban pesos.

The Costs and Benefits of Integration It is useful in any evaluation of the costs and benefits of the integration process to make a distinction between the trade aspects and the other joint initiatives that would properly fall under the rubric of cooperation. These would include the various instances of functional cooperation and policy coordination. Despite the nomenclature, the reality of CARICOM falls somewhat short of being either a customs union2 or a common market in any of its formally adopted provisions. Moreover, the theoretical stages toward integration set out earlier say nothing about nontariff barriers and these can negate many of the supposed advantages to be derived from freeing trade. Even if nontariff barriers are ignored, however, the stage of association pertaining within CARICOM seems to fit somewhere between a free trade area and a customs union, in so far as the strictly trade aspects are concerned. Moreover, the volume of intraregional trade is relatively low, usually below 10 percent of total trade. Intraregional trade is more important for the OECS countries and Barbados, 3 but overall it accounts for only a small proportion of CARICOM trade. In constant 1975 prices, this trade has not in fact grown since 1976, and a steady decline in the value of trade in current prices was recorded for the period 1982-1987. It has also been procyclical in nature, so that it has fluctuated with regional income. As economies faced balance of payments problems, they tended to erect trade barriers against non-national producers. During this period, CARICOM did not function even as a free trade zone. Programs were, how-

Caribbean

Economic

Performance

in the

1990s

25

ever, put into place by 1988 to reestablish some measure of free trade because of the adverse effects of protectionism. There is a nagging doubt that the real cost of integration has been to lock countries into a rigid and inefficient production mode. Given that the benefits to be gained from the free flow of trade within CARICOM are likely to be small, there is a severe danger that tariff policies, which are on average high, will provide a disincentive for regional producers to become competitive and to be able to export outside the region. As there is a wide dispersion on tariff rates there is a justifiable fear that this will artificially distort investment decisions, perhaps into areas that will not be most beneficial for longer-term development. The ROR serve to further reinforce such distortions. They predetermine inputs and production processes, rendering production unresponsive to market and technological changes. Yet, any evaluation of CARICOM will need also to take into account activities in the area of functional cooperation and a number of joint policies being undertaken in economic sectors such as transport, education, health, labor, information, youth, and sport, as well as the coordination of its members' foreign policy. These aspects have worked fairly well, providing space for complex issues to be carefully examined. This provides a useful pool of information and inputs that would not be available to any single territory. Many of the nonquantifiable benefits to be gained from such cooperation—the more efficient use of intellectual resources, improvements in information systems, and the development of a more effective joint negotiating capacity in international forums—have been underplayed. The vague tendency toward dissatisfaction with CARICOM probably springs from a focus on the common market; particularly when it has failed to meet the deadlines for creating (perhaps misguided) institutions; or failed to meet expectations (perhaps inflated) about the contribution the common market can make to growth. But this impatience with performance is not unique to CARICOM. It springs from a tendency among policymakers at both national and regional levels to overestimate the range of viable options open to them, and to overestimate the speed with which changes can be effected. The resulting impatience holds the danger of hasty policy shifts and policy inconsistencies.

The Logic of Cooperation The renewed push toward integration cannot be a replay of past initiatives: the expectations from integration should have evolved with experience. Integration needs to be seen less as a means to achieve self-sufficiency, and a haven from the rest of the world, than was the case in the early 1970s.

26

Overview

It is unrealistic to expect a market of less than six million people to provide sufficient trading opportunities to become the engine of growth for the region. Size apart, the lack of geographical contiguity limits output diversity and opportunities for regional trade complementarity. There is a genuine fear that some integration instruments in the areas of trade and investment will provide serious impediments to the development process itself and aggravate tendencies toward the marginalization of the region. Whatever model the region selects, it will be of little value unless the integration being considered is seen as a process that will ultimately lead the Caribbean into some form of hemispheric association, as a precursor to freer trade. For whatever the global and regional tendencies, the logic of cooperation among small-island countries, having as they do similar characteristics, interests, and problems, is inexorable. Moreover, the global logic, concerned as it is with the macroview, will not bother itself with regional specificities, nor the detailed application of global trends to local circumstances. That will remain the province of the local specialist, or rather of the specialist having the best local information, irrespective of where that person is located. Cooperation rooted in the exchange of information is the precursor to all other forms of meaningful cooperation. The inability to find appropriate modes for exchanging information has proven to be a limiting factor in the development of regional integration/cooperation. In those areas where the information exchange was the obvious object of the exercise, for example in functional cooperation, the mechanisms for doing so are rather clumsy and expensive in terms of resources and specialist time. In activities like commodity trade, information is its necessary facilitator. The creation of various institutions has masked the fact that the lack of ready and timely information to buyers and sellers was a significant inhibitor of regional trade. The absence of easily comparable prices has also limited the development of competition and productivity, and ultimately export performance, simply because of a lack of transparency in regional economic activities. Information and the transparency that it provides have practical implications for microeconomic and macroeconomic policies. Consumer markets with adequate information are able to identify small, specialized segments catering to precise needs, and they are able to fill these at high profit. These information-intense market segments hold special promise for small producers worldwide: megaproduction runs (outside the production possibilities of small producers) are being de-emphasized as demassification takes hold. The factors that can enhance Caribbean economies can be divided into two basic categories: those that increase the efficiency of the use of existing factors, and those that seek to expand the factors available for

Caribbean

Economic

Performance

in the

1990s

27

use. In the first category, macroeconomic policies should be sufficiently neutral to permit capital and labor to flow into those areas of production that will be most remunerative; and price signals should be sufficiently clear to allow the smooth transition from declining to growing activities. Many national and common market policies have in the past served to conceal the underlying economic signals. In the second group, nonutilization of resources is particularly noticeable in the field of employment. One-quarter of the labor force is unemployed in many economies, and many workers are operating below their capacities—because of inadequate skills training or a poor work ethic, or because of strictures placed on their creativity by poor management or institutional norms. Capital resources can similarly be expanded by macroeconomic policies and personal habits to increase savings. Similarly, conducive policies, attitudes, and skills can make better use of much of the land that is currently available. In these ways can the economic space available to Caribbean economies be widened. The implications for the integration movement are worth careful consideration. The traditional policies of closure—in its many guises, relating to trade, finance, ideas, skills, and even cultural currents—have been discredited. Any new thrust toward closer cooperation/integration in the Caribbean can be truly beneficial only if these developments are respected. Widening the cooperative processes to include all the actors in the Caribbean will be a first step in this direction to create a new mix of ideas, and to create potential opportunities. It will also be a first step to helping the region to operate effectively in the rapidly unifying global markets. And, hopefully, integration in this sense will help Caribbean people to prepare for the future, rather than to provide them with a pretext for retreating from it.

Notes 1. Taking a random sampling of CARICOM countries, services contributed the following percentages to GDP in 1989: Antigua 89, Barbados 59, Dominica 61, Jamaica 69, St. Kitts 68, St. Vincent 62, and Trinidad and Tobago 51. 2. For example, a common external tariff was negotiated in 1973 but a common tariff has never been implemented. The norm is about four separate tariffs. 3. Intraregional exports for these countries ranged from 33 percent of total exports in Barbados to 73 percent in Montserrat in 1982.

Part 2 ECONOMIC THEORY AND CARIBBEAN REALITY

3

Appropriate Economic Theory for the Caribbean Winston

H.

Griffith

The environment is continually changing. Even though economists tend to—or try to—believe that the environment has no influence on economic theories, it is difficult to deny that in fact it plays a significant role. Ricardo's theory of comparative advantage, formulated in the early nineteenth century, was influenced by England's manufacturing superiority at that time. But it becomes necessary to reevaluate existing theories, because if theories are applied in an environment for which they have not been developed, they may lead to the adoption of inappropriate policies. Economists no longer believe that supply creates its own demand. Neo-Keynesian growth models assumed that for any given aggregate capital-output ratio, a country could maximize gross national product (GNP) and employment by maximizing the rate of saving and investment. This proposition induced many governments in less developed countries (LDCs) to promote heavy capital investments in the industrial sector. The result was rapid rates of growth in industrial output, but levels of unemployment and underemployment remained unacceptably high. This inspired the growth of a body of literature promoting the adoption of appropriate technology in LDCs.1 Similarly, economists once considered GNP the most suitable measure of economic development. They believed high levels of GNP led to high levels of economic development and vice versa. But in the early 1970s, Chenery and others observed that more than a decade of rapid growth in LDCs failed to benefit perhaps one-third of their population. They stressed that the significant increase in average per capita income in the LDCs since 1960 was unequally distributed by country, region, and socioeconomic group. The result has been that the pursuit of aggregate growth as a social objective has not been achieved (Chenery et al 1974: xiii). In addition to economic growth, economists seek to determine whether the level of absolute poverty has been falling, and whether the distribution of income, consumption levels, quality of diet, and health conditions have 31

32

Economic

Theory

and

Caribbean

Reality

been improving. Because economists regard these goals to be as important as increases in GNP, the policymaker no longer considers economic growth to be an end but as a means to achieving other objectives. Likewise, the debates in the 1980s over the relevance of the doctrine of comparative advantage arose partly because some believe that the circumstances that once made free trade appealing have changed drastically. Proponents of comparative advantage still say markets must remain open, and that the movement of goods and services across national boundaries must be unimpeded. According to Port (1989:174), Professor Solow thinks that information technology and global telecommunications have forever altered the doctrine of comparative advantage. Although changed circumstances render necessary the modification of existing theories, economists do not immediately reformulate theories to suit the new conditions. During the 1920s, many economists believed that a capitalist economy could never experience protracted periods of involuntary unemployment—despite unemployment rates of over 20 percent during the Great Depression—and this led to a policy of nonintervention by governments. It was not until Keynes showed that the assumptions of classical economies were no longer valid for mature industrial economies, and that a policy of government intervention could have beneficial consequences for a mature industrial economy, that the alleviation of unemployment became a social objective. The tendency for policy to be informed by theories not reflecting changed circumstances is apt to be present in all countries; but it is particularly evident in LDCs, where policymakers tend to rely on economists in the industrial countries for new theories and refinements of existing ones to solve their development problems. Economic theories developed in and for the more developed countries may not offer useful policy prescriptions for LDCs, whose economies are fundamentally different. This point questions the assertion of defenders of orthodoxy that economic theory is valid for all capitalist countries, irrespective of their level of development. This chapter examines the appropriateness of current economic development theory that informs Caribbean development policy. It contends that current theory and Caribbean policy derived therefrom are inappropriate mainly because the environment in which the theory developed has changed radically. The chapter asserts that the new technology is reducing the relevance of current development theory. Moreover, the political and economic changes taking place in Eastern Europe and the former USSR suggest that LDCs will receive smaller amounts of Western aid and capital, and that their products will have less access to the markets of the industrial countries. The deepening of existing trade blocs and the formation of new ones like the North American Free Trade Agreement also make it necessary to reexamine the theory informing development

Appropriate

Theory

for

the

Caribbean

33

policy in the region. The author further hypothesizes that development policy in the Caribbean, informed by a theory ignoring these global economic changes, will be very ineffective in promoting development in the region. The chapter begins with a discussion of the theories and policies of the various schools of Caribbean thought and the environment in which they emerged. It then highlights some of the changes in the environment in which these ideas emerged and shows how these changes are rendering conventional economic theory inadequate as a guide to policy in the Caribbean.

The Old Environment In their survey article, Bernal et al. (1984: 5-96) identify three schools of Caribbean economic thought: the Lewis school, the Radical School of the New School of Political Economy, and the Marxist Political Economy School. At various times after World War II, their writings have informed economic policy in the Caribbean. But of the three, only the Lewis School has had a theoretical foundation from which to formulate economic policy. The writings of the other schools were more critical and descriptive than theoretic, and critics regard them as typological (Bernal et al 1984). The impact of the Lewis School on Caribbean economic policy has been more lasting than that of the Radical and Marxist schools largely because regional governments have followed the recommendations of the Lewis School. Lewis (1954: 131-191) outlined his theory explaining how an LDC, deficient in productive, skilled, and professional labor, industrial capitalists, and physical capital, but with an abundance of unskilled labor, could realize economic growth and development. He posited a two-sector model. The model consisted of a modern sector using reproducible capital, and a subsistence sector—one of whose characteristics is surplus labor— which does not. Lewis showed how, under certain assumptions, surplus labor in the subsistence sector would find employment in the modern sector. Lewis was aware that LDCs might have a shortage of capitalists and capital; nevertheless, he believed that, with appropriate policies, they could overcome the shortage. Critical to the transfer of surplus labor from the subsistence sector to the modern sector was the use to which the capitalists put their profits. Lewis assumed that they would reinvest their profits in the local economy, absorbing labor from the subsistence sector until the surplus disappeared. Thus, he implicitly assumed that technology would be labor absorbing. In an earlier study prepared for the Caribbean Commission, Lewis (1950: 1-61) had spelled out the policy which his theory informed. To

34

Economic

Theory

and Caribbean

Reality

attract foreign capitalists, he recommended, governments should offer them incentives, such as tax holidays, tax rebates on imported machinery and equipment, and subsidies. He also recommended that governments restrict imports, give foreign investors a monopoly of the local market, and provide them with factories and trained labor. Although critical of Lewis's theory, the Radical School did not develop a theoretical framework from which to derive their policy prescriptions. Explaining why economic growth in Caribbean countries during the 1960s and early 1970s failed to deliver the expected social and economic benefits, the Commonwealth Caribbean Regional Secretariat decried excessive control of the economy by multinational corporations (MNCs) via foreign direct investment (FDI) in sugar, minerals, modern manufacturing, tourism, banking, the mass media, land, and even real estate development (Girvan 1971). Thus, whereas Lewis regarded inflows of FDI as conducive to regional economic development, the Radical School considered FDI the principal cause of regional underdevelopment. They also stated that foreign-owned plantations, by owning the best agricultural land and by attracting resources away from the peasantry, contributed to the low level of regional food production because the peasantry was the principal producer of domestic food (Beckford 1972). Foreign MNCs, which to the Radical School embodied all the negative features of the foreign-owned plantation, were responsible for the drainage of capital from the region. Furthermore, MNCs promoted few interindustry linkages and prevented the local economy from developing an internal dynamic. The policy prescription derived from the assertions of the Radical School of the role of FDI in the Caribbean suggested that if Caribbean countries wished to realize high levels of growth and development, they must control their resources and their environment. The much less influential Marxist School sought to offer an alternative to Caribbean development (Thomas 1974). In particular, they were interested in determining whether Caribbean societies could pursue a noncapitalist path of d e v e l o p m e n t . The Marxists a t t r i b u t e d the underdevelopment of Caribbean economies to their dependence on multinational corporations, few interindustry linkages, unequal exchange, and an inability to keep the surplus within their economies. They also emphasized the class structure in the Caribbean as an obstacle to development. Furthermore, they believed the national industrial class was incapable of promoting economic development; and they recommended that the means of production be socialized, that the amount of foreign investment be reduced, and that the state play a more active role in the transformation of the production process. Having summarized the ideas of the various schools, one must raise a question about the kind of environment in which they developed their

Appropriate

Theory

for

the Caribbean

35

theories and policy prescriptions. Their ideas emerged when governments in LDCs were reluctant to allow the price system to determine the course of economic development. LDC governments believed that market imperfections, inadequate information, divergences between the private costs and social costs of production, externalities, and institutional elements made the price system in these countries an unreliable guide to economic activity. Moreover, the price system is relevant only when dealing with very small changes per unit of time; and, in the allocation and composition of investment that depends on numerous decisions, it may produce a suboptimal result. LDC governments did not share the assertion that the price system is a sufficient incentive to the accumulation of human and material capital (Jefferson 1972:283-284). They did, however, agree with Lewis's ealier statement that it was wrong to assume that, in economic affairs, if anything was worth doing, someone would do it (Lewis 1950:35). Intervention in the economy by LDC governments was not due to abstract ideas. The LDCs saw the role the Soviet government played in transforming the USSR economy from an underdeveloped, semi-industrial society to an industrial society. They also saw the influence of Keynesian economics on the British government, which during the early post-World War II years did not entrust to the price mechanism the transformation of the British economy, because of labor immobility and large disequilibria preventing the smooth functioning of markets (Johnson 1962). But resources were immobile also in the LDCs and like governments in the industrial countries LDC governments believed they had to intervene in the economy to overcome the failures of the marketplace. An activist role for LDC governments in economic affairs received support and encouragement from governments in more developed countries and multilateral lending institutions, which tended to link loans to the adoption of state-sponsored development planning in the LDCs (Little 1982:35-38). According to Waterston, the British Colonial Office "required colonies of Britain to prepare and submit ten-year development plans for 1946-56, on the basis of which CD&W (Colonial Development and Welfare) funds were to be apportioned" (1979: 34-36), and as a result of recommendations by its survey and other missions, many countries and dependent territories either established or reorganized central planning agencies, or prepared national development plans based on World Bank recommendations. The plans were merely objectives governments hoped to achieve; nevertheless, they represented increased government involvement in the economy. It was in an environment sympathetic to government intervention that Lewis urged Caribbean governments to play a more active role in economic affairs. The same was true of the environment in which the Radicals and Marxists gained a measure of influence, although the scope of involvement in economic affairs by Caribbean governments was greater than

36

Economic

Theory

and Caribbean

Reality

some foreign governments would have liked. Girvan (1971) advocated the nationalization of bauxite, and Beckford (1972) urged that agricultural resources be controlled by nationals. Caribbean economic nationalism coincided with periods of social and political unrest in some Caribbean countries, and various groups at the time blamed FDI for the underdevelopment in the region. To appease nationalist sentiment, and also convinced that the welfare of their countries would improve more rapidly if Caribbean resources were locally owned, some regional governments nationalized or localized many foreign enterprises. Thus in Guyana, which became a cooperative republic in 1970, the state soon controlled about 80 percent of the economy (Thomas 1983: 48). In Jamaica, where Michael Manley in the early 1970s declared his intention to pursue a "democratic socialist" path of development, the state began to negotiate majority ownership in companies exclusively involved in bauxite mining, and increased its ownership in companies mining bauxite and refining alumina. The Manley government also acquired some agricultural estates and hotels. In Grenada, where a socialist-oriented government under Maurice Bishop seized power in 1979, the state also increased its participation in the economy. In addition to an environment sympathetic to government intervention in economic affairs, the conventional wisdom among economists was between output and the stock of capital, and that a fixed relationship existed between output and labor. Accordingly, so long as economists assumed constant labor productivity, they could assert that if output increased by, say, 5 percent, employment would also increase by 5 percent. Closely related to the assumption of a fixed relationship between output and employment was the belief that technology would be labor absorbing. The modern sector in Lewis's model of development with unlimited supplies of labor is any activity using reproducible capital and paying the capitalist for its use. However, although Lewis never intended it to be so, writers often associated the modern sector almost exclusively with industry. If nothing happens to choke expansion in the industrial sector and industrial capitalists reinvest their surplus, the industrial sector will absorb more and more labor. The conditions necessary to produce this result never materialized in the Caribbean and, soon after the region's spurt toward industrial development, reservations were expressed about the labor-absorptive ability of technologies imported from the more developed countries. The Radical School was extremely skeptical of models of the HarrodDomar type that assumed a fixed relationship between output and employment; and of the implicit assumption in Lewis's m o d e l (of development with unlimited supplies of labor) that technology would absorb labor. The Radical School contended that the capital-intensive techniques used by foreign firms were inappropriate to Caribbean coun-

Appropriate

Theory

for

the Caribbean

37

tries with much surplus labor, since the proportion of capital expenditures invested relative to the amount of labor employed was large. Some economic activity in the region can be undertaken only with capital-intensive techniques of production—for example, bauxite and petroleum extraction. But in other activities, like manufacturing, where expectations were high that FDI would employ large numbers of workers, the amount of labor employed was relatively small compared with the capital expenditures. In his evaluation of the results of industrialization policy in Trinidad and Tobago during that country's industrialization drive, Carrington (1977: 143-150) noted that an investment expenditure of TT$(Trinidad and Tobago dollars)257.8 million generated only 6,921 jobs, or an investment expenditure of about $37,249 per job created, a result he termed disappointing. He also stated that the labor-using technology that had been hoped for in the industrialization program had simply not materialized, and he lamented the link between direct investment and capital-intensive external technology. Jefferson found a similar result in his study of the Jamaican economy and came to a similar conclusion. He wrote that by 1966, the 149 factories established under incentive legislation had invested about U.S.$21 million and employed about nine thousand persons, or about U.S.$2,334 per person employed. Jefferson advised that "labor-surplus countries like Jamaica will have to develop technologies and forms of organizations suitable to their environment if they are to solve their unemployment problem" (1977: 118). Clearly, the bias of the Radical School was in encouraging Caribbean countries to favor industries using labor-intensive techniques to foster industrialization. An assumption of the Radical School and of Lewis's original strategy was that labor-intensive products in which Caribbean countries had a comparative advantage would remain labor intensive—no factor intensity reversals would take place—at least for a very long time. Thus, if Caribbean countries could keep wages internationally competitive, they would attract foreign manufacturers of some mature labor-intensive products that (it was believed) could become internationally competitive again only if produced with inexpensive labor. Promoting the Caribbean as a low-wage production platform did produce positive results in the sense that U.S. corporations established subsidiaries in many Caribbean countries, manufacturing labor-intensive products for the U.S. market. One reason for the location of U.S. subsidiaries in the Caribbean and other low-wage foreign countries was that "the profitability and growth of the (U.S.) firm require it to make the same use of cheap labor its European and Japanese competitors make" (Barnet and Miiller 1974: 306). Lewis frequently mentioned Hong Kong as one of those countries that relied heavily on its pool of inexpensive labor to export successfully to the U.S. market; and he believed Caribbean countries could replicate the Hong Kong experience, if they could keep wage

38

Economic

Theory

and Caribbean

Reality

costs competitive, particularly since Caribbean countries were much closer than Hong Kong to the markets of the United States. The ideas of the schools of Caribbean economic thought emerged when the world was divided into two hostile ideological camps—the United States on one side and the USSR on the other—each bent on preventing the other from extending its sphere of influence among LDCs. Each was willing to provide aid, investment funds, and increased access to their markets, with the aim of achieving their military and political objectives. It was in this atmosphere of superpower rivalry that the Alliance for Progress was established, ostensibly to improve the distribution of income, accelerate industrial and agricultural development, and bring about agrarian reform in Latin America. In the age of superpower rivalry, LDCs could rely on one superpower or the other for economic assistance, whichever path of development they chose.

The New Environment Caribbean governments are reducing the scope of their economic activity. The laissez-faire policies being embraced by Caribbean governments are due to the resurgence in popularity of laissez-faire economics in the more developed countries—the approach has spilled over into the Caribbean; to the election of conservative governments in the most powerful industrial economies; and to a reversal in the attitude of the multilateral lending institutions toward the role of government in economic affairs. The intellectual attack on increased government intervention in the workings of the economy began when many Caribbean countries began to promote industrial development. Johnson (1962: 153) argued that, in an underdeveloped country, government intervention to achieve certain objectives might be ineffective; that remedies to correct market deficiencies were luxuries that LDCs could not afford if they were serious about attaining a high rate of economic development; and that interference with the market might generate a conflict between economic growth and an equitable distribution of income. Later, he stated that the choice facing the Third World countries was between, on the one hand, greater government control and regulation of the economy and private sector, and on the other, reducing state intervention by limiting it to security, defense, and special welfare functions like education that cannot be provided by the private sector (Johnson 1972: 3-10). Support for the free market came not only from prominent intellectuals in the more developed countries, but also from politicians and multilateral lending institutions. The election of Margaret Thatcher in Britain in 1979, Ronald Reagan in the United States in 1980, and Helmut Kohl in the Federal Republic of Germany in 1982 brought strong support

Appropriate

Theory

for

the Caribbean

39

for the removal of government and other obstacles hindering the free forces of the market and strengthened a minimalist role for government (Rashish 1981). The World Bank, stressing the importance of markets and incentives and of the limits of government intervention and central planning, argued that markets and incentives can work in developing countries, provided they are not filtered through government policies and agencies that tend to reduce, or even negate, possible benefits (Toye 1987: 48). Furthermore, the decision of the World Bank to lend about U.S.$200 billion during the remainder of the 1990s to promote private sector activities in LDCs represents a changing role for that institution. The changed attitude toward the role of government in the economy became appropriate in the Caribbean perhaps as early as 1980, after the election of Edward Seaga as prime minister of Jamaica. Seaga's victory marked a reversal of the prointerventionist policies of his predecessor, Michael Manley. Seaga's policies eliminated the protection from foreign competition that many producers had enjoyed under the Manley government, and many companies complained that trade liberalization was driving them out of business (Latin American Regional Reports—Caribbean 1981,12 June 1981). Seaga also privatized government-owned hotels and a number of agricultural estates. His defeat by Manley in 1990 will not bring a reversal of the privatization policies he introduced. Manley admitted that he had placed too much reliance (during the 1970s) on the capacity of the state to be a direct factor in production. His new view was that the best role for the state was to be an enabling factor for the private sector (Massaquoi 1990:112; and Caribbean Contact, September/October 1990. See Chapter 11 in this volume for details on privatization in other Caribbean countries). During the 1980s, increased foreign indebtedness was a feature of Caribbean economies. For example, in 1980 Jamaica's foreign debt stood at U.S.$1.7 billion, and 30 percent of its foreign exchange earnings were going to service the foreign debt. By 1988, its foreign debt had climbed to U.S.$4.5 billion and it was spending 50 percent of "foreign dollars earned on repayment" (Pantin 1989: 38). The severe debt problem has forced many of these countries to enter into structural adjustment arrangements with multilateral lending institutions as a condition for obtaining loans from them. Integral to these structural adjustment arrangements are privatization, reduction in government deficits, cuts in state subsidies, and removal of restrictions on the functioning of the market. Given the possibility that the LDCs may never be able to repay their external debt, and since the macroeconomic conditions in these countries show no sign of improving, Caribbean countries will be unable to assume independent control over the development of their economies. For a long time, Caribbean governments may play only a minimal role in economic activity. In the last three decades, many economists have recommended that

40

Economic

Theory

and

Caribbean

Reality

Caribbean countries adopt appropriate technology (Girvan 1983). These economists have pointed out that the technology used by the multinational firms in the region is capital intensive, and employs a relatively small number of workers in relation to capital expenditures. Proponents of appropriate technology are correct in rejecting the assumption of HarrodDomar models that changes in GNP are proportionately related to changes in employment, but they are incorrect in believing that an "appropriate technology" is the answer to the unemployment problem in the Caribbean. Appropriate technology (Griffith 1990:845-858) seems useful if one assumes a closed economy. Self-contained economic entities do not rely on international trade in order to promote growth and development; thus, the adoption of an appropriate technology to absorb surplus labor, however inefficient the technology may be, may be a desirable social objective. If, in a closed economy, competition forces producers to adopt an "appropriate capital-intensive technology" in a labor-abundant country, government can always legislate the right technological mix. But Caribbean economies have always been open, and their foreign trade as a percentage of gross domestic product has always been high. As part of their effort to accelerate their industrialization, some countries adopted illiberal trade regimes in the 1960s and 1970s. Caribbean governments are liberalizing their trade regimes for some of the reasons mentioned previously. Moreover, they are seeking loans from private international financial institutions and multilateral lending agencies to alleviate their external debt burden. If Caribbean countries cannot repay their debt, and if the International Monetary Fund (IMF) insists that liberal trade policies are necessary for improving the macroeconomic conditions of these debt-ridden countries, Caribbean products must therefore be competitive at home and abroad. The proponents of appropriate technology must show how Caribbean products made with such technology can compete in an open-trading system with similar products made with the new technology in competing economies. In the 1960s, Lewis responded to those who suggested appropriate technology as a solution to unemployment by challenging them to "come up with simple machines which would enable the handicraft workers to undercut large-scale factory production. Even if they cannot, the handicraft workers have the economists on their side since the shadow price of their labor is zero. But the consumers have more votes than the economists so unemployment will continue to grow in this sector unless we do get some technological marvels" (Lewis 1970:552). Caribbean countries must learn to compete in an environment in which technology is altering the production structure of the last two hundred years. The old paradigm of mass-produced standardized goods that consumed large amounts of energy, capital, and raw materials to increase output is giving way to a new paradigm geared to diversified products and processes that use far less

Appropriate

Theory

for

the Caribbean

41

energy, labor, and raw materials per unit of output (Colombo 1988: 23-24). Between 1973 and 1979, civilian manufacturing employment in OECD countries declined by 0.4 percent and between 1979 and 1987, it declined further, by 0.9 percent (OECD: 1989). Direct labor costs are becoming insignificant in the production of manufactured goods and "automation of nonproduction activities is shrinking it further" (Porter 1986:39) while "wage levels for blue-collar workers are becoming increasingly irrelevant in world competition" (Drucker 1989). One reason for the decline in civilian manufacturing employment in OECD countries is the flight of industry to offshore locations partly in search of inexpensive labor. The growth of the maquiladora industries in Mexico and the expansion of Japanese firms in East Asian countries are cases in point. But to believe the migration of industry to inexpensive offshore global platforms is the principal cause of the decline in civilian manufacturing unemployment in OECD countries is to ignore a more fundamental process at work—the application of the new technology to all aspects of production, and its impact on the demand for labor (Tolan 1990:19). Drucker (1989:123) notes that manufacturing is increasingly becoming uncoupled from labor. In the United States, manufacturing production during the 1980s steadily increased: manufacturing employment dropped steadily. In 1988 it took little more than two-fifths of the man-hours of blue-collar labor it took in 1973 to manufacture the same volume of goods. The new technology is revolutionizing the way firms design and manufacture products (Gyllenhammer 1988:81; Schwartz 1990; Hicks 1990). Volvo has designed an engine without the use of the drawing board; some firms are using computerized systems to sew garments; technological alternatives to sewing garments—welding and fusing—are being developed. It is also affecting the dematerialization of the production process, the composite content of many products is quickly increasing. In agriculture, the new technology is leading to "the development of robot tractors, robot fruit pickers, robot milking machines . . . and even robot sheep-shearers,... automated chicken houses, automated packaging stations, automated weed-killers and semi-automated rice combines" (Forrester 1987: 4). It is rendering invalid the implicit assumption of the various schools of Caribbean economic thought that labor-intensive products will forever be labor intensive. Thus, the assertion of industrial maturity and the thesis that products have an irreversible tendency toward standardization are no longer valid (OECD 1989:12-13). The new environment is witness to the end of the Cold War and the emergence of a "new world order" in which the Caribbean must face intense competition from Eastern Europe and the former USSR for capital, investment, and markets, as the latter economies make the transition to "free market" capitalism.

42

Economic

Theory

and

Caribbean

Reality

The New Environment and Economic Theory In the new environment, Caribbean countries will have to rely increasingly on domestic resources if they wish to maximize their rate of economic growth. In particular, they will have to become more efficient at mobilizing their financial resources owing to the difficulty of borrowing in international financial markets and growing competition from Eastern European countries and China. The World Bank, the IMF, and Western governments are lending vast amounts of money to the former Communist countries for development and debt relief (New York Times, 13 June 1991: A19; Washington Post, 28 April 1991: HI). Besides, the banking crisis in the United States may, at least in the short run, reduce the willingness of U.S. banks to lend to countries like those in the Caribbean. But if the new environment makes it imperative that Caribbean countries become more efficient at mobilizing their resources to promote growth and development, conventional theories will be ineffective in helping them to make effective choices. In the Caribbean, monetary authorities rely on policies derived from Keynesian economic theory to help promote economic development. One important assumption of the Keynesian model is that a country has excess productive capacity that can be set to work partly by the use of monetary policy. However, in the Caribbean one cannot assume the existence of unused or underused productive capacity, which monetary policy can set to work: Low productive capacity and the inflexibility of existing resources distinguish LDCs from more developed countries. Moreover, even if Caribbean countries had the productive capacity, monetary policy may still be ineffective for structural and institutional reasons. A principal feature of the sterling exchange standard system in which the Caribbean colonies participated was that while it assured free and full convertibility of local currency into pounds sterling and vice versa, it did not permit them access to monetary policy that was conducive to economic development (Niven 1963: 9). Although the sterling exchange standard has ceased to exist legally, in practice full convertibility of domestic currency into foreign currency continues, particularly in the case of foreign firms that, as a condition for locating operations in the region, must be able to import inputs, and that demand the right to repatriate profits, dividends, and interest payments. A consequence of virtual full convertibility is that, as in colonial times, it reduces the effectiveness of monetary policy. If Caribbean governments use monetary policy to try to lower interest rates in order to eliminate unemployment, capital flows from the region. This flow reduces the domestic money supply, thereby causing interest rates to rise, and investment and employment to fall. Furthermore, conventional monetary policy presupposes governments know what the money supply is. But here, too, technology has its

Appropriate

Theory

for

the Caribbean

43

effect and "the vast range of financial innovation with its array of new money and money-like instruments crisscrossing through the world's computer and telecommunications networks, without regard to borders . . . as fast as the speed of light" (Blumenthal 1988:539) makes an answer to the question, What is the money supply? extremely difficult. The United States Federal Reserve quietly abandoned the use of monetary aggregates in setting monetary policy because of the difficulty in estimating them. As the new technology makes the measurement of the money supply even less precise, central banks in the Caribbean will have great difficulty controlling a monetary aggregate they are unable to measure in an environment where the globalization of financial markets shatters the belief that governments, in making decisions on monetary policy, can ignore the international environment. When countries are experiencing chronic balance of payments deficits, as is the case in the Caribbean, economic theory suggests that they ought to devalue their currency. Theoretically, a devaluation will stimulate exports and reduce the demand for imports, assuming that exports and imports are highly sensitive to price changes. Caribbean countries do not produce many products that can benefit from a devaluation. In addition, a devaluation will have a negligible positive impact on commodity exports because most Caribbean commodity exports are traded in regulated markets of the more developed countries. The governments of these countries—given relatively high levels of unemployment and the intense global competition—are reluctant to accept unlimited amounts of manufactures and primary commodities from the Caribbean unless the commodities are ones they desperately need. Apart from regulated trade, supply elasticities in the Caribbean are low, even in the production of those commodities in which Caribbean countries have an alleged comparative advantage. Nowhere is this more evident than in the production of sugar, where Caribbean countries have been unable to meet their quotas in preferential markets. With limited access to these markets and low supply elasticities, a Caribbean devaluation will generate minimal increments in employment in the region. Some Caribbean governments, and/or the IMF, do not seem to share this view, but unemployment and inflation are high and shortages of foreign exchange persist in the countries that have devalued their currency. The key to Caribbean development is rapid technological progress. Devaluation is no substitute. Devaluation will not lead to a significant reduction in the volume of imports because Caribbean economies do not have the ability to produce domestically many of the goods they import—goods crucial to the development and daily functioning of their economies. Imported goods vital to Caribbean economies include capital goods, raw materials, and medicines. Devaluation will not reduce imports for another fundamental reason;

44

Economic

Theory

and Caribbean

Reality

namely that Caribbean consumption habits imitate those of persons in the more advanced countries. Even if products similar to those produced in the more developed countries are produced in the region, and even if they become cheaper because of a devaluation, Caribbean consumers will purchase the foreign products—because of brand loyalty and because of perceived superior quality. Therefore, as has been the experience of many Caribbean countries that have devalued their currencies several times in the 1980s, a devaluation will only aggravate the rate of inflation and not significantly improve the level of employment.

Fiscal Policy Caribbean post-World War II development strategy has relied on fiscal policy to promote growth and development. The excessive reliance on fiscal policy has been due to the relative ineffectiveness of monetary policy resulting from colonial monetary arrangements. But in the new environment, fiscal policy, too, is losing its effectiveness. If an economy is at less than full employment, conventional theory asserts that an increase in government spending will raise the level of aggregate demand and set idle resources, including labor, to work. The theory advocating increased government spending to stimulate the economy emerged when governments deliberately sought to balance their budgets. However, in the new environment, where budget deficits are already large, increased government spending in LDCs to alleviate unemployment may not be a viable option. The IMF asserts that the macroeconomic condition of Caribbean countries is such that governments must reduce their budget deficit, although in many countries the rate of unemployment is extremely high. Reducing government spending, when the region is receiving smaller amounts of FDI, will only increase the level of unemployment. Theory also holds that a reduction in taxes will stimulate aggregate demand and raise the level of employment. However, it is doubtful whether Caribbean countries, already experiencing declining foreign exchange earnings from some of their principal export crops, can lower taxes without serious economic and social dislocation. They need the additional taxes to continue providing essential, but nonrevenue-generating, services like education, health, public housing, and roads. They also need revenue to develop their infrastructure and promote industry. If governments reduce taxes across the board to stimulate their economies, they simultaneously reduce their ability to provide important social services and thus lower the quality of life for their growing populations. One may argue that lower taxes will raise the level of domestic spending with multiplier effects throughout the economies. But, in the open economies of the Caribbean, much of the increase in disposable income arising from lower taxes will

Appropriate

Theory

for

the Caribbean

45

flow out of the region—in payment for foreign goods—with little impact on regional gross national product. Equally important is that a reduction in taxes will also reduce the ability of governments to upgrade the infrastructure needed to attract continual inflows—inflows of the FDI they assert is indispensable to promoting growth and development and to lowering their relatively high levels of unemployment. Barbados—and most likely all other CARICOM countries—faced these challenges when it implemented the Common External Tariff (CET) on 1 April 1991. In his budget address to Parliament, prime minister Erskine Sandiford said that the country would lose Bds$20 million as a result of the CET and his first object was to recoup that amount. He clarified why he was taking the action, saying: "In the present circumstances, it is not possible to maintain the existing level of services, improve the infrastructure, and in addition expend large sums of money in our effort to stimulate the productive sectors, especially those which earn foreign exchange, without raising additional revenue." 2

Lewis's Original Strategy and the New Environment Lewis's theory of economic development with unlimited supplies of labor and the policies derived therefrom have been the bedrock of Caribbean economic policy. I shall now focus on how the new environment is reducing the effectiveness of Lewis's original strategy. I say "original strategy" because it seems that Lewis modified his position and recognized that inexpensive labor was insufficient to bring about the kind of development Caribbean governments sought. But although Lewis seemed to recognize that changes in the global environment were reducing the effectiveness of his earlier strategy, Caribbean governments appear to pursue his original strategy as though it is the panacea for economic growth in the Caribbean. Lewis argued that some industries in the more developed countries were losing their competitive advantage because of rising labor costs and, if Caribbean countries could keep their labor costs competitive, they would attract some of them. In the 1960s and 1970s, it appeared Lewis was right: many manufacturing firms from the more developed countries established subsidiaries offshore to carry out the relatively high-cost labor-intensive aspects of their operations. They considered the movement offshore necessary in order to realize economies in their wage bill and maintain international competitiveness. The labor-intensive operations transferred offshore, like the sewing of garments, were difficult to mechanize. Today, firms and governments are developing production processes that will reduce the demand for labor in the very labor-intensive operations located offshore. Labor-intensive operations in other activities

46

Economic

Theory

and

Caribbean

Reality

like data processing and assembly of computer chips—activities that have grown in the Caribbean in the 1980s—will also succumb to technological change. To strengthen the region's attractiveness to foreign investors, Lewis recommended tax-free holidays, monopoly of the domestic markets, accelerated depreciation allowances, low-interest loans, and dutyfree imports of inputs used in production. These incentives, however, are falling victim to the new technology. Multilateral lending institutions and governments in the more developed countries are insisting that governments in LDCs liberalize their trade regimes to be eligible for loans and grants. Thus, LDCs may be unable to guarantee a monopoly to a foreign investor desirous of producing for the local market. Products made locally for the domestic market will have to compete with foreign products. Multilateral lending institutions are also insisting that interest rates reflect market conditions, thus raising the cost of capital and reducing the level of investment. Incentives like duty-free importation of raw materials and equipment are losing their appeal, further weakening the effectiveness of fiscal policy. Current theory offers little help to Caribbean governments as they try to formulate a response to the new technological challenges: current theory assumes that technology is an exogenous variable. Furthermore, economists omit technology from their models because they have been unable to quantify a variable like innovation. Realizing, however, that technology is indispensable to Caribbean economic development, as well as to the international competitiveness of Caribbean-based industries, some analysts (Griffith 1990; Bourne 1988; Nicholls 1989) are advocating that Caribbean countries pay more attention to enhancing their technological capability. They emphasize related themes around the latest technologies for the commodities the region produces as well as nontraditional goods that these countries might consider for the export market. Theory suggests that Caribbean governments must keep wages internationally competitive. But to focus on the wage rate as the most significant variable and ignore technological improvement is to overlook the most significant cause of economic growth and, indeed, comparative advantage. Solow (1960: 182-188) attributed nine-tenths of the rise in nonfarm GNP per man-hour in the United States from 1909 to 1949 to technological change; and Massell (1960:312-320) found that out of a total of 200 percent, improved technology had been responsible for 190 percent of the rise in manufacturing output per man-hour in the United States between 1919 and 1955. In the United States, some of the most high-paying industries, including aviation and computer industries, are also some of the most competitive. Blumenthal (1988: 537) remarked that, although wage rates differed substantially between the Unisys plant in Flemington, New Jersey, and its plants in South Korea and Taiwan, the cost of assembling computer terminals in the United States and the Far East was

Appropriate

Theory

for

the Caribbean

47

about the same. Low wages alone do not determine international competitiveness; unit costs of production do, given the exchange rate. Barbados is typical of Caribbean countries that have been devoting scant resources to promoting technological change. In its latest economic report, the government of Barbados highlighted its research and development activities "in the area of onions, root crops, cotton, cut flowers and foliage." But whereas in Barbados and elsewhere in the Caribbean governments are producing food and raw materials on the farm, in the United States "scientists are working on research that increases the likelihood of people being able to grow food without farms" ( T h e Futurist, 1990: 17). Some of the products that may soon be produced in factories are orange juice, tomato juice, fruit jellies, and flour. The underdevelopment of Caribbean technology is clearly evident and Caribbean countries will have difficulty increasing market share in the more developed countries. Furthermore, they may lose their home markets for agricultural food products to firms from the more developed countries, and their external markets for raw materials will vanish. What is also significant is that the Barbados economic report made no mention of research and development taking place in the secondary and tertiary sectors of the economy. One must therefore wonder about the future of manufacturing—particularly export manufacturing—in Barbados and, most likely, the rest of the Caribbean. Knowledge, perhaps the most significant resource today, is becoming the source of economic growth and of comparative advantage in virtually every economic activity. The Human Resource Caribbean governments are relying on policies informed by theory formulated in an environment fundamentally different from today's. Consequently, they are being frustrated as they try to promote economic development. They must rely on theories and policies that take into account the new environment dominated by rapid technological change. Also, as Caribbean scholars try to develop theories to guide Caribbean development, they must take as their starting point the salient features of the global economy because Caribbean countries must also depend on the global economy for growth and development. Therefore, any theory or policy failing to capture significant developments in the world economy will not be very helpful to Caribbean governments. Current theory may not be very helpful to Caribbean governments, but Caribbean governments can undertake certain policies to help make their economies more attractive to foreign investment. The new technologies are the most significant development in the global economy today. Caribbean countries do not have the financial resources to develop

48

Economic

Theory

and Caribbean

Reality

these technologies. (Increasingly, large firms are forming alliances to develop technology because of the cost of going it alone.) Caribbean governments, however, can develop their human resources and human skills have become the basis for comparative advantage, and economic growth and development. Firms will design and manufacture products in any country offering them a cost advantage. Therefore, if Caribbean countries have a highly skilled work force—say, in activities like research, design and engineering—at competitive wages, they will be able to attract the FDI they so desperately need and therefore promote growth and development. Moreover, unlike unskilled labor, such highly skilled workers can produce an indigenous manufacturing class without which it is difficult for countries to develop.

Notes 1. In this c h a p t e r , t h e C a r i b b e a n c o u n t r i e s a r e E n g l i s h - s p e a k i n g C a r i b b e a n m e m b e r s of C A R I C O M . P r o p o n e n t s of a p p r o p r i a t e t e c h n o l o g y say t h e technology o u g h t t o reflect t h e factor e n d o w m e n t s of c o u n t r i e s . T h u s , in t h e C a r i b b e a n w h e r e l a b o r is t h e a b u n d a n t f a c t o r — t h e t e c h n o l o g y ought t o b e labor intensive r a t h e r t h a n capital intensive. 2. "Financial S t a t e m e n t and B u d g e t a r y P r o p o s a l s " p r e s e n t e d by t h e p r i m e minister a n d minister of finance a n d e c o n o m i c affairs, 2 A p r i l 1991. G o v e r n m e n t Printing D e p a r t m e n t , B a r b a d o s , 1991:10,12.

4

Techno-Industrial Policy in the Restructuring of the Caribbean: The Missing Link in Caribbean Economic Thought Dennis

Pantin

In Kurt Vonnegut's futuristic novel, Piano Player, Dr. Paul Proteus is a member of the very small elite of knowledge workers who run a fully automated production system and society in Ilium, New York. Rudy Hertz, a highly skilled machinist made obsolete by Proteus's automated software program, is part of the vast majority of the population existing in an under-class, welfare-provided world of idleness, alcoholism, and class hatred for the likes of Proteus. Vonnegut's vision, published in 1952, already is becoming reality, certainly in technological terms if not, as yet, fully in social terms. The Brave New World of informatics, genetic engineering, new materials, alternative energy, space production, and other inevitable scientific and technological advances will become dominant reality before we are far into the twenty-first century. What do these developments portend for most of the world's population, living, not simply across the river in Ilium, New York, but at the periphery of the world's capitalist system—the so-called Third World and beyond? Some have already written off the possibilities for much of the periphery. Almost ten years ago, Kaplinsky (1985) foresaw a growing tendency for comparative advantage reversal as microelectronics-based innovation lead to "systemofacture"—the full integration of islands of manufacturing automation.1 Castells (1986), writing of several major groupings of countries at the periphery, suggests little hope of their being able to catch up with the rapidly moving technological frontier; and a 1989 survey of futuristic studies found an overwhelmingly negative prognosis for countries of the periphery. "This was the most distressing and persistent prediction that we came across," said the report. "While a minority of humanity will live in a high tech fantasy world, the majority will live in overcrowded, filthy cities lacking basic services." The pessimism is no doubt exaggerated. There always will be possibilities—some chink in the armor of the center economies that can be exploited. The newly industrializing countries (NICs) of East Asia have 49

50

Economic

Theory

and Caribbean

Reality

shown that possibilities exist to exploit the process. But such opportunities can be exploited only if three conditions are satisfied: (1) that there is recognition of the nature and severity of the long-run problem facing countries in the periphery; (2) that there is the self-confidence and determination to overcome this problem and not succumb to self-doubt or self-contempt; and (3) that there is rigorous, detailed, and specific analysis of the dimensions of the problem and of the room for maneuver. This chapter focuses on the third factor and on the implications for the Caribbean of a rapidly approaching twenty-first century in which the grand divide will be between those with relevant knowledge and those without such knowledge or the means to acquire it. Two hypotheses will be tested in this chapter. First, that the root of economic transformation and development lies in the development of technological and scientific capabilities. Economic development can then clearly be seen as the outer face of an inner core of scientific and technological development. Second, that Caribbean economies are marked by weak indicators of economic transformation and development because the centrality of technological and scientific development is a virtually unknown or disregarded factor in the literature on, and practice of, economic policy in the region. The chapter will mainly concentrate on establishing the validity of the second hypothesis and is divided into five sections. It starts with a review of the literature on Caribbean economic thought and highlights the near absence of any concern with the hard core of economic transformation that is necessary to the development of technological and scientific capabilities. This is followed by an analysis of the literature that has been produced by Caribbean economists on the question of scientific and technological development. The third part deals with the practice of economic policy in order to highlight the absence of any scientific and technological component. Part four proposes an appropriate framework for integrating technology policy into overall economic policy; and the final section appraises the political economy conditions that limit an embrace of a technologically-based industrial strategy for the region's economic transformation. The Formation of Caribbean Economic Thought The term Caribbean economic thought is used in this study to refer to work by economists on the Caribbean, with special reference to the Englishspeaking Caribbean. While studies and research by non-Caribbean economists are included, it is dominated by the work of economists from the region (St. Cyr 1980; Brown and Brewster 1974; Girvan 1973; Bernal et al 1984). The most significant feature of Caribbean economic literature is its widespread acceptance of dominant metropolitan paradigms—in partic-

Techno-Industrial

Policy

51

ular the neoclassical analytic tradition. Three broad periods can be identified in the history of economic thought in the English-speaking Caribbean: post-World War II to 1960-1965; the period from 1960-1965 to 1975-1980; and the period from 1975-1980 to the present. These cutoff points are convenient for the purposes of this analysis and they should not be taken as definitive. First Period: Post-World

War II to

1960-1965

This can be identified as the period in which the issue of economic development in the Caribbean is first addressed as an area of inquiry. The classic reference is W. Arthur Lewis's The Industrialization of the British West Indies (1950). In this work, Lewis set out the case for industrialization in direct challenge to the dominant view of the economic advisers to the colonial power, Britain. The 1930s had been a period of militant resistance by labor to the social impact of the collapse of prices of traditional agricultural exports during the Great Depression. Lewis documented the socioeconomic impact of the depression in a 1938 report to the British Fabian Society (Lewis 1977). In response to the labor rebellion that swept the British West Indies the British government appointed a commission of enquiry headed by Lord Moyne. The commission took evidence throughout the West Indian colonies (Moyne 1945). In its report, the commission conceded that there were valid grounds for the reaction by labor to the prevailing social conditions. It proposed the implementation of a number of social welfare programs, but argued for retaining the traditional primary specializations of the English-speaking Caribbean colonies in the international division of labor. It was this colonial orthodoxy that Lewis courageously challenged, proposing in its place a program of export-oriented industrialization (Lewis 1950). Lewis recognized four resource gaps that limited the prospects for a successful implementation of any industrialization program in the Caribbean, including a savings gap, problems of access to foreign markets, scarcity of managerial skills, and absence of modern technology. Lewis proposed a strategy for overcoming these four resource constraints. He recommended that the governments invite foreign investors to set up appropriate industries. These foreign investors, Lewis argued, would bring badly needed capital and ready access to export markets, as well as the required managerial and technological ingredients for successful industrialization. Lewis envisaged a lessening of dependence on foreign capital over time as West Indians learned the tricks of the trade in production, export marketing, management, and technology, and as the growth of national income permitted domestic savings to increase to levels that would permit the purchase of the equity of the foreign firms.

52

Economic

Theory

and Caribbean

Reality

During this first period, Lewis recognized the significance of managerial and technological inputs into industrialization. He addressed these issues in his major work, The Theory of Economic Growth (1955). In this study, Lewis identified the three proximate causes of economic growth as "the effort to economize, the accumulation of knowledge, and the accumulation of capital... these three factors are separated only for analytical purposes; they are equally important, and mutually inter-dependent" (Lewis 1955:164). Lewis seemed to have assumed that such knowledge skills were likely to be transferred via a process of economic or technological osmosis: that is, the mere presence of foreign firms engaged in industrial activity would be sufficient to permit the transfer of relevant technology. It is now known that there is more to the transfer of technology than the mere presence of foreign firms and the production they establish in foreign countries. Second Period: 1960-1965

to

1975-1980

This period is marked by the return home of the first generation of Caribbean economists who were educated abroad, mainly in Britain but also elsewhere in Europe and in the United States. Lewis had returned briefly to the Caribbean to serve as vice-chancellor of the newly created University of the West Indies at the turn of the 1960s. Lewis had also advised governments in Trinidad and Tobago and in Jamaica on the formulation of their early development plans. Two subgroups can be identified within this first wave of returning economists. The first group questioned the relevance of the economics training that they had acquired in metropolitan universities. They advocated the need for what one of its leading protagonists, Lloyd Best, called "Independent Thought" in the quest for "Caribbean Freedom" (Best 1977). This critical group came together to form the New World Group. The economics literature produced by the group was built around the analysis of the functioning of the plantation economy in the Caribbean, starting from its origins under slavery (Beckford 1972; Pantin 1980). The group, including the plantation economy school, had a major intellectual impact at the University of the West Indies, where the debate was centered. But it is worth noting that the individuals involved represented a minority of the university's academic staff and their impact on public sector technocrats was even less evident. This was largely due to the fact that, in this second period, the dominant perspective of the foreign-trained economists remained within the dominant paradigms of the metropolitan universities where they were trained. For most, the Keynesian variant of the neoclassical paradigm remained the valid choice. The aggressiveness of the New World Group can lead to a misinterpretation of the history of the period. Most academ-

Techno-Industrial

Policy

53

ically trained social scientists, including economists, remained wedded to the metropolitan paradigms (see Kennedy 1966). This includes those who adopted Marxist and neo-Marxist perspectives; those with neo-Marxist tendencies were more sympathetic to the radical school than to the neoclassical perspective. Among Caribbean neoclassical economists, technology and science were viewed in a similar light to that which has been common in mainstream metropolitan scholarship and tradition. In this tradition, technology and science are assumed to be given and are underestimated in their role as a productive force. The radical group paid a degree of attention to technology, but they did so primarily in the sense of applying technologies to fit the factor proportions found in the Caribbean. Even here, the discussion consisted of a fairly insignificant component of the literature, both plantation economy and neomarxist. The role of technology also turned up in work on regional economic integration. This literature flowed out of the university following the collapse of the West Indies Federation in 1961 (after its short-lived existence of three years). In particular, Brewster and Thomas attempted to identify a basis for regional structural integration in specific industries, acknowledging the technological factor. As they put it, "our aim was to set the most important aggregate, the total volume of demand, in a regional perspective.... Secondly, we considered it indispensable to bring out the crucial technical aspects of production as well as the raw material potential and to integrate these with the economics of production" (Brewster and Thomas 1967: 139). While their work generated considerable reaction and debate in academic circles at the university and among some technocrats in the region, it was not enthusiastically received by the private sector. Third Period: 1975-1980

to 1991

In this period, Caribbean economic thought has been marked by a retreat—for several reasons—of the radical or unorthodox schools. One reason is that, by the early 1970s, most of the leading intellectual leaders of the New World Group and plantation economy school and other radical tendencies had become directly involved either in the quest for political power or were integrated into the state bureaucracy as technocrats and/or consultants. This transition affected the quantity and quality of the intellectual debate and the refinement necessary for the development of the original and pioneering work. This subperiod also is marked by significant divergence in the economic fortunes of CARICOM countries. The disparities resulted in a growing body of country-specific economics literature. Trinidad and Tobago experienced an economic boom from early 1974 as a result of a rapid increase in oil prices. Jamaica and Guyana, on the other hand, had a

54

Economic

Theory

and

Caribbean

Reality

completely different experience after the short-lived boom of 1975 in non-oil commodity exports. By 1976, Jamaica was in a balance of payments crisis; Guyana shortly followed. The Bahamas and Barbados and the other Eastern Caribbean countries enjoyed a greater degree of stability than Guyana and Jamaica—due to their heavy dependence on tourism—but they did not register a boom comparable to that of oil-rich Trinidad and Tobago. This period also produced the first body of work devoted to the issues of science and technology in the region and this will now be analyzed in more detail.

Technology and Science in Caribbean Economic Thought In 1974, a project named the Caribbean Technology Policy Study (CTPS) was launched. The first phase, CTPS-I, lasted four years and Girvan (1979) provides a representative summary and sample of much of the research done in those years. A second phase was carried out from 1981 to 1983. It is striking that this research effort was begun twenty years after Lewis identified knowledge as one of the three interrelated components for the achievement of economic growth (Lewis 1955). The CTPS studies marked a significant shift in the perspective of some Caribbean economists with respect to the recognition of the central role of science and technology in the pursuit of economic growth and development. Both phases of the CTPS project shared common features; firstly, the influence of the literature on technology and technology transfer in the Third World—a body of work produced in the late 1960s and early 1970s, particularly in Latin America. This literature was dominated in its early formulations by concerns with the impact of the commercialization of technology on the balance of payments. The classic and pioneering work in this regard was done by Vaitsos (1974) and his influence can be detected in Odle (1979), who contributed to the study of technology contracts in Guyana and Trinidad and Tobago in CTPS-I. A second common thread linking CTPS-I and CTPS-II was the production of a number of industry-specific case studies to establish the appropriate context for the development of indigenous science and technology. Case studies were done on hydrocarbon-based industries such as petrochemicals, crude oil production and refining, natural gas development and related industries, the use of fertilizer, methanol, and iron and steel (De Castro 1979; Farrell 1979; Pantin 1983 and 1987b; and Farrell 1987). In Phase I, there were other case studies on bauxite, sugar, agro-industries, and technology institutes; and in Phase II these were extended to engineering industries. A third main thread linking both phases of the CTPS project was the

Techno-Industrial

Policy

55

articulation of a policy framework for effective transfer of imported technology (Girvan 1979; 1983b), and a fourth thread was marked by the absence of any definitive concern with technical change. In other words, the CTPS project as a whole bears an underlying assumption that technology is given and the critical technology frontier, so important to industrial modernization, is itself static or developing at such an imperceptible rate as to be insignificant in policy terms. This outlook reflects the strong influence of the technology transfer literature and the weight of neoclassical economics, and therefore the influence of mainstream economic paradigms that have articulated theories of technical change ( see Elster 1983). One clear exception is Thomas's (1983a) study in CTPS-II of the likely impact of both the threat posed by high fructose corn sweeteners as a substitute sweetener for cane sugar, and the promise proffered by these sucrochemicals.

Caribbean Economic Policy in Practice Polio/ Impact of Lewis What has been the policy impact of Lewis's early and pioneering work— from the immediate postwar period to the CTPS studies of the 1970s and early 1980s—on the streams of Caribbean economic thought? While Lewis did not persuade the colonial authorities to establish the necessary policy framework for an export-oriented manufacturing sector, the British government and the colonial elite in the Caribbean conceded the need for a policy of import-substituting industrialization by the 1950s (Farrell 1980). As is often the case with such situations, there was a lag in implementing Lewis's policy recommendations until the subsequent subperiod. But the second subperiod was dominated by the implementation of import-substituting industrialization in the English-speaking Caribbean, mainly in Jamaica and in Trinidad and Tobago. The Caribbean Community (CARICOM) was largely involved in creating a regional program of import substitution industrialization. While these policies were, and are still, widely considered to be consistent with Lewis's proposals as set forth in The Industrialization of the British West Indies, Farrell (1980) argues that the import-substitution orientation, as well as several other elements of development policy in the region, contradicted Lewis's proposals. The Impact of New World Group and Others Toward the end of the second period, formal regional integration became a reality, starting with the formation of the Caribbean Free Trade Asso-

56

Economic

Theory

and

Caribbean

Reality

ciation (CARIFTA) in 1968, and its transformation into the Caribbean Community (CARICOM) in 1973 under the Treaty of Chaguaramas. While the treaty is broad enough to encompass the regional structural integration strategy proposed by Brewster and Thomas and others, the actual implementation involved the idea of transition from insular to regional import-substituting industrialization. There has been significant policy divergence in the third subperiod of 1975-1980 to 1991. The divergence can be accounted for by the impact of the oil boom on Trinidad and Tobago—a boom not experienced by the other Commonwealth Caribbean countries. Moreover, policymaking has become increasingly dominated by the conditionalities attached to balance of payments support from the International Monetary Fund and World Bank. Jamaica has attempted to digest the medicine of conditionalities since 1977; Trinidad and Tobago accepted conditionalities in 1988; Guyana has come around to conditionalities after close to a decade of building up debt arrears; and Barbados signed an agreement with the IMF in September 1991. If we include the Dominican Republic in this list, then the majority of the Caribbean population presently resides in countries under the "external surveillance" of the Washington, D.C.-based multilateral institutions. The policy framework of these multilateral institutions is informed by the most unadulterated version of neoclassical economics—the laissezfaire economic liberalization model. Within this approach, the issue of scientific and technological development is to be left to the free play of market forces, as is every other aspect of economic reality with the exception of the protection of intellectual property via patents, trademarks, and other means of providing monopoly capital with profits and surplus rents. This new orthodoxy, which informs World Bank Group ideology and development policy in the Third World, is in clear contrast to the policies that informed the industrialization of the East Asian NICs and brought them to their present global status. Evidence suggests that the NICs did not follow any concrete laissez-faire strategies to reach their position in the international division of labor. The state, and foreign capital from Japan and the United States, played pivotal roles in designing industrial policy and international market access for their exports. This is in marked contrast with the neoliberal laissez-faire policy coming from the multilateral institutions today to inform domestic and international industrial and development policy for the LDCs, such as those of the Caribbean. A Roadblock for Technology Policy

Studies

The Caribbean Technology Policy Study project has advanced our awareness of the place and role of technology in economic development al-

Techno-Industrial

Policy

57

though dissemination and diffusion of the research studies have been limited even within the academic community and in policymaking circles. However, within the last decade, science and technology policy has begun to find explicit recognition in government policy documents, if not direct acceptance in policy implementation. This increased dissemination may explain why this recognition has not come to define the logic and practice of economic policy and regional integration. It is important to note that the onset of so-called structural adjustment programs will arrest this basic recognition and limit any possible impact it might otherwise have on economic policy. Assuming that the credibility of economic liberalization is unlikely to survive another decade of abject failure throughout much of the periphery, the need to focus on appropriate technology policy remains relevant.

A Techno-Industrial Framework for Caribbean Development It is against this background, relative to our second hypothesis, that attention is directed to an appropriate framework for incorporating science and technology policy into Caribbean economic policy. It is necessary to take the argument beyond the level of discussion of deficiencies in economic theory and policy and offer an appropriate alternative policy framework. T o this end, four main issue areas in Caribbean technology policy are addressed. Small Size T h e first issue is the reality, in the Caribbean, of small size. This factor imposes a number of constraints on the goal of technology development. It also offers some opportunities. Unlike in large peripheral economies, the smallness (and limited resource b a s e ) of Caribbean economies forces them to draw on imported resources and reinforces the need to earn foreign exchange. Equally, labor markets are unlikely to be adequately cleared without exports as a vent for surplus. Immediacy of the Economic Crisis Most Caribbean economies are marked by substantial levels of unemployment and underemployment. T h e underlying economic symptoms are expressed in fiscal and balance of payments difficulties and the external manifestation is reflected in an inability to service burdensome levels of foreign debt. Most Caribbean countries also suffer from spin-off effects in terms o f crime and social instability. N o appropriate policy framework can avoid addressing these immediate socioeconomic problems.

58

Economic

Theory

and

Caribbean

Reality

Constancy of Technical Change The third issue the Caribbean must confront is that technical change is an ongoing process. The unfolding of the 1990s brings unrelenting technological change under the impact of the new technological paradigms. The most significant feature of this technical change, as I have detailed elsewhere (Pantin 1987) and as have others in this volume (see Chapters 3 and 5), is the growing irrelevance of the periphery's major form of traditional comparative advantage in "unfashioned natural resources." Automation and the transition to systemofacture are reducing the demand for unskilled labor. New materials technologies and techniques of production are creating alternative sources to the traditional mineral resources of the periphery. Alternative energy sources, particularly solar energy and energy conservation, together with environmental concerns, will lead to a secular decline in the demand for oil early in the twenty-first century. Genetic engineering and the new biotechnology revolution are already enabling metropolitan producers to create substitutes and alternatives for traditional tropics-specific products. The demand for chemical fertilizers is projected to fall as a result of the development and application of techniques for directly fixing nitrogen in many crops via gene splicing. Restructuring of the World Capitalist Economy The unprecedented restructuring of technological systems is not impacting the global economy as a whole. On the one hand, the period from now into the early part of the next century will witness the playing out of the consequences of the collapse of the old system in the Soviet Union and Eastern Europe, with China bringing up the rear. On the other hand, the growth of regional blocs will become a major lever for adjusting the new technological systems. Western Europe leads the world with the removal of frontiers beyond 1992. There also is the United States-Canada Free Trade Agreement and N A F T A , and a proposal to create a free trade zone throughout the Americas under the Enterprise for the Americas Initiative (EAI). Also the Asians are discussing a Pacific Rim bloc, with Japan at the helm. Overloaded Policy Agenda The challenge facing the Caribbean is to design solutions to the problems sketched above. If governments and technocrats concentrate on the specifics of each of these issue areas, they are likely to face an overloaded policy agenda. There also is the danger of becoming overwhelmed by the difficult problems of competitiveness, unemployment, debt, and other immediate problems at the expense of any other issue. The reality of small

TecHno-Itidustrial Policy

59

size can lead to pessimism and cynicism about the possibility of achieving modern technological change. Such a negative view can be reinforced by the recognition of the sweep of new innovations of "wide adaptability" which are rapidly rolling back the technology frontiers.

Long Waves of Technological Innovation Individual countries and groups of countries always have been attempting to catch up with technological leaders in the face of domestic, social, and economic problems and external economic changes. Any or all of these circumstances can serve as a spur for policy innovation. One key constant has been the historical evidence of recurring long waves of economic growth and development fuelled by new technological systems. There is a large literature on long waves, but the Schumpeterian school can be singled out for stressing the critical linkage between these long waves and the bunching of radical technological innovations (Schumpeter 1961; Freeman et al 1982; Review 1979). The central hypothesis of the Schumpeterian school, in contradistinction to neoclassical economics—and very much akin to Marxist economics—is that the normal state of the capitalist economy is disequilibrium rather than equilibrium. Equilibrium is seen as an abnormal and temporary state. The initiating factor is seen as the diffusion of families of radical innovations (Mensch 1979) and new technological systems and innovations of wide adaptability (Freeman et al 1982). Unfortunately, most of the literature on long waves has not attempted to establish the linkage between major systemic changes in the center economies and the related changes in the periphery. The Cycles Group at the Fernand Braudel Center (SUNY Binghamton) concedes that data on long waves are state level data "...primarily about Western Europe and North America. It is at best a speculative inference that these patterns are asserted to be reflective of the World Economy as a whole. It may in fact be the case that many phenomena show inverse effects in core and periphery" (Review 1979: 487). Elsewhere, I advanced two hypotheses in relation to possible linkage (Pantin 1987): first, that the demand linkage between center and periphery—for commodities, services, and investment opportunities—is mediated by innovation-induced structural change at the center; second, that center economies are currently in the throes of structural transformation induced by a new wave of radical innovations that are responsible for sustained decline in demand for "unfashioned natural resources" from the periphery. The derived policy implication is the need to analyze these new innovations relative to their predictable ranking and rate of diffusion and the likely opportunities as well as negative implications that they raise for

60

Economic

Theory

and

Caribbean

Reality

the Caribbean. The first element in the proposed framework is the location of analysis of the global changes, both in technology and in political alignments within the framework of long waves of radical innovations. The second element is a move to more detailed and specific analysis of these radical innovations, beginning with information technologies that are dominant with respect to diffusion. This analysis would seek to identify opportunities as well as dangers in these radical innovations in specific industries (Pantin 1991; and see Chapter 7 of this volume). The third element is to define appropriate macroeconomic policy instruments to steer microeconomic decisionmakers, primarily firms but also consumers, in directions consistent with the desired long-term goal of technological and economic development. The fourth element is to incorporate the short-run, immediate, and unavoidable issues noted earlier. One of the causes of nonrecognition of developmental goals in the practice of economic policy is the absence of clearly identified methods for policy linkage between the long-term and the present (see Chapter 3). The region needs an industrial policy that targets economic activity in terms of its ability to reduce immediate socioeconomic difficulties. This is an unavoidable and understandable issue, but it is necessary to avoid the tendency to fixate on the short-run as a long-term goal. The proposal is to integrate the longer-run goal of technological development with the immediacy of the short-run via a techno-industrial policy. This latter policy component will include industries on the basis of employment, foreign exchange, or fiscal contributions, even if these offer little opportunity for technological development. The former component will address the longer-run goal and attempt to maximize potential overlap with the short-run objectives.

Aspects of Exploitation Why have some societies been able to catch up, as they say, with those on the technological frontier, while others have remained technologically stagnant? Finding answers to this fundamental question is key to the prospects of Caribbean and other peripheral economies for survival and development in the changing global economy. Perez (1985) has advanced a persuasive hypothesis on the framework of long waves; namely that the successful embrace and diffusion of new "techno-economic paradigms" require an accommodating "socio-institutional framework," relative to the institutional structure, culture, and values of the society, since these are crucial in either permitting the embrace of new innovations or in resisting them. In this light, the crucial stumbling block in the Caribbean does not

Techno-lndustrial

Policy

61

reside in factors such as the savings rate, balance of payments, fiscal deficits, or low productivity. All of these factors are real and important, but they are more symptomatic than causal. The root problem lies, in my view, in the deep-seated resistance to genuine productive activity (and hence economic transformation and development) in societies dominated by a rentier mentality (Pantin 1991a). The socioinstitutional framework has hardened into structures for competitive political bidding for shares in the "rents" produced from the exploitation of natural resources either by foreign-owned firms or with embodied foreign technology. Where labor-oriented groups gain political ascendancy, the tendency is to shift rentier income in favor of wages and salaries that are then utilized for the consumption of imported goods and services. When political alignments shift in favor of business, the objective is to maximize profits. These profits are then used primarily for speculative or nonproductive investment to yield the highest and quickest returns. The obvious examples are to be found in real estate, banking, insurance, and import trading. The profits from such activities are quickly converted into luxury consumer imports and into foreign exchange via capital flight. Policy

Conditionalities

Economic policy in the English-speaking Caribbean countries was based on insular and regional import-substituting industrialization during the 1960s and 1970s, and on tourism development. Import-substitution policies were implemented despite the obvious limits posed by the small size of Caribbean economies (Lewis 1950). Why did economic policy fly in the face of the obvious, and of Lewis's clear articulation of a distinctly opposite policy and his role as advisor to governments in Trinidad and Tobago and Jamaica during the 1960s? While we may dispute motivation, it is obvious that key decisionmaking and decision-influencing groups had other agendas (Pantin 1991b). By the 1980s, the economic failure of these policies led to the search for alternatives. In the case of Trinidad and Tobago, an export-oriented industrial complex based on natural gas was created. This heavily debt-financed industrial complex has contributed to debt-servicing problems, similar to those that plague Jamaica, Guyana, the Dominican Republic, and now Barbados. The 1990s has been called the decade of economic liberalization as defined by the multilateral agencies as a policy conditionality for their approval. As a result, decisionmaking power has shifted to rent-seeking profit earners. In the first year (1981) of the Seaga government in Jamaica, imports increased by U.S.$300 million. Eight years later the accumulated increase in imports over 1980 reached about U.S.$2 billion, and the country's foreign debt had grown by a similar amount from U.S.$1.7 billion in 1980 to U.S.$4.2 billion in 1988. Trinidad and Tobago began to

62

Economic

Theory

and

Caribbean

Reality

dismantle its quantitative restrictions in 1989 as a condition for securing a two-year structural adjustment loan of U.S.$40 million from the World Bank, in a cofinancing deal with Japanese financial institutions. By September 1991, the increase in imports was already impacting on the balance of payments. An impressionistic report in a newspaper captured the impact of import liberalization. This report noted that supermarkets are making much of their profits on imported items (Daily Express, 25 September 1991:1). An aspect of this phenomenon is that consumers develop brand loyalty to foreign goods for several reasons, including a feeling that these goods are better than any local equivalent. Uncritical

Economic

Thought

The majority of economists in the Commonwealth Caribbean have never abandoned the view that economic theories and prescriptions developed in the metropolitan countries are equally applicable to the Caribbean, with minor adjustments (see Chapter 3). It is commonplace for these economists to address the question of economic growth and economic turnaround in Caribbean economies without acknowledging that the level of economic activity is determined by one or two traditional mineral or agricultural exports or tourism earnings and that such export earnings are therefore dependent on economic variables exogenous to the Caribbean economy, and are also subject to greater or lesser degrees of volatility. A military conflict like the Gulf War, or even the threat of war, could lead to a substantial decline in tourism and cause major foreign exchange and related repercussions in an economy dependent on tourism. Comparable demand and price trends in bauxite or oil could have similar impacts. The preoccupation of neoclassical analysis with demand management is of limited value in dealing with the question of transformation, although it does have some relevance in management of the external accounts. The notion of a macroeconomy may be misplaced in the context of small Caribbean economies where external trade accounts for more than 50 percent of GNP. What, then, is the appropriate alternative policy framework? It has to be conceded that a readily available, detailed alternative framework for effective economic policy does not exist. But this is not unusual when an existing paradigm breaks down in the face of the empirical evidence of its inability to direct thinkers and policymakers to achieve desired goals. Unless the empirical reality is accepted, the "paradigm shift" akin to the conception of the Kuhnian sociology of knowledge will not arise (Kuhn 1970). The debate over the transition to Keynesian macroeconomic management provided the closest historical parallel to illustrate the fallacious view that one should stick with the conventional wisdom. Had a similar mind-set existed in the 1940s—to the effect that an adequate national income data series did not exist to inform macroeco-

Techno-industrial

Policy

63

nomic management—the case against Keynesian macroeconomic policy in the center economies might have won the day.

The Intellectual Challenge The main hypothesis in this chapter is that Caribbean economic thought and policy have largely ignored the centrality of science and technology in the process of economic transformation and development, and it is not surprising that there is only weak and limited evidence of the latter. The chapter supports this hypothesis by first describing the dominance of the neoclassical economic paradigm with its bias on demand management, whether of the Keynesian or neomonetarist type, in Caribbean economic thought and policy. Second, the chapter points out that even nonneoclassical, radical, and neo-Marxian strands have tended to deemphasize science and technology, given the emphasis on external factors within a dependency perspective. Economic policy is also observed to have largely ignored the technology factor. An appropriate framework is advanced for techno-industrialpolicy in order to integrate four key elements of reality that Caribbean countries confront in their quest for economic development. These elements are small size, immediate socioeconomic problems, the speeding up of the rate of technical change, and the related restructuring and political realignments that are taking place in the world economy. Three main obstacles restrain the potential implementation of such techno-industrial policy. The first and most critical is a deep-seated set of values and supporting social institutions for the sharing of rents from natural resource exploitation. Those who benefit from the rentier society (and rentier state and economy) are hostile to, and will resist, efforts to achieve a genuinely productive base to Caribbean economies. This obstacle is reinforced by the fact that the major Caribbean economies have accumulated levels of foreign indebtedness, for reasons not unrelated to the rentier economy, that they cannot service. As a result, the policy options open to these economies are increasingly marked by the determination of multilateral agencies based in Washington, D.C. These institutions, by their insistence on economic liberalization, effectively conspire with domestic profit-earning rentier groups to lead these economies into deeper foreign debt crisis via the hemorrhage of foreign exchange on luxury imports and capital flight. The situation is aggravated, and the obstacles hardened, by the fact that most Caribbean economists do not merely continue to embrace neoclassical economics: they have provided very little, if any, intellectual challenge or resistance to the virus of economic liberalism. This is not surprising: the new liberalism contains elements of the neoclassical (free

64

Economic

Theory

and

Caribbean

Reality

market) paradigm. This explains why some Caribbean economists have become major advocates of such policies,flyingin the face of the theoretical and empirical evidence. These economists ignore not only neoliberalism's irrelevance but also its capacity for destroying the social fabric without providing any real economic benefits. Notes 1. Kaplinsky and others have modified their views somewhat. The current emphasis on flexible specialization is discussed later in this chapter. 2. This critique of Caribbean economic thought and policy is not intended necessarily to suggest any greater wisdom on my part—merely to note that, even if the evolution of economic thought described above was unavoidable, the fact of a missing link is now apparent.

Part 3 CRISIS AND RESTRUCTURING AT THE NATIONAL LEVEL

5

Global Restructuring and the Prospects for Caribbean Competitiveness: With a Case Study from Jamaica Hilbourne A.

Watson

This chapter situates the Caribbean in the process of the globalization of the world economy, the restructuring of its industrial base, the international division of labor, and the international socialization of production. 1 What is distinctive about this process is that it is unfolding within the crystallization of a new industrial revolution that is driven by computerintegrated manufacturing (CIM)—the basis of flexible production systems and the driving force in the globalization of high technology production. International regionalization is intensifying with examples such as the North American Free Trade Agreement (NAFTA), the Enterprise for the Americas Initiative (EAI), and the Single European Market (SEM). Production and trade regimes are also being restructured in a handful of Third World countries (LDCs) where certain aspects of the technology foundation and production process tend to resemble those of the industrialized economies. Concepts of national economy and comparative advantage are losing their importance in economic analysis. Industries and firms are pursuing competitive advantage on a global scale through innovation-driven technologies; comparative advantage based on simple price competitiveness and location is declining. The garment (apparel) industry is selected for analysis with special reference to Jamaica. Recent experience and performance are analyzed against the background of the U.S. textile industry complex and trade policy. The apparel industry was chosen for several reasons: the textile industry was central to the industrialization of old and new countries in the past; it is highly internationalized and has been undergoing restructuring under computer-integrated manufacturing; it has been a growth industry for Third World exports for many years (during the 1970s, exports of garments accounted for between 22 percent and 41 percent of Third World global exports of clothing, exports that went mainly to North America and the EC); and it reveals the structural limitations of Caribbean economies relative to technological restructuring. This problem and the relationship 67

68

Restructuring

at the National

Level

between merchant capital, entrepreneurship, and technological innovation are explored relative to issues of export competitiveness. Globalization and Industrial Restructuring Globalization is an intensive process that conforms to the tendencies and laws of motion of capital. Globalization occurs in production, distribution, marketing, exchange, technology, information, telecommunications, and other aspects of economic activity. Globalization demands market liberalization and the removal of practices that restrict the "free" movement of capital; its ideological couplet is neoliberalism, which is being championed by the United States and the leading multilateral institutions. Globalization is a quantitative and qualitative process: it undermines national economic and political borders; transforms the character of industries, production, and commodities from national to global; and is concretely expressed in international regionalization such as the European SEM and NAFTA. Globalization mirrors strategies of companies operating on a global scale with leading-edge technology and with deep roots in local markets: global companies face new contradictions of scope (global versus local), scale (big versus small), and structure (decentralization versus centralization) (Taylor 1991:91-95). Globalization and industrial restructuring form a couplet and reflect the new global reach of the capitalist mode of production. Restructuring

Restructuring is more than a technical process: it is a social process that involves the shift from extensive resource-driven technologies to intensive, brainpower-driven, high-innovation technologies. It also includes privatization, debt-equity swaps, mergers, and acquisitions, and other ways of centralizing and concentrating capital. Restructuring is designed to reequip the productive base of industry and labor by revolutionizing the instruments of production and intensifying the production process. It involves new techniques of production (Harmon and Peterson 1990); the reorganization of the labor process and management; marketing; distribution; inventory systems, and the relationship between producers and consumers. Capital relies on restructuring, especially in moments of economic crisis, to intensify competition and restore the falling rate of profit. Under global restructuring, technology acquires a truly global character and the law of international value tends to become exclusive. As a technical process, contemporary restructuring is driven by three interrelated clusters of new technologies—microelectronics technologies, biotechnolog-

Jamaica

69

ies2, and new-materials technologies—via the CIM medium.3 In this process, science and knowledge have become productive forces in their own right (Schnaars 1988). Computer-integratedManufacturing

(CIM)

CIM technologies reduce the turnover time of constant and variable capital by shortening the product development and production cycle. Flexible production—including flexible manufacturing and Just-in-Time ( J I T ) production—is being realized as a result of CIM. As a totally-integrated communications system, CIM uses the computer to tap the benefits of integration by means of robots and other smart tools. CIM also uses information in digital electronic form to substitute for inventory, tooling, space, material movement, human skills, vertical integration, and lead time. CIM production processes reflect certain highs and lows: high variety, speed, data content, fixed costs, and responsiveness; and low labor content, cost per unit of operation, and lead time. Mass-produced diversity is a product of CIM—one at a time, one of a kind, made to order, high-speed/short-cycle, distributed capacity, close-coupled sequences, and complex and augmented production processes—( Wall Street Journal, 5 September 1991: A l ; Business Week, 23 November 1992: 90; Wall Street Journal, 21 December 1992: A l ) . Increasingly, economies of scope take precedence over economies of scale; and learning curves become less important. CIM uncouples people from machines to intensify the production process, creates new benefits such as lighter products, and eliminates waste. Demand curves become inelastic and fixed costs become more important than variable costs. The transition from the learning-experience curve to the innovationexperience curve requires the removal of technical and organizational barriers that separate management from labor; engineering from design; and manufacturing, marketing, and R & D from the customer (Ansari and Modarres 1990). The quest for competitiveness, market dominance, and customer loyalty dictates fragmenting the market into thin slices, controlling the market, and customizing production to meet diverse needs. CIM technologies and flexible production are helping capital to transcend the structural limits of the old mass-production system while creating new contradictions. Japanese manufacturing techniques are the most concrete expression of CIM technologies at work. They symbolize the reinvention of the factory (Harmon and Peterson 1990). The Japanese assert that economic leadership in developed countries (DCs) will rest on control of "brainpower" technologies. Japanese industrialists believe that blue-collar work, financial control, and traditional cost advantages represent a misallocation of resources and undermine company-specific and location-

70

Restructuring

at the

National

Level

specific competitiveness in developed countries. Japanese producers hope to abandon their own products and move from Total Quality Management (TQM) to Zero-Defects Management (Z-DM). They are investing heavily in strategic LDCs in Southeast Asia, southern Europe, Latin America, and in the Mexican side of the U.S.-Mexico border. The main reasons for this strategic move—foreign protectionism and growing labor shortages aside—is that it is cheaper to combine advanced technology with cheap (skilled) labor in strategic LDCs to produce for those markets than it is to rely on expensive labor at home to produce for markets in LDCs (Wall Street Journal, 2 September 1991: A12). This strategy raises new questions about the status of underdevelopment theory under intensive global capitalism. The global restructuring process described above depicts the global arena in which the Caribbean countries must attempt to compete in the 1990s and beyond. The message is unmistakably clear: international competitiveness can neither be achieved nor sustained by continuing to produce the same goods with traditional labor intensive technologies. The absence of a capitalist class in the Caribbean that is capable of technological innovation, the high fixed costs of developing innovation technologies, the short life cycles of new technologies and products, and the need for foreign capital to finance joint ventures in developing and/or applying new technologies, find the region a very weak participant in the globalization and restructuring process.

The Caribbean Problematic The transition to competitive advantage refers to the ways CIM technologies are reshaping production of goods and services as varied as semiconductors and food products. In agriculture, for example, competitive advantage in economies with a modern technological base means applying biotechnologies to the production in laboratories of food crops that used to be produced in LDCs with labor intensive technologies (see Chapter 3). Whereas comparative advantage tends to be location specific, competitive advantage tends to be industry specific and driven by high-technology production. High-technology production is altering the structural composition of world output at an unrelenting pace. UN Global Outlook (1990: 174, 186) projects that the shares of agriculture and services in world output will decline relative to the share of manufacturing for the 1990s and beyond. Genetic engineering and the rise of chemical substitutes for many LDC primary commodities will aggravate this trend. While the newly industrializing economies (NIEs) have made progress in developing microelectronics and information technologies, developments in informatics remain quite embryonic in the

Jamaica

71

LDCs (Watanabe 1988). In the world electronics industry, the cost per integrated circuit is becoming higher in the Third World manual assembly operations than in semiautomated and fully automated assembly operations in the United States (see Chapter 8). East Asian NIEs are struggling to transcend the limitations of price advantage by importing cheap labor for their labor-intensive industries and exporting some labor-intensive assembly operations to low-wage Asia and Central America and the Caribbean, while combining new technologies for investment- and innovation-driven advantage at home. Competitive

Advantage

The pressures generated by global restructuring have led Caribbean technocrats and economists to examine questions of export competitiveness. Nicholls (1989: 4-5) defines competitiveness as the "ability to produce and sell goods at prices that assure long-run viability" in a context of price efficiency and timeliness. Nicholls linked the absence of competitiveness from Caribbean economic consciousness to the fact that access to "guaranteed markets and prices including transfer prices (for sugar, bananas, some regional agroproducts, manufactures and . . . bauxite and petroleum)" sheltered Caribbean exporters from the vagaries of the world market. Nicholls sees the symptoms of a lack of export competitiveness in inadequate foreign exchange, chronic balance of payments deficits, limited economic growth, high unemployment, low utilization of resources and capacity, and protectionism; but he is silent on the role of merchant capital in reproducing "technological underdevelopment." Worrell (1991) argues that the failure to identify areas of comparative advantage to produce and export at internationally competitive prices is basic to problems of attracting capital to the Caribbean—more so than the shortage of capital. Downes et al. (1990: 72, 57) link productivity and competitiveness to adopting a "more vigorous export promotion-cummarketing policy, technical change, and changes in real wages, organization and management" (see Unger 1990: 480-495). Pastor and Fletcher (1991: 106) call on the United States to increase Caribbean access to its market for sugar, steel, and textiles to promote competitiveness; but they are silent about the future of these industries or their ability to drive investment or innovation in the region. Pastor and Fletcher do not even mention the significance or implications of global restructuring or the new technological paradigms for their recommendations. There seems to be an element of technological voluntarism in all of these arguments, a mainstay in the neoclassical analytical structure (see Dosi and Soete 1988: 402-422). It is a simple fact that promoting competitiveness in the Caribbean—given the lack of a capitalist class rooted in modern science, industry, and technology—is highly unlikely through state promotion of

72

Restructuring

at the National

Level

areas of comparative advantage and adoption of "appropriate" export and related policies. This intellectual lacunae about competitiveness is also a function of the paucity of research into the relationship to entrepreneurship of innovation, technical change, and industrialization. The Caribbean suffers from "technological underdevelopment or a weak capacity or inability to support or use effectively four elements of development including modern production facilities, useful/available knowledge, effective organization/management, and technical abilities/skills (UN Global Outlook 1990: 140; Unger 1988: 480-481). Caribbean governments and capitalists tend to lack mechanisms for identifying basic research with commercial potential. The state and private sector do not support highly focused applied research. Marketing techniques, appropriate for the assessment of market needs, are prescientific, and the absence of a modern industrial culture practically rules out engineering/industrial R & D and commercial technologies. Basically, "technological underdevelopment" tends to preclude the effective transfer of modern technology (Unger 1988:483), for there is an absence of dense technological and capital goods infrastructures and business culture in which to absorb it. Brewster (1991) argues that the requirements of "pre-competitiveness" for international competitiveness must be met in a global environment where traditional strategies of comparative advantage are being displaced. Brewster notes that export competitiveness must be seen relative to global standards rather than from the perspective of other LDCs that compete in metropolitan markets: in other words, it is the law of international value that defines the standards of global competitiveness to which Caribbean producers must conform. While Brewster is mindful of the challenges the Caribbean will face from CIM technologies—information/telecommunications, genetic engineering/advanced materials, applied meteorology/climatic change, and new energy systems/rational energy use—he did not discuss the implications of the lack of an industrial class with a capability in technological innovation. Unger (1988: 480) anticipates these implications when he argues that "the dynamics of competition and learning in less developed countries need to be better understood before w e . . . model the entrepreneurial reactions and attitudes toward innovation that would be necessary to accommodate together the micro- and macro-objectives of the new industrialization strategies in those countries." Export competitiveness in the global market is not reducible to having an export platform: it rests on factors as diverse as the quality of a country's capitalist class and its ability to employ productive capital, the quality of the productive forces and prospects for adapting new technologies, the role of government, and other factors. In the new global "quality complex," factors such as national character, geographical location, natural resources, market size, government policy, and management styles as-

jamaica

73

sume importance. There is nothing magical about them. Azel (1991: 23) recognized this situation when he argued that company-specific opportunities are more important than location-specific advantages for investment and innovation. Azel argued that these regimes must apply the insights of corporate decisionmaking to the process of government policymaking. While this is plausible, it does not address the contradictions that such a strategy would pose for the state in its normal decisionmaking activity, even if its role is restructured along market norms. The State Direct and indirect state participation in economic production in the Caribbean has been justified on grounds of employment creation, equitable distribution of assets, and the achievement of appropriate welfare objectives. The restructuring of welfare state policies in Europe and the United States in the 1980s led to a demand for the weakening of the state's role in productive economic activity to conserve resources, rationalize production, and improve the ratio of returns on loans to output and repayments from multilateral institutions. But the neoliberal strategy and ideology that underscore this outlook fail to explain the basic reason(s) for state participation in productive activity in the LDCs. The absence of a modern capitalist class in these countries forced the state to become a surrogate capitalist. The merchant capitalists consistently depend on a wide range of public sector supports and protectionism to stay afloat. Resources, which were nationalized in some countries like Trinidad in the 1970s, included enterprises that foreign capital had decided to divest. State participation in commercial and industrial enterprises was intended to create a productive capitalist class. This is the same class whose inefficiency and lack of familiarity with modern science and technology have been lamented by leaders from Jamaica to Trinidad and Tobago in the 1980s. The Guyanese state fared no better in the transition to state capitalism without the attributes of modern technology and entrepreneurship. T h e absence of an innovative capitalist class deprives both the private and public sectors of an adequate supply of highly trained professional and technical workers with expertise in modern R & D , management, technology, and other areas. This situation is aggravated by the intellectual and social hiatus between scientific and technical (academic) labor and capitalist interests. There is scarcely any cooperative research activity to foster vital links among industry, government, and the universities, in spite of the fact that such links are important for keeping scientific, technical, and professional workers abreast of the economy's needs, and providing industry with ready access to the latest research developments

74

Restructuring

at the National

Level

to enhance competitiveness. Such links are also important at the academic level for the training and placement of highly skilled and educated college graduates. The state consistently promotes trade and development at a major disadvantage, via the infrastructures of the nonprice determinants of competitiveness. This can be seen in the role of tourist boards, industrial development corporations, export promotion corporations, and other agencies (Mclntyre 1990). These state agencies and the technocrats who run them are seldom linked to productive activity at any level. Largely, labor exists for capital under capitalism; to that extent, the requirements of merchant capital have dictated the reproduction of the forms of labor power in the Caribbean. This has become an untenable situation relative to the region's future development. Problems with Merchant

Capital

In industrialized economies, merchant capital and industrial capital form a unity with the former being subjected to the norms of the law of value. In the Caribbean and other LDC regions, there is an inherent tension in the relationship between merchant capital's preoccupation with circulation (use values) and industrial capital's need to expand the sphere of production (exchange values) (Kay 1975). The scope of the former is extensive, while the latter, when it engages in productive activity, is of the intensive (enclave) type. At the global level, supranational finance capital subjects merchant capital to its sway, reproducing distortions of "technological underdevelopment" in the production structures of LDC economies. Thus, even where merchant capital engages in production proper (e.g., sugar production) it retards the development of the productive forces by exploiting the economy without transforming the productive base of the industry (in the exampled case, sugarcane production) or creating or sustaining complex linkages with the rest of the economy. In this context, foreign commercial banks function as proxy merchant banks. Azel (1991: 23) alludes to this situation when he says that the Caribbean does not offer opportunities for FDI firms to gain a "sustainable competitive advantage . . . (and) firms in this setting have little reason to disrupt the industry's competitive equilibrium via an FDI commitment. In the absence of a competitive threat, the more likely strategy is to preserve flexibility by postponing commitment." While the lack of a modern entrepreneurial class impedes industrial development, there is sufficient variety in the new technologies, especially the knowledge intensive ones (data processing and telecommunications), to redefine the way some technological knowledge may be transferred. 4 For example, the development of a modern telecommunications infra-

Jamaica

75

structure in Barbados and Jamaica in conjunction with A T & T and Cable and Wireless is what makes these countries sites for the export of backoffice white-collar jobs from the United States (Wall Street Journal, 14 August 1991: A l ) . Major technological change is taking place in switching and line capacity: fiber optic rings, digital switching, teleports, and other means of lowering costs have been built or are being constructed. New jobs for professional and technical workers and mass-production jobs in information processing and remote data entry, are exported to these countries, in spite of the absence of an innovative entrepreneurial class. However, it does not compensate for this deficiency relative to a development strategy driven by the logic of high-technology production. 5 Part of the problem is that merchant capital, government policy, and culture tend to inhibit the process when interest rate and exchange rate policies generate negative consequences for technology development or technology transfer, and when foreign exchange controls limit access to foreign technology. The effectiveness of government agencies charged with national standards development, the promotion of industry, agriculture, tourism, export trade, and quality control depends on the quality of private sector institutions and the networks that integrate information services, and the critical mass of professional and technical expertise. These are not the only institutional limitations associated with merchant capitalism. Race and ethnicity, which play a significant role in the Caribbean, are reflected in the relations between capitalists and professional, technical, and kindred workers (Watson 1989,1990; Lewis 1990). Economically and socially dominant racial groups in the Caribbean tend to be defensive about their position in society; it is customary for these groups to rationalize their position by noting that they provide stability in an otherwise unstable environment. For example, white Barbadian businessmen see the process of change to facilitate the development of black entrepreneurs in the core areas of the economy as "long-term and necessarily slow (because) anything done in haste could set us back in our social and economic development" (see Lewis 1990a: 36-37). E C L A C (1990:73) links the development of the productive forces and the capacity to absorb technical progress to the concrete relationships with capital and analyzes the role of the institutional, social, and political makeup of a country. E C L A C argues that the nature of social and technical aspects of class relations among "entrepreneurs, professional, technical and kindred workers and their capacity to take concerted action to raise productivity" depends on the quality of the representative organizations for the groups whose leadership legitimacy stems precisely from their capacity to mount concerted efforts." The social distance between the races, the limited interest of merchant capital in the professional and technical development of workers, and the failure to support technical measures to advance the technological learning process reinforce limita-

76

Restructuring

at the National

Level

tions and constrain the development of a highly skilled labor force for international competitiveness. C A R I C O M (Bourne 1988: xxxiv) argues that such structural weakness can be addressed by means of development expenditures and closer collaboration and interaction between production sectors and scientific research institutes. C A R I C O M emphasizes several areas that could receive attention: materials, products, and engineering design; the development of a stratum of technologists and technicians essential to technology adaptations; and development and changes in policies and conditions pertaining to the acquisition of imported technology. These objectives cannot be achieved without modern producers with appropriate global links to modern enterprises for joint ventures and subcontracting arrangements. Caribbean countries must deepen their integration into the global economy for several reasons: education for international competitiveness demands technological innovation; weak or negative domestic savings require foreign savings to finance economic growth; the widening gap between export and import earnings reinforces reliance on foreign capital; and technologies will have to be imported and adapted to enhance international competitiveness (Bourne 1988). The record of net FDI inflows to the English-speaking Caribbean between 1974 and 1988 underscores this necessity. FDI inflows to CARICOM countries (excluding the Bahamas) and the Dominican Republic, Haiti, and Suriname were U.S.$505.1 million in 1974. FDI levels declined yearly to U.S.$176.9 million by 1979. In 1981, FDI rose to U.S.$575.9 million, due mainly to a significant increase in inflows to Trinidad and Tobago. Annual FDI inflows fell from U.S.$336 million in 1982 to $80 million in 1986, and in 1988 it was 25.3 percent of the 1981 level. As a whole, the region received 2.3 percent of the world's total FDI flows between 1974 and 1988, with half of this amount going to Trinidad and Tobago (see Table 5.1). International capital did not find the Caribbean an attractive site for productive activity between 1974 and 1988. This new pattern was reflective of the global restructuring of investment—driven by the revolution in industrial manufacturing, biotechnologies, materials sciences, and transportation—a process that has undermined traditional exports from the region. These wrenching changes reflect world market trends in consumer tastes, competition, and income elasticity of demand in importing countries for commodities like sugar and bananas (Caribbean Business, 29 March 1990:21). Merchant capital has failed to anticipate and plan for these structural changes in the world economy.

Restructuring in the Caribbean Apparel Industry CIM technologies are significantly shortening the life cycles of products and increasing competition from some developing countries in "techno-

H oH

'-'•-'00000'-«00 -g w r*"> -j ^Ti-^00r»00^firI-^ i— 90 5 6 OooO O SO' r-mT V OV í ri CA (N

NNOOClN^N^O^q^i-" (N CJj i

m V IH

N

^oooao^r-nNnhrtooî) aHoonoNo^^dd/ioivi es — «< o it-iT-H I W) ^finvn

3g

5 6 S o u.

(S

¿PS

en i— ®

«Ovidd^n^O^wSoOí^riN-iN i

r- o ^r (N ^c f m V) « o ^ i— o (^NOriHfro& Q oo00 o£o © J*