Topic Seven   

Lectures 13-14

Robert Buddan

March 20-22, 2001


Caribbean economies are small, dependent, class-based, with, import-oriented, trader dominated, emerging markets, with their primary industries either controlled by foreign corporations or protected in Europe by special post-colonial arrangements.

Modern economies need to be enlarged through economic integration, export-oriented, open to wide participation, developed market institutions and competitive in the world.

Caribbean economies are at a critical historical period of transformation in the present era of liberal globalism.

Small Caribbean economies therefore need to develop their own niche and take advantage of any special competitive advantages they might have and they need not imitate large economies with different competitive advantages.


Competitive Advantages of the Caribbean.

It is now the popular view that Caribbean economies can take advantage of their competitive advantages and achieve higher and more sustained levels of development.

What might some of these areas of competitive advantage be:

- location and proximity to the largest market in the world, that of the United States;

- climate and island beaches suitable for tourism;

- relatively stable democracies, especially in the Anglo-Caribbean;

- relatively good educational standards and human resource potential;

- open trading economies with low tariff levels and favourable laws for foreign investments;

- liberalised foreign exchange systems and freedom for investors to repatriate their profits, and established banking systems;

- an Anglo-American culture, language and system of laws which make them compatible for business with major trading partners like the US and the UK, or with South America and continental Europe in the case of the Latin Caribbean;

- large Caribbean populations abroad who constitute economic and cultural markets for Caribbean products;

- unique cultural products in music, sports, entertainment, fashions, foods etc., attractive to foreigners;

- moral grounds for special or preferential treatment due to small size, their colonial past or on terms of good neighbourly relations;

- mutual benefits to gain from supporting these, emerging markets, democracies, and policies against drug trafficking.

- competitive wage levels.

- globalism and the technology of transport and communication that help to overcome the distances of space and the physical limits of size.

- growing regionalism that helps to reduce economic isolation and the potential of common currencies, tariffs, and regulatory laws that would help to reduce the costs of transactions such as those involved in the conversion of currencies or of different tariff rates.[1]

The idea of competitive advantage used here is one by which a country or region might receive special or preferential economic advantage over others by virtue of favourable social, cultural, political or economic conditions. In this sense, the region=s, size and location, culture and history which are in mnay ways parts of its disadvantages, seen in a different way, can be converted into strategic advantages.

Together these add up to new conditions that were not in existence in earlier periods and which give Caribbean economies functional opportunities to develop inspite of its structural conditions. For instance:

- raw material prices ( such as for sugar and bananas) have steadily declined while the demand for leisure and entertainment activities for increasingly affluent populations of the developed countries has made tourism the top service industry in the world. It makes strategic sense therefore to reduce emphasis on traditional agriculture and increase emphasis on tourism;

- the continuous growth of Caribbean populations abroad where many of these people are in higher income jobs which mean that more people constitute a cultural market for earning foreign exchange compared to the past;

- the developments in technology that have led to globalism help small economies to integrate into the world economy on higher technological terms as against lower raw material producing terms.

It is true that there are still constraints of small size and globalism has its dark side[2] but functional analysis suggests that development is possible with the right mix of policies and productive strategies by states and markets working in partnership.

The impact of these new conditions have led to the development of new Caribbean economies, significantly different from those of before.


New Caribbean Political Economies.

Past studies in political economy stressed the common features of the economies of the region and the older perspectives that explained underdevelopment - small size; insularity; plantation histories; monocrop, raw material production; foreign economic domination; cheap labour; import dependence; trading.[3]

In more recent times Caribbean economies have taken different paths as they pursue different strategies of development.[4] But the economies of the region have developed some common features.[5]

In spite of these broad similarities, Caribbean economies have taken different paths to development where the roles of states and markets are different. We can differentiate between:

1. The socialist-basic needs model (Cuba);

2. The Off-shore model.

3. The agricultural model.

4. The Mixed economy model.

Bear in mind that in each of these there is usually a mixture of main industries and that a common leading industry with a few exceptions is tourism.

1. The Socialist-Basic Needs Model.

The Cuban model has certain distinctive characteristics:

- strong role of ideology and socialist morality;

- leading role for the state and a restrcited role for the market;

- limitations on foreign economic relations;

- stress on basic needs and human development;

- restrictions on population movement.

Cuba=s political economy is the most state-dominant but some measure of economic liberalisation has resulted in the emergence of a market.

- The state runs some 2,500 enterprises of which about 300 are in sugar and agriculture. It is also mainly responsible for social security which is its item of largest expenditure;

- There are some 330 companies with foreign participation, usually in partnership with the state in the form of joint ventures where foreign ownership is limited to under 50%. The main foreign investors come from Mexico, Canada and Spain.

- There is a private domestic market of some 200,000 self-employed persons in small business such as agriculture, restaurants, taxi operations, retail.      

The economy is a mixture of state, foreign investors and small self-employed business. The leading foreign exchange sector is tourism, nickel, tobacco and sugar with foreign remittances accounting for a significant US$800million-US$1, billion.

Cuba=s economic market is restricted by state bureaucracy (such as the length of time required to process applications to start a business); the freedom to use foreign exchange, especially the US dollar; restrictions to the US market; restrictions on obtain foreign loans because of its US$11 billion foreign debt, the largest in the Caribbean; dependency on oil and high energy costs;

On the other hand, Cuba=s strength lies in its basic needs provision for health, education, training and social discipline which lead to an environment of social stability (low crime rates, low levels of delinquency, low unemployment) and high levels of education, skills and work ethic. These characteristics are attractive to foreign investors and for tourism which is slated to be the leading industry in the future.[6]

The Off-Shore Model.

The Off-Shore model has its own characteristics:

- limited role of ideology and morality;

- limited role for the state;

- central role of and reliance on the financial sector;

- restrictive population policies;

- deep integration into foreign financial trade.

Caribbean countries like the Cayman islands, the Bahamas, the British Virgin Islands, the Turks and Caicos islands, Anguilla and Antigua/Barbuda practice an off-shore financial economic model. This group is of very small islands, mainly political dependencies and with a weak history of nationalism and state involvement in the economy. They had brief or no history of slavery and therefore governments do not have the problems of correcting the social inequalities that larger territories have and ossues of race and foreign domination of the economy are not as salient. Off-shore economies developed as an economic necessity.

Off-shore economies are those that primarily do business for clients abroad (off-shore) mainly by providing tax havens, that is, operating banks according to secrecy laws and minimum regulation to attract savings from persons who wish to avoid taxes or government policies and inflation that might devalue their savings in their own countries. Caribbean off-shore centres developed from the 1960's.

The funds that enter these centres are for:

tax avoidance;

tax evasion;

money laundering.

The first is legal and these centres were set up for this purpose. These centres, however, have become notorious for the latter two illegal functions.

Developed countries say that they lose US$200 billion a year to off-shore banks and Caribbean research shows that US$60 billion enter Caribbean off-shore banks each year. This wealth allows off-shore economies to have higher per capita GDP than other Caribbean countries. For example, the GDP per capita for the Cayman islands in 1997 was US$32,900 while for Barbados it was US$8,200.

The state plays a role that develops bank secrecy laws,  only loosely regulates financial institutions and inspection of banks is at a minimum. The state resists attempts at disclosure, and provides a socially stable environment by carefully selecting who enters these islands as temporary workers (educators, nurses) and for how long. The state,in other words, play a minimal role and its main focus is facilitating off-shore financial activity.[7]     

Agricultural Economies.

The Agricultural economies have charcteristics like:

- dependence on foreign market protection;

- economies built around modern plantations and agricultural labour;

- agro-industrial promotion by the state;

- open population policies;

- mixed ideological role for the state.

Some Caribbean economies remain primarily agricultural. In Dominica, the agriculutral sector contributes 30% of GDP, 45% of employment and banana exports earn 70% of foreign exchange. In Grenada, agriculture mainly banana, is the main foreign exchange earner, contributor to GDP and principal employer. In St. Vincent agriculture is the main foreign exchange earner and employs over 50% of the labour force. Banana makes up 60% of agricultural earnings. The problem with these economies is that one crop like banana dominates agriculture and that crop depends on European preferential treatment for viability.

The larger countries like Guyana and Belize have more agricultural potential. Sugar and timber dominate the Belizean economy and Belize has the potential to become self-sufficient in food. Agriculture, mainly sugar, contributes about 65% of foreign exchange and employs about 30% of the labour force.

Guyana too is dominated by sugar and timber along with rice. Forests cover 72% of Guyana=s land area. In fact, it is the only Caribbean country self-sufficient in rice. Guyana is the most agricultural of the Caribbean economies. Agriculture contributes about 45% of GDP. Guyana has the potential of producing to fill the cereal needs of the entire region.[8]

The Mixed Economies.

The mixed economies are more developed and diverse. They tend to show:

- balance of the roles of the state and the market;

- a moderate, sometimes strong role for ideology;

- somewhat nationalistic but in close working with the world economy;

- open population movements;

- diverse class and racial structures;

- more dynamic and modern societies.

 The economies of Jamaica, Trinidad and Barbados are more mixed in terms of the variety of industries that are important and the roles of the state and the market. Jamaica=s economy for instance is dominated by mining (bauxite/alumina), services (tourism and finance), agriculture (sugar, banana, coffee) and manufacturing.

Trinidad=s economy is dominated by oil refining and petroleum products, manufacturing, services (not tourism) and sugar. Barbados has tourism, sugar and manufacturing.

Trinidad=s economy is quite different from the typical Caribbean economy in that neither tourism nor agriculture play a significant part. Rather, the economy is best understood as an energy-based economy because it is the only one with significant oil resources. The energy sector contributes about 25% of GDP, oil contributes some 30% of government revenue and oil and petroleum products account for about 70% of export earnings.[9] Trinidad=s susceptibility to oil prices is seen where between the mid-1980's and mid-1990's the economy contracted sharply as there were some eight years of negative growth when world oil prices were low. The economy rebounded when oil prices recovered. The energy-based economy also helps the competitiveness of manufacturing since the country can benefit from low electricity and transportation costs. As a result, Trinidad=s manufacturing sector is able to compete strongly in the CARICOM market and Trinidad is the most dominant trading country in CARICOM.[10]

The Jamican economy is moving towards a partnership between government, private sector and unions. It relies heavily on tourism and mining, but is also moving into information technology and services have also become important. It also has a large informal sector. In fact, this sector might contribute to more economic growth than is measurable by traditional economic statistics.

The economy is in the mainstream of the cross-current between the Caribbean and the United States, more than any other. It tends therefore to be highly dependent on American imports and foreign exchange. Because of its openness and high migratory patterns, American consumption, drug trade and crime manifest themselves on political and economic life.



The role of government in Caribbean economies is to develop, nurture and promote the necessary consensus among social partners - Government, Business and Labour about what policies and economic strategies to employ and to provide direction and support where necessary to facilitate the creation of an environment conducive to investments and job creation.

Governments and economies interact in very different ways in the region. Cuba has a state-dominant economy with a limited market. The off-shore countries have very limited states with dominant financial market sectors. The agricultural and mixed economies have varying degrees of state-market interaction. One must not forget that being small and lacking resources, Caribbean political economies remain dependent on multinational companies for investments, management, marketing and distribution to a high degree and that foreign governments often have to be lobbied to employ trading and investment policies that favour the region=s products.

This makes the role of states vital in international negotiations and in foreign economic policy. Economies do not operate independently of the politics and policies of Caribbean states and those of other states and economies with which the region does business.

All of these economies are undergoing transformations associated with globalism.

- they are become more liberalised in imports;

- they are losing traditionally protected agricultural markets in Europe;

- they are getting more involved in tourism, services and the information technology industries which are leading industries in globalism;

- they are moving towards deeper and newer forms of regional integration.

This adjustment will continue for years to come.    

[1] In a meeting with the US Secretary of State, Trinidad=s foreign minister emphasised the region=s locational advantage saying, AIt would be a real travesty if the richest market in the world was right next door to us and we in the Caribbean were unable to take full advantage of that...@ See, ACaribbean Nations Appeal to US on Wide-Ranging Issues,@ Daily Observer,March 30, 2000.

[2] Maraj also noted the region=s problems of underdevelopment, poverty, crime, natural disasters, rising sea levels, brain drain, small markets and Athe gigantic predatory forces of globalisation (so that) one cannot help but fear for the sustainability of sovereignty and viability of our small nations ...@ Ibid.

[3] See Eric St. Cyr, AThe Theory of Caribbean-Type Economy,@ in Klak, op.cit., p.8.

[4] This discussion has bypassed the experiences of structural adjustment in the 1980's and which are discussed by Harker, the Caribbean Development Bank and Iqbal in Lalta and Freckleton, op.cit.

[5] Most of the data and analysis here are taken from The Caribbean Development Bank, Social and Economic Indicators, ix, 1997.

[6] Much of this information comes from a number of newspaper reports since formal studies with such information are rare.

[7] Information on these economies is taken from, Ramesh Ramsaran, The Commonwealth Caribbean in the World Economy, 1989, pp.95-114; and Anthony Maingot, AThe Offshore Caribbean,@ in Anthony Payne and Paul Sutton (eds.), Modern Caribbean Politics,1993, pp.259-276.

[8] A very useful source is, Belal Ahmed and Sultana Afroz, The Political Economy of Food and Agriculture in the Caribbean,1996.

[9] See Ronald Ramkissoon, ADoing Business in Trinidad and Tobago,@ in Caribbean Affairs, 7,1, 1994, pp.71-77.

[10] The performance of these sectors through the 1980's is covered in Lalta and Freckleton, op.cit.,


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