The political economy of the

Economic development in the Caribbean is dependent upon one hand, there are export-oriented crops the interplay of certain powerful political and social factors such as sugar, rice, and bananas; on the that sets it apart from other developing areas of the world. other hand, there are the more domesti- The authors identify these factors and their effects on cally oriented crops—such as cassava— which are grown for local use. In some economic decisionmaking and growth in this region. instances, as in the efficiently managed Mahmood A. Ayub and Eric D. Cruikshank and relatively capital-intensive Wagenin- gen agricultural enterprise in Surinam, The prevalence of powerful institutional While most Caribbean countries have productivity is several times higher than forces in the Caribbean is a reality that either achieved political independence, or that for a traditional holding. Third, makes economic analysis divorced from expect to do so over the next two years, almost all these countries continue to rely political economy a barren exercise. For they continue to exhibit many features of heavily on the export of just a few economic analysis to be relevant for pol- a less developed, colonial structure. First, commodities, as they have over the last icymaking in the Caribbean, it must take their economies are characterized by two decades. In addition, a vast majority cognizance of certain crucial political and strong intersectoral dualism, with a small, of the commodities exported by this social factors. The specific nature of the highly capital-intensive nonagricultural group go to only a few foreign markets, political forces (in the form of organized sector existing side by side with a more primarily to the , the United mass political parties and disciplined, ag- traditional, labor-intensive agricultural Kingdom, and the Netherlands. Only gressive trade unions), the influence of sector. In , , and Surinam, recently have Guyana and Jamaica at- large multinational corporations on the the capital-intensive sector is min- tempted to diversify their markets. economics of the region, the trend toward ing, and in , it is Finally, almost all the countries of the regional integration, and the vital impact . The real linkages between this region have relied heavily in the past on of on the economic and social sector and the rest of the economy are foreign private capital and direct invest- life of the region are important aspects either extremely tenuous or nonexistent. ment, supplemented by grants-in-aid from which need to be recognized in analyzing Second, the agricultural sector itself is the metropolitan countries to which they the development process in the Caribbean. marked by intrasectoral dualism. On the have been historically linked. 38

©International Monetary Fund. Not for Redistribution This economic scenario is by no means these countries to aim at an even greater triate a certain portion of earnings. The unique to the Caribbean region. In fact, growth effort than the one being made multinational corporation, in turn, is most developing countries share some of at present. expected to provide a stream of payments these features. What makes the Carib- in the form of tax remittances and re- The multinationals bean so different from the other geo- muneration to local employees, and pay- graphic areas, however, is the coexistence The role of multinational corporations ments for local goods and services. of such an economic structure with a in the Caribbean countries is extensive. In fulfilling its obligations and in highly developed political structure. The Multinational corporations operate in the extracting its dues, the State has a num- political economy of the Caribbean region Caribbean in the bauxite, , ber of policy instruments at its disposal. has two common characteristics: first, the petroleum, and banking sectors. Recently, This is well understood. What is not so existence of political democracy along concern has increased in many Caribbean universally understood, however, is that classic Westminster (or in Surinam, The countries about the potential dangers of the multinational corporation, by virtue Hague) lines; and second, the existence the power that multinational corporations of its size, its geographical span of con- of a strong, organized, and disciplined wield over their economies. Mr. Michael trol, and its vertically integrated structure trade union movement. Although these Manley, Prime Minister of Jamaica, ex- can deploy at least an equal number of features may not be restricted to the pressed this concern in these words: instruments in seeking its objectives. One Caribbean area alone, there are few coun- major difference, and one that is sub- Clearly, political independence and na- tries elsewhere in the developing world stantive, is this: where the State attempts tional sovereignty are inconsistent with where the level of political consciousness to maximize welfare within its own na- a situation in which the "commanding and the attitudes and aspirations of the tional boundaries, the multinational cor- heights" of the economy are foreign- trade unions have facilitated the thorough poration's range of activities is extra- owned and controlled. . . . It must be assimilation of the unions into the ruling territorial. As a result, the State may at the very least a long-range objective establishment. enforce a policy—say, a taxation or a to bring these sectors of the economy These institutional realities, combined wage settlement—without reference to its under local ownership. with the responsiveness of most Carib- comprehensive impact; in such a case, bean politicians to social issues, have an This concern is particularly evident in there may be economic feedbacks which impact on economic growth. The exist- two countries. In Guyana, the bauxite are extremely adverse for the national ence of strong political parties and pres- sure groups and the possibility of alter- native governments intensify the pressure Table 1 for immediate improvements in the social conditions of the population. In view of Population and gross national product for some the scarcity of resources, this has been Caribbean countries, 1974

at the expense of long-run objectives of GNP at market prices Per cent growth rates, 1960-74 promoting structural changes in the econ- Amount omy. The trade unions, moreover, lobby Population On millions of Per capita (In thousands) U.S. dollars) (In U.S. dollars) Population GNP per capita strongly (and with success) for policies which result in gains for their member- 241 290 1,200 0.2 5.2 ship at the expense of employment gener- Guyana 791 390 500 2.4 1.5 Jamaica 2,008 2,390 1,190 1.7 3.6 ation, capital formation, and budgetary Surinam 387 460 1,180 2.7 3.6 savings. The fact that most Caribbean Trinidad & political leaders came up through the Tobago 1,070 1,810 1,700 1.6 2.1 ranks of the trade union movement helps to impart a definite economic class bias Sources: World Bank Economic Reports; national statistical offices. to their views on the direction of eco- nomic management. These factors seem to have encouraged mining and sugar industries were nation- economy. The unilateral imposition in most Caribbean governments to equate alized in stages between 1971 and 1976. 1974 of the bauxite levy by Jamaica and the realization of immediate wage gains In Jamaica, the Government is continuing other members of the International Baux- (for not even the wage class but the more negotiations with the bauxite companies ite Association is an example where the limited subclass of the fully employed) for a larger share in the operations of the net benefits to the Caribbean governments with responsible stewardship of national industry. In the remaining Caribbean from the levy may have been less than welfare. In many instances wage increases countries, there is a heightened awareness had been anticipated. are not justified on productivity grounds. of the dangers of excessive foreign eco- As a result, investment is deterred, poten- nomic influence. Regional integration tial employment opportunities are cur- The relationship between a national The trend toward regional integration tailed, and the division between the tradi- government and a multinational corpora- is the other important aspect of the polit- tional and modern sectors is more deeply tion involved in raw material prospecting ical economy of the Caribbean region. entrenched. This is by no means a con- and development is complex. The often This movement, which presently includes demnation of the existing political insti- tacit bilateral agreement can be described 12 member states of the Caribbean Com- tutions; it merely points to the conclusion as follows: the State is expected to pro- monwealth, plus and Suri- that the coexistence of a parliamentary vide political and economic security, nam as associated members, evolved in , democracy with an independent trade major infrastructure, the rights to raw an attempt to overcome the disadvantage union movement makes it critical for material supplies, and the right to repa- that small size, geographical fragmenta- 39

©International Monetary Fund. Not for Redistribution tion, and external dependence have placed and consumer purchases from, these coun- labor, because of land tenure problems upon these countries. In the course of the tries. As a result, there is a great demand and the traditional opprobrium that the last two years, the for the more expensive consumer durables days of slavery imparted to this activity. has taken several steps along the path to associated with the North American cul- This has had a strong influence on the regional integration. These include (1) the ture. This social phenomenon has had choice of technology in agriculture, lead- establishment of a regional financial two important macroeconomic results. ing to increasing labor displacement safety net that provides short-term sup- First, this emphasis on consumerism has through mechanization. Furthermore, port for intraregional balance of pay- forced gross domestic savings to remain rather than work on farms, many labor- ments deficits; (2) a general.harmoniza- very low relative to the economic poten- ers prefer to migrate to urban centers tion of fiscal incentives; (3) the launch- tial of the region. Second, the large pro- such as Georgetown, Kingston, Parama- ing of a new regional food plan, aimed portion of luxury and semiluxury goods ribo, and Port-of-Spain; this mobility at combating the region's escalating im- in total imports has exacerbated the bal- only aggravates the problem of urban ported food bill; and (4) the reorganiza- ance of payments situation. Recently, unemployment. tion of the Shipping Corpo- some of the governments have reacted to Second, despite their small size, most ration on a commercially viable basis. this situation by imposing stringent im- Caribbean countries have significant eth- Notwithstanding these favorable devel- port controls. However, restrictive trade nic and religious diversity. The original opments, the movement toward integra- policies work counter to the general inhabitants of the Caribbean area, the tion in the Caribbean has been slow. In expansionary policy required to reduce Amerindians, are now an insignificant the first place, similarities in resource massive unemployment. proportion of the total population. Ne- endowment among many of these coun- groes and East Indians are the main tries inhibit the possibilities of specializa- Local problems ethnic groups, with small numbers of tion. In the absence of regional industrial The preceding politicoeconomic sce- Chinese, Lebanese, and Europeans. This programming criteria, the tendency toward nario is complicated even further by a racial and religious diversity has tended duplication of activity persists as the few set of problems that are typically Carib- to make the problems of national inte- production possibilities permitted by size bean. gration more difficult, and periods of bit- and resources are jealously guarded. Fur- The first problem is purely sociological ter racial violence have not been uncom- thermore, the recent economic problems but has strong economic repercussions. mon. After the emancipation of the Negro encountered by Jamaica and Guyana have Throughout the Caribbean region, the slaves, the attendant labor shortages on forced those countries to subordinate re- Negro population is averse to agricultural the plantations led to the importation gional priorities to national ones. Finally, of East Indian indentured labor, after this the widening divergence in political phi- had been successful in Mauritius. Rela- losophy among the member countries has Mahmood A. Ayub tions between the Negroes and the Indi- created a difference in the aspirations and ans have always been tense. In the 1950s management style of the regional govern- the emergence of competitive mass politi- ments. These events, reinforced by the cal parties with separate racial allegiances prolonged disenchantment of the less retarded the development and diffusion developed countries in the partnership of the commonly shared "creole" culture. a Pakistani national, over the benefits of the Caribbean Com- has a B.A. in economics Although racial tensions have moderated mon Market, have severely strained the from Manchester Uni- considerably in recent years, the prob- fabric of the integration movement. versity (U.K.) and an lems they cause are a potential source of M.Phil, and a Ph.D. trouble during difficult economic times. Impact of tourism from Yale University With the exception of Guyana, Suri- (U.S.A.). He joined the World Bank staff Impact on growth nam, and , all Caribbean countries in 1975, where he is now an economist in What has been the net effect of this are heavily dependent on tourism, in the Caribbean Division. His publications politicoeconomic situation on the region's terms of its contribution to gross domestic include "An Econometric Study of the economic position and prospects? To be- Demand for Chemical Fertilizers in gin with, economic growth since the early product (GDP)-—and employment—as Pakistan." well as to foreign exchange earnings. 1960s has been sporadic. Apart from the This economic reliance on tourism has Eric D. Cruikshank year-to-year fluctuations in economic activ- played a crucial role in shaping the social ity resulting from exogenous factors (such outlook of the population. In particular, as international demand and weather con- the Caribbean region has suffered con- ditions), there have been longer-term siderably from rising expectations—the fluctuations arising from the differences "demonstration effect" from prolonged a Canadian national, in the level of private investment. In exposure to the consumer habits of inter- received Masters' Surinam, for instance, the early and mid- national tourists. This has been due partly degrees in business 1960s witnessed a remarkable rate of to its proximity to the North American administration and growth, with nominal GDP actually dou- continent and partly to its historical asso- economics from "York bling within a period of about eight ciation with the Western world. The situ- University in . years. This phenomenal rate of growth ation is aggravated by advertising through He is an economist in the Caribbean Division was triggered by the massive private the news media. Not only do major Brit- of the World Bank, where he has worked since 1976. Prior to this, he worked as an investment by the Surinam Aluminum ish and North American periodicals incul- economist in consultant firms both in Company in its hydropower plant at cate values through their wide circulation, Canada and abroad. Brokopondo. However, the momentum of but local news media also extol travel to, this investment was not maintained; since 40

©International Monetary Fund. Not for Redistribution merits in tax revenue in Guyana, Jamaica, and Surinam has been absorbed by mount- Table 2 ing public sector current expenditures. Tax revenue as a percentage of GDP for some The prospects for the economic devel- Caribbean countries, 1971-75 opment of the Caribbean region are heavily dependent on the political, social, Trinidad and and economic factors that have been Barbados Guyana Jamaica Surinam Tobago described. The growth performance re- 1971 22.6 19.8 18.7 20.3 14.6 quired for development will depend upon 1972 25.2 23.6 17.7 20.8 15.3 the ability of these countries to attract 1973 21.6 20.4 19.1 18.6 14.9 sizable external capital inflows, which 1974 18.5 28.9 23.7 18.9 26.9 1975 20.5 39.1 24.9 29.1 30.8 in turn will depend upon how amicably the questions of local participation and Sources: World Bank Economic Reports; national statistical offices. ownership are settled with the multina- tionals. Success in increasing domestic the late 1960s there has been virtually no growth in real GDP. Similarly, in Jamaica real growth was spurred on by Table 3 private direct investment and averaged Capital formation for some Caribbean countries, 1970-75 over 6 per cent from 1963 to 1970. From (In millions of current U.S. dollars) 1970 to 1976, however, it has been vir- 1974 1975 tually zero. The nature of investment in 1970 1971 1972 1973 these countries precluded the possibility Barbados of sustained economic growth. Develop- Private 39 38 40 48 60 56 ment was restricted to a single sector, Public 6 7 9 12 14 20 growth was primarily attributable to Total 45 45 49 60 74 76 enclave activities, and few linkages were Guyana established with the rest of the economy. Private 30 20 18 24 29 18 The bulk of private sector investment Public 26 32 34 49 60 133 in the region has the same characteristics: Total 56 52 52 73 89 151 it is foreign; it is concentrated in a few activities; it has been capital intensive; it Jamaica has contributed to agricultural backward- Private 216 248 238 203 297 354 ness through wage differentials; and it has Public 104 107 129 184 247 371 provided only limited stimulus to indige- Total 320 355 367 387 544 725 nous enterprise. Although such invest- Surinam ment has ultimately led to growth, it has 37 41 55 62 96 101 ' also retarded the ability of these coun- Private Public 16 15 19 26 34 42' tries to transform themselves through Total 53 56 74 88 130 143 ' their own efforts, and has thereby in- creased their vulnerability to external fac- Trinidad & Tobago tors. Over the past few years, the govern- Private 161 233 247 268 309 493 ' ments of the region have assumed an Public 41 54 67 47 61 110' increasingly active role in a number of Total 202 287 314 315 370 603 diverse economic activities to counter this Sources: World Bank Economic Reports; national statistical offices. excessive reliance on private foreign 1 Estimated. investment. To finance their public investment pro- grams, some of the Caribbean countries sugar and bauxite; in Surinam, a levy on savings (see Table 3), reducing the high have recently turned to their tax systems bauxite; and in Trinidad and Tobago, urban unemployment, diversifying the in order to mobilize domestic resources. taxes on petroleum products. These taxes sources of growth in terms of both prod- From Table 2 it can be seen that total produced a dramatic increase in revenues ucts and external markets, and defusing taxes as a proportion of GDP remained in 1974 and 1975. Although these changes racial tensions will determine (and be fairly stable through 1973 in the five achieved major revenue increases, they determined by) the economic growth of principal countries of the region. By 1975 have done little to strengthen the basic the region. Finally, in terms of regional Guyana, Jamaica, Surinam, and Trinidad structure of the tax systems in these integration, it is crucial that more atten- and Tobago substantially increased the countries. Tax revenues remain suscepti- tion be given to the design of a decision- ratio of tax revenue to GDP. In doing so, ble to fluctuations in international com- making apparatus with balanced alloca- these four countries applied specific tax modity prices; this vulnerability was dra- tion of political and jurisdictional respon- instruments to siphon off windfall gains matically brought out by the effects of sibility between regional entities and arising out of increases in several inter- the large drop in the price of sugar on national governments. This is a factor national commodity prices: in Guyana, the world market in 1975-76. Further- upon which the success of the Caribbean a levy on sugar; in Jamaica, levies on more, a large portion of the recent incre- integration movement will depend. ISO 41

©International Monetary Fund. Not for Redistribution