Background to the economic concept of development

If we view Caribbean economies historically, then we begin with pre-Columbian economy and society where
trade would have been based on barter, technology was simple, life was communal and a whole ethos of
existence based on a different way of relating to time and space existed. This civilization was wiped out by the
capitalists, materialist march of the European powers.

Plantation Economy

The model of plantation economy help to set the framework for the emergence of Caribbean economy and
society. In the early 16th and 17th centuries, islands like Barbados, Jamaica, Antigua and Dominica were places
where Britain found convenient to grow sugar for export. Some core features of the pure plantation economy in
its earliest phase are given below:

 the dependence of foreign enterprise, skill and capital;

 the complete specialisation of the island in the export crop;
 technology wholly imported;
 importation of all necessary inputs;
 a total institution, completely regulated internally.

Plantation Economy Modified

At emancipation the society was modified, as slaves were set free. From 1834 to the early 20th century, the
evolution of society took place with developments in education, changes in government, rise of a black middle
class, rise of a black peasantry and the development of trade and commerce to facilitate the needs of a free
society.

However the legacies of the pure colonial economy proved hard to unravel. These countries governed from
abroad still depended on sugar as the main support of the islands. There was no significant development of any
local resource and the societies remained largely agrarian and dependent on the imperial power for aid and
trade. The colonial economy in the Caribbean exploded in the 1930s, as the economy was unable to provide for
the needs of the growing population.

Plantation Economy Further Modified

The twentieth century saw self-government, labour movements and adult suffrage but colonial economy remain
intact up till the 1950s. A local private sector developed, engaging in commerce and distribution but the
economies were still undiversified, dependent on sugar, bauxite or bananas. Some countries developed new
sectors such as tourism or oil, but these were completely in the hands of foreigners and so the syndrome of
dependency on foreign capital enterprise continues, with the lion’s share of profits going abroad. After the
Second World War, the Moyne Commission from London said that, to all tenets and purpose, these islands were
good for agriculture and nothing else.

Industrialisation

In the 1950s, following thee Puerto Rican Model, countries throughout the Caribbean and Latin America began
earnest attempts at industrialisation. The argument ran like this: since these countries did not possess the
relevant technology, enterprise capital and market connections, then it made sense to invite special firm to set
up in production within our territories. The firms would have all the capital and market connections. Certain
incentives would be offered to these firms such as tax-free holiday, exemption from taxation on raw materials
and equipment, and free factory shells. The idea was that local investors would learn the tricks of the trade,
investors would reinvest and the process of economic growth would take off.

This strategy was aimed at developing a manufacturing sector. The results of these policies were not very
encouraging ten years later. By the later 1960s, the effects on employment and increased industrial activity were
very limited. Most firms engaged in screwdriver-type industries for which the employment effects and the
generation of linkages were minor. Some firms folded after the tax holidays were over.

So, while some economies have small manufacturing class, it is not significant enough to generate sufficient
foreign exchange or employment. Most economies are still dependent on single exports to narrow markets for
survival. But, while “industrialisation by invitation” was seen to be unsuccessful by the 1960s, it remained,
strangely enough, the main strategy in the Caribbean until today, as many of the biggest countries see their
survival as tied mainly to their ability to attract direct foreign investment.

These territories still see themselves ass having to import technology, lock, stock and barrel, even when local
producers are attempting to set up shop. Not that there is not a need to do so. But we have not reached very far
in devising ways to use local resources to produce goods that we can sell aboard. We have not as yet learnt to
build markets or promote local goods. The legacy of foreign tastes and lack of acquaintance with technology are
continuing constraints.

Economic Ideologies

The Caribbean offers experiences of a range of ideologies. Cuba in 1959 took the socialist option and has
survived till today. Grenada took the socialist option that did not last. Jamaica took the socialist option and
retreated. Guyana took up a variant of socialism and suffered. The other countries of the Caribbean remain with
the conservative and approved options but even the wealthier countries in the region, such as Trinidad and
Tobago, Barbados and Jamaica, ended up in the hands of the IMF in the latter part of the twentieth century.

The Socialist Option

The socialist option always proved difficult given the geopolitical context of the Caribbean vis-a-vis the needs
of American society. With the existence of socialist Cuba, the USA was not prepared to permit another rival
ideology to exist in the Caribbean. Any other socialist country would have suffered all the possible sanctions of
trade, aid, and technology that could have been brought to bear on such a country. Secondly, while such an
approach to governance may give power to the state, it does not solve the central problem of shortage of
enterprise, technology and generation of local goods and services.

Statist Polices

From the period of the 1950s to the late 1970s, the attempt by the state to control the “commanding heights of
the economy” was the key ideology. Most of these economies were mixed with a strong state sector and a
weaker private sector. Governments saw themselves as the prime movers with the responsibility to produce
employment and a better standard of living for all. Not only were government seen as managers of the
economy, but also as owners of enterprises. Large state sectors developed in countries like Trinidad and Tobago
and Jamaica. Nationalisation was a respected word even up to the late 11970s.

Liberalisation

With the fall of the Eastern Bloc countries and the dismal experience of state enterprises in other parts of the
world; countries entered an era of free market capitalism in the last two decades of the twentieth century. The
rise of information technology and its application to trade and commerce made the world into one marketplace.
This meant that the protection of home markets could not be sustained in the future. Under the aegis of the
World Bank and the IMF, countries were forced in the direction of free market capitalism with the implications
listed below:

1. Removal of restrictions against foreign goods.

2. Removal of restrictions against financial flows.
3. Privatisation of state companies
4. Reduction of state subsidies to industry.
5. Reduction of state involvement in economic activity generally.

Caribbean countries have all gone down this path. The danger is that we are now more than ever inundated with
foreign goods, culture and tastes. We still have un-diversified economies and, in the case of bananas, we are
facing the consequence of losing preferential markets. In the context of the information age challenged to
educate and train in order to obtain local entrepreneurs who can develop other areas of the economy.

The challenge of technology and the new Information Age

Throughout out history, we have been dependent on technology from abroad. The nature of any technology,
however, is its cultural heritage. Every process or tool implies the use of certain kinds of resources to produce
certain kinds of outputs to satisfy certain needs and wants. The plantation experience gave a limited exposure to
technology, but one that could be built on by freed slaves. The manufacturing class that subsequently evolved
imported all technology from abroad. In Order to reduce this technological dependence considerable technology
research and innovation required. The development of computer technology and the application of such to
production, trade and exchange, presents a new technological environment within which countries have to
survive. E-commerce is the new buzzword of the day and the use of the Web and digital technology is radically
changing banking, education and distributive trades. In this era, the skill and depth of human resources will
determine a country’s ability to survive.

Unequal Distribution of Income

In equality of income distribution is a distinct heritage of the colonial economy and society. Immediately after
emancipation, there existed a large-scale agricultural sector alongside small-scale peasant agriculture. The
peasant sector controlled major land resources and benefited from better infrastructure. Structurally, equality
was built into the society. The lack of success in diversifying the economy also meant that the traditional lead
sector gave higher wages while other sectors gave low wages. Also, as these populations grow, unemployment
increases as economic activity does not increase in scope. This could worsen the distribution of income.

The political process of development

A crucial requirement for development is to include people both as beneficiaries of the process and products of
the political system. How are the political processes crafted to encourage participation of the widest sort?
Genuine participation involves people in decision making at all levels so that the setting of priorities and use
and distribution of resources have consensus and commitment.

Coming out of a system of direct rule from abroad, the British Caribbean has had a problem of crafting political
institutions that reflect and incorporate people in the development of their countries. The two most important
developments in this direction have been the size of the labour movement and political parties.

Trade Unions

Trade unions were the first organisations that won rights and freedom and struggled to improve the living
standards of the citizens. This was the experience in Jamaica, Barbados and Trinidad and Tobago as well as in
some of the smaller islands. Union leaders like Uriah Butler in Trinidad and Tobago, Bustamante in Jamaica,
Clement Payne in Barbados, Antonio Soberanis and T.A. Marryshow, were all struggling for better living
conditions for people before there was universal adult suffrage. Trade unions are still significant in the political
life of many Caribbean territories.

Political Parties and Nationalist Governments

The growth of nationalist politics, the granting of universal adult suffrage from the 1950s brought advantages to
the general citizenry. The formation of political parties meant a lifting of national consciousness and coming of
independence meant that Black people now occupied the higher echelons of the entire civil service. The control
of public policy with national governments in charge meant that a concerted effort was made to improve the
livelihoods of ordinary citizens.

Today, however, many of the independent countries are questioning whether or not the Westminster model of
democracy is working in a way as to include ordinary citizens in the decision making process. This may mean
that decisions made by those in authority may not have the commitment of the masses. Also, the political
process may not be appropriate for expressing the needs and interests of the population. For example, many
people feel that they only ‘participate’ in their country’s government once every five years at election time and
after that they are not included in the process of decision making.

Globalization and the influence on global markets

The Caribbean has always been integrated into the north, as we have already seen in this chapter. From the early
sixteenth and seventeenth centuries, we became incorporated into the world economy and Europe was the
leading power in that world economy. We already involved in a global system. We supplied Europe with some
form of raw materials; all our needs were supplied from Europe; people were transplanted from China, India,
and Africa and from Europe to a lesser degree.

Of course the global system had to use transport as the only form of cross-border communication. The
technologies for transporting goods and making financial transactions were limited and in the sixteenth and
seventeenth centuries, each European power sought to protect its trade with its colonies from other countries
through navigation laws. This form of protectionism was referred to as mercantilism.

The global system today has changed. Besides the improvements in the air and sea transport, the application of
digital technology to telecommunication has revolutionised the transmission of print, audio and visual data.
Protectionism is now not possible in a borderless world. Goods and services can be transmitted anywhere and
payments can be made once a source of power exists along with an efficient mail system.

In addition, as has been explained earlier, the dominant ideology in the world today is free market capitalism
that is facilitated by information. International agencies like the World Trade Organisation, International
Monetary Fund and the World Bank set out to reduce trade barriers, free up the international movement of the
money and reduce governments’ involvement in the economy.

Dependence

In this kind of global economy the leaders in technology will be able to dominate the globe in a more complete
way than ever before. Countries like the USA will be able to literally sell their culture freely to the rest of the
world. Small countries with weaker cultures may find themselves inundated with images from the north that are
so compelling and consistent threat these countries may be kept dependent as their citizens adopt foreign
lifestyles and purchase foreign goods.

As technology improves in the northern countries, the gap in living standards between the European and North
American countries and the poorer countries of the south will widen even further. As technology improves also
and new techniques are discovered for making products, certain resources from the poorer countries may no
longer be needed.

Technological dependence would be reinforced in the future as we seek to improve production in the fields that
the developed countries have charted. The range of our imports from them will increase and will be of less
significance to them.

The Plantations

The first international firm that came to the Caribbean was the plantation. It was set up with foreign capital,
enterprise and technology. In produced for a foreign market abroad and purchased all its inputs abroad. And,
through a process of transfer accounting and book transfers, it could settle all its accounts in the UK. The
plantation was a total institution. It had no production links with other plantations, therefore, do not generate
inter-industry linkages, the lion share of the profits are repatriated and it decides the parts of the production
process it wishes to hold abroad and so its impact on the economy is limited to wages and taxes.

Transnational Corporations/Multinational Corporations

“Essentially a TNC pulls together the factors of finance, technology, supply of raw materials, manufacturing,
distribution and marketing in one organisation. This kind of organisation is privately owned and controlled in
one country but draws upon the resources of as many other countries as are necessary to secure an operation
which flows in an integrated way, from raw material through processing and manufacturing to a final market. It
represents, therefore, the highest phase in productive organisation because it extends the principle of vertical
integration beyond national boundaries to a global theatre of operation.” (Manley 1987,p.194)

The plantation, therefore, was the forerunner of the transnational corporation that was to dominate the main
sectors of some countries in the Caribbean: oil in Trinidad and Tobago and bauxite in Jamaica and Guyana. The
impact of these types of firms can be limiting to a country in the following ways:

1. the firms can restrict the transfer of technology and management skills to the host country;
2. the firms can repatriate the lion’s share of the profits;
3. it may not be in their global interests to reinvest their host territory;
4. the firms may not operate in conformity with national development plans;
5. the firms can use their leverage to indulge in restrictive practices.

The modern transnational is now more footloose than the transnational of two decades ago. Given the new
information technology and efficient communication and power supplies, essentially any set of activities can be
networked to produce in any chosen location. Especially in high-tech operations and in the information
technology industries, firms may simply go where the labour force is well trained. Such industries can change
location very quickly and may have negative consequences for small countries.

Strategic Alliances

International firms may penetrate the economy of another country by forming partnership with local companies.
Many such strategic alliances are being formed today between insurance, accounting firms and banks. In this
way, the foreign firm enters that country through the connection with the local partner. Both may benefit from
the alliance. In the present liberalised environment, that has become an increasing practice as local firms seek to
become internationally competitive.

Licensing Agreements

Licensing agreements are not new. Locals own KFC, MacDonald’s, and many international brand name
companies’ franchises. The locals get permission to use the brand name under specific contractual agreement.
The foreign firm may sell them the equipment and raw materials, train workers and do regular quality control
audits. This was a preferred strategy when we had protected markets. Today, foreign firms can come in directly
if they wish to.

MULTILATERAL AGENCIES

Historical Evolution

At the end of the Second World War, in order manage the international system of trade and payments, three key
institutions were formed: the International Monetary Fund (IMF); the International Bank for Reconstruction and
Development (IBRD); and, the General Agreement on Tariffs and Trade (GATT). The latter has now been
transformed into the World Trade Organization (WTO)

The International Monetary Fund

The IMF was set up in 1947. Each member of the IMF is required to contribute a quota of money to the Fund
dependent upon size of the national income of the country and its share of world trade. The purpose of the IMF
is to stabilise exchange rates across the globe by providing balance of payment support for countries
experiencing trade and payment difficulties. There are various loan facilities available.

Policies of the IMF

A central concern is the nature of the economic philosophies that the IMF practices and the conditionalities it
uses for the disbursement of funds.

Conditionalities

Fund lending to any country has to be repaid at a given rate of interest. Loans negotiated are released to the
central bank of a country as the country passes certain ‘fitness’ tests. If the country does not meet certain targets
within given timeframes, money is not released and that country is unable to obtain. Targets set may include
reduction of the public sector, removal of state subsidies or removal of barriers to trade. The nature and speed of
these targets are of concern to developing countries.

Economic Philosophy

The IMF operates within the paradigm of laissez-faire free market capitalism and seeks to invoke the market as
a cure for the payments problem. Its main objective is to deal with the balance of payments. The Fund’s actions
pivot around three main tools: the rate of exchange, the level of wages and rate of interest. Also the Funds seek
to reduce state activity and encourage private sector activity.

Devaluations

Devaluation is a tool, since the orthodox economic argument suggests that it will increase outflows of money
and increase inflows. But in societies like ours where we import such a range of essential items both our cost of
living and productive capacities are negatively affected.

Monetary Policy

Rates of interest are pushed upwards to reduce domestic expenditure generally in order to reduce the purchase
of imports, to curb state borrowing and even to attract funds from outside. However, the latter effect never
occurs in this part of the world. And business activity may also suffer from high rates of interest.

Wage Rates

Declining wage rates in order to reduce the demands for imports and to reduce the local costs of production are
seen as desirable.

“Every action the government took over the period was influenced by the anticipated reactions of the IMF or
the perceived impact, which it could have on the conditions of the agreement in force. Government actions
were guided only by what would seem to be the most relevant section of the current agreement...long term
economic planning became more remote...the official socio-economic plan was never used in guiding policy
at any stage...(Davie, 1986, p. 87)

The World Bank

The World Bank was set up in 1947 as the sister organisation IMF. Its original aim was to make loans to
develop the war-shattered economies of Europe. Its subsequently began to finance projects and programmes of
developing countries on a long-term basis. Most World Bank loans are used to finance infrastructure investment
in transportation, electrical power, agriculture, water supply and education.

Policies of the Bank

While IMF programmes govern macro-economic variables, with special emphasis on reducing the availability
of domestic credit to the public sectors, the structural adjustment programmes of the World Bank address
“economic efficiency” at the micro-economic level. Public enterprises are forced to operate on a profitability
criterion – showing profits and reducing costs. Wherever possible, they should be practised or divested.
Government should not operate. Additionally, emphasis has been placed on the lowering of all protectionism in
trade. The principal thrust of the micro-economic policy of the Bank is toward the liberalisation of trade
payments. As with the IMF, failure to comply will result in refusal to lend.

World Trade Organisation

At the same time the World Bank and the IMF were formed, another organisation called the General Agreement
on Tariffs and Trade was formed. GATT was converted into the WTO in1995. The purpose of GATT was to
promote free trade by consistently bargaining with countries for the reductions on tariffs and encouraging
countries to adhere to trade agreements.

While GATT did have some success in reducing tariffs, GATT did not include trade in agricultural goods, or
services. The latter has increased in significance in the world trade and raises a whole range of issues about
copyright and intellectual property. WTO was formed in 1995 and has taken the latter two areas into its
portfolio. WTO has a much tighter dispute settlement procedure and a new trade policy review mechanism.

Summary

In this chapter the economic model of development was explored because it remains a dominant concept in
development in the minds of people. The Human Development Model was also offered as a more holistic
concept of development that we should embrace. Attention was paid to the many dimensions and
interrelationships that are inherent in the development process.