Waves of change: the future of Caribbean States

Technological advances in communication, such as the internet, fax, teleconferencing and cable television have made the world a global village.

We are now living in an international economy, where countries operate on a ‘level playing field’ in which trade has become increasingly liberalized and financial markets have become fully integrated.

In this global arrangement, small states, like those in the Caribbean, are made to compete on the same terms and conditions established by the World Trade Organization (WTO), as much larger countries like Australia, the U.S., Brazil, China, India, Russia, and Canada.

The WTO arrangements do not take into consideration a country’s size or historical legacy. In the Caribbean region, our colonial legacy has often given us an agrarian-based economy – punctuated by small holdings and a vibrant peasantry – that has difficulty supporting a stable economic base in today’s global environment.

Because of the small size of Caribbean countries, they lack competitive economic advantages. In essence, these islands, with such small populations, lack the critical mass needed to establish sufficient scale in production and consumption to be economically efficient in many industries.

Historically, the inability of the Caribbean to compete manifested itself once before. One of the theories put forward for the abolition of slavery in the Caribbean, was that it could not be competitive once India became a major producer of sugar and other tropical crops. This rendered the cultivation of most crops uneconomical in the Caribbean. Scale economies simply did not exist. The same holds true today.

Recently, the vulnerability of Caribbean economies to the vagaries of international trade and competition was highlighted by the WTO ruling on bananas. The successful U.S. and Costa Rican appeal against the preferential treatment under the Lome, and later, the Cotonou agreements – over African, Caribbean and Pacific states’ bananas – has led to the demise of the banana industry in the Windward Islands. In Dominica, for instance, a total of 6,000 farmers, out of a total population of 70,000, were adversely affected.

This begs the question: What does the future hold for the Caribbean in any global arrangement?

In light of the demise of the banana industry, and many others like it, most Caribbean countries have attempted to diversify their economic base from agriculture, into tourism, fishing, and offshore services.

However, one of the short-comings of this diversification is that many Caribbean islands have the same historical and geographical conditions that limit their success in these areas.

It is true that the Cayman Islands is a very small state, with an open economy and enjoys a per capita income that is favorably comparable with those of the developed nations. However, one can question the sustainability of the Cayman Islands as an offshore financial centre, as it is often subject to the vagaries of external forces - directives from the Organization for Economic Cooperation and Development (OECD), the Group of Seven Industrial Nations (G7), the European Union, and even the U.S. Congress.

However, one could look at Singapore, which is the size of St. Lucia with a population of 4 million, and a GDP of $93 billion – much larger than St. Lucia’s. Its main export is electronics. With Singapore straddling the world’s busiest sea lane (Malacca Straits), this seems a natural and sustainable economic foundation, but it too is subject to the volatility of the international and Asian economies.

In the Caribbean, Trinidad and Tobago has emerged as a successful economy, with a strong manufacturing base but predominantly centered round petroleum and natural gas, which explains its rapid economic development.

Overall, it is my view that small open economies like those in the Caribbean have built-in disadvantages that limit their ability to competitively operate in the global economy. The WTO rules governing trade should consider such factors (i.e., size of the country, its population) and permit domestic industries more than the five years allowed for protection from foreign competition. It is impossible to see how industries in such small economies can reap economies of scale on par with those of the larger economies.

Caribbean countries also need to take some concrete action collectively to become more efficient and competitive. They need to foster capacity building – politically, socially and economically.

The region needs to develop its human capital stock by investing heavily in education, with an emphasis on the creative thinking in the natural sciences and engineering, social sciences, and the arts. It is flabbergasting to hear how many youths in the Caribbean aspire to become a rap artist, while most teenagers – young men and women alike – in Singapore aspire to become engineers, or scientists.

Capacity building cannot be done in isolation. Policies must be put in place to foster economic growth and create a framework that will enable the development of a creative, skills-based labor force.

The Caribbean region also needs to create value in its agricultural and natural resources. It is heart-rending to see many products on supermarket shelves from bananas to papayas all imported from outside the region.

In manufacturing, one can also use the Bauxite in Jamaica as a case for more industrial development. Jamaica extracts bauxite, convert it into alumina, which is then exported to the U.S., and converted into aluminium.

The aluminium is then imported by Jamaica as foil paper, car rims etc. More regional investment in obvious production opportunities needs to take place.

To facilitate its development, the Caribbean needs to develop an indigenous capital market structure, relying to some degree on regional investment, rather the foreign direct investment. This is necessary to facilitate the movement of capital throughout the region.

In the coming months and years, the Caribbean will, inevitably, experience waves of change, not the least of which will be economic.

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