CHAPTER 2

THE ECONOMICS OF SUSTAINABLE DEVELOPMENT IN SMALL ISLAND

ECONOMIES

Once upon a time, an entrepreneur was cast away on a desert island. By good chance, the island lay on a busy trade route, in a convenient time zone. The entrepreneur cut down all the trees and exported them to Japan, sold off all the coral for jewellery, dug up the island's gold and used the proceeds to set up schools, homes and factories for a new Hong Kong, where everybody lived prosperously ever after on the products of their brains, high technology and imported raw materials. Is that sustainable development or not?" (Economist, Sept. 15,1989.)

There is an understandable and unavoidable tension everywhere between the demands for employment, improved wages and living conditions today and the environmental sustainability of the economic policies implemented to achieve these demands. This tension is particularly acute in many small island economies in the world, and certainly in those of the Caribbean where there is widespread unemployment and poverty.

It may even be too generous to describe the relationship between the two as marked by tension. In fact, it is perhaps more accurate to suggest that the issue of sustainable development is not really on the agenda of the majority groups ‑including the decision‑making and influences elites ‑ in Caribbean islands. This is neither criticism nor condemnation. It is simply an interpretation of the dominant reality.

It is not that at least, a substantial minority, is unaware of, or unconcerned with environmental degradation. Rather, the point is that even those who are sensitive to the environmental issue (as opposed to a small, environmentally conscious minority) have not yet found solutions, simultaneous or otherwise, to three problems.

The first problem is economic survival ‑ whether in terms of profit‑making of firms in depressed and liberalised economies; or of wage earners struggling to make ends meet in the face of a continuous decline in the real value of their income; or of the Herculean efforts to survive facing those without either a job or a real business enterprise.

The second problem which needs to be solved is the environmental impact of the socio‑economic activities engaged in to address the three direct methods of economic survival described above as part of the first problem of economic survival.

The third problem is that of anticipating and avoiding, or certainly mitigating, the impact of the environment‑ via natural hazards or disasters‑ on economic survival. This third concern is the perhaps the least appreciated in small island economies, particularly in the Caribbean, although it, in fact, may be the most significant.

The reality is that, to date, economic theory and policy practice, have not found any easy, or even complex, simultaneous solution to these three problems. In other words there is no clear indication of the strategies and operational systems and mechanisms, as Chapter 1 suggests, which would easily translate the aspiration of sustainable economic development into practice.

This situation is not unique to small islands. The fact that the overwhelming majority of the world's environmental degradation originates in the rich, industrial economies, tells us, in the most convincing manner, that environmental concerns have not become a central part of their policy‑making framework.

Island economies may, however, offer the ,world a golden opportunity to test alternative theories and strategies for achieving sustainable economic development for several reasons.

First, most island economies are almost completely dependent on their natural environment* (including natural resources) for their economic survival. With the exception of Hong Kong and Singapore, most populated small, island economies live off of the earnings of raw material merchandise exports based on their mineral or arable land, (and sometimes fishery resources), or off of invisible service exports based predominantly on tourism which is, of course, dependent on the natural environment.

Second, island economies are marked by fragile ecological systems, easily affected by socio‑economic activities. In fact, small islands can be considered, from an environmental impact perspective, to be comprised solely of coastal zones. In other words, there is an immediate, direct impact of terrestrial‑based socio‑economic activities on the marine environment.

Third, island economies are also highly susceptible to natural hazards particularly cyclones and hurricanes. Many of the current scientific predictions suggest, further, that global climate change, in particular global warming and related mean sea level rise, will exacerbate the impact of natural hazards.

Fourth, island economies represent a bewildering variety of socio‑political and economic and ecological systems across the world's continents. Hein notes that islands comprised 71 of the 94 countries, territories or areas, with populations of less than one million as identified in the 1982 UN statistical yearbook. (Hein,1990:35) Table 2(i) and Maps 1‑6 provides a summary account of key characteristics of islands across the globe.

From a methodological point of view, therefore, island economies provide a varied enough universe from which to identify more generalisable strategies for sustainable economic development.

If there is any context in which sustainable development would appear to make sense, it would therefore seem to be in small island economies because of the mutual reinforcement of these four above mentioned reasons. What then does the economic literature suggest in terms of small islands?

Literature Review

There is no general body of economic literature on the very specific issue of the sustainable development of small islands. There is, however, a more general literature which does allude to, and sometimes directly address, the question of sustainable island development. (The main non‑Caribbean literature reviewed include Dommer. &Hein (eds.)1985; Benedict (ed.)1961; WORLD DEVELOPMENT, 1980&1993; Crusol, Hein and Vellas (eds.) 1988; Blackman, 1988; Seawar,1990; Dolman,1986; UNCTAD,1988a&b, 1990; ECLAC, 1990; Beller, d'Ayala and Hein,1990, as well as abstracts from UNESCO, 1992.) Four main themes have been identified from a review of this literature. These are first, a definitional and measurement concern; second, a focus on the problems and obstacles which small islands face; third, the observation that economic theory and policy practice in the small island context is generally insensitive to this very reality; and finally, there is an even more general blindness of the economic literature to the environmental base of island economies. The first two themes dominate the literature. We now turn to a further elaboration of the literature on these four themes.

Definitional and Measurement Concerns

Two initial observations can be made on this theme. First, there is no universally acceptable definition of what constitutes a small island. As Dolman notes:

“The definition of a small island is a matter of interpretation rather than fact. There are more than 500,000 pieces of distinctly subcontinental land territory which can be generically defined as islands. They range is size from sandbanks and pinnacles of rock, virtually without a measurable surface, to extensive land masses such as Madagascar.” ( Dolman 1985:40)

The second, initial observation is that, as Dolman also notes, although international law is the normal arena for settlement of definitional concerns, it was only in 1930 that a first significant effort was initiated to define an "island."

In fact, two main types of definitional and measurement approaches can be found in the literature on small islands‑ the socio‑economic and the climatic. (Several of the papers in Dommen and Hein(eds.) 1985 provide exhaustive reviews of these alternative definitional approaches). The first, and dominant approach uses socio‑economic criteria to define smallness. The most common indicator used is that of population. Differing studies use a cut‑off point of 1, 10 or 15 million people or less to define small societies, with islands merely being a sub‑set of the general categorization. Other economic criteria used include land area (or arable land area) or size of Gross National Product (GNP).

The second, less dominant, definitional approach uses the climatic influence of islands to distinguish small from continental types. Doumenge provides a helpful summary of this climatic approach as outlined in Box 2a.

Box 2a

" Islands must be distinguished from continents. The effect of continental mass is to generate by its volume its own conditions of biological and natural environment and of partitioning of space. When an island has an emerged volume large enough to generate its own climatic effects, it enters the continental category. In practice this threshold is reached when a mountainous mass of more than 1,000 metres of average attitude extends over more than 20 thousand sq.km. islands like Cuba, Hispaniola (Haiti and the Dominican Republic), Iceland, Sri Lanka, Taiwan, Tasmania, etc... not to mention vast entities belonging to arc systems (Japan, Philippines, Indonesia, New Guinea, new Zealand) or included in continental plates (Madagascar, British Archipelago) are thus to be classified in a continentalized island category

... The true small islands are those which are subject to, and cannot modify, the influence of the oceanic hydroclimate because their volume is too small to have any effect other than to accentuate the contrast within one system. If there is no mountainous mass, oceanic insularity will keep all its characteristics on emerged areas of up to 3,000 to 4,000 sq.km. If there are important mountainous areas rising to above an average of 1,500 to 1,800 metres, oceanic insularity is already modified when the surface of the island exceeds 1,000 sq.km." (Doumenge,1985:70)

Other categorisations of islands include by latitude (tropical, temperate or arctic), or by altitude, underlying geology or island structure.

Against the background of this definitional and measurement debate, Dolman defines a small island, for example, as:

" ..a territory surrounded by a large body of water with a lend area of less than 5,000 sq.miles (13,000 sq.km.) and a population of one million or less." (Dolman, 1985:40)

Streeten takes a more pragmatic approach:

" We all know that we can define a country's size by its population, or by its area, or by its national income. These criteria do not always give the same results, but we know a small country when we see it. The best simple measure is population." (Streeten,1993: 197)

In this particular publication we define all of the Caribbean islands as small and also are sensitive to the coastal regions of Central .and South America, particularly the Guyanas, which are isolated from their hinterlands, and where the majority of the population live. Three main reasons inform this approach. First, the fact that all of the english speaking countries already share a common economic union ‑ the Caribbean economic community.

Second, all Caribbean countries share a common historical experience and therefore have a shared experience and cultural similarities. Third, the Caribbean sea is the common border of all Caribbean islands, and neighbouring mainland states since maritime activities ‑ both positive and negative ‑ impact on all of the abounding lands. It is therefore considered invalid to exclude some Caribbean islands from the classification as `small islands.'

Problems and Obstacles faced by Small Islands

The dominant and overwhelming concern of much of the literature on small islands, however defined, is with the delineation of the specific problems and obstacles which lie in the way of small islands achieving economic growth and development, far less sustainable economic development. The evidence can be found in the titles of publications devoted to small islands, for example, UNCTAD, 1990 ‑ " Problems of Island Developing Countries and Proposals for Concrete Action"; Searwar,1990 ‑ "Intrinsic Disabilities of Island Developing Countries" ,Blackman,1988 ‑"Problems of Island Developing Countries". ,Briguglio and Kaminarides, in the Introduction to the recent, 1993 special issue o! the journal, WORLD DEVELOPMENT devoted to " Islands and Small States: Issues and Policies" note, almost as a matter of incontrovertible fact that:

As expected, the majority of authors emphasized the disadvantages associated with small size."

We can distinguish between two categories of problems or disadvantages listed in the literature": those inherent in the condition of `islandness' and non‑island specific socio‑economic problems.

Peculiar `Islandness' Disadvantages

Three main disadvantages can be found in the literature which relate to a particular and peculiar 'islandness' disadvantage. I These are physical remoteness from major continents and/or markets; environmental fragility; and a particular vulnerability to natural hazards or disasters.

The economic expression or remoteness lies in the costs of movement of goods or people. Brookfield notes that technical change has been reducing the economics of both ocean and air transport to small islands:

BOX 2b

"... The modern revolution in shipping and cargo‑handling, plus the growing size of aircraft, have greatly worsened the locational disadvantage of islanders over the past 20 years. The modern transport revolution has reached them mainly through the displacement from island trade of socially‑useful smaller wooden craft by second to fifth‑hand coastal ships in whole regions such as the Caribbean and the pacific islands. As maintenance costs and replacement costs of such ships have soared, services have deteriorated and the cost of moving goods and people have risen." (Brookfield, 1990 :27)

Briguglio has estimated transport and freight costs as a percentage of exports between 1987‑1989. The average for 139 countries was some 20 %, for 117 developing countries is was 23 $ and for 25 small island developing countries the average was some 40 %. (Briguglio,1993)

In terms of the second disadvantage of ecological fragility, island habitats are prone to a high degree of endemism relative to their size. The Caribbean is reported, for example, to support over 130 restricted range species and nearly every Caribbean island includes or forma an endemic bird area.

The third `island‑specific' disadvantage is perhaps the most telling. Briguglio has devised an index of disaster damage between 1970‑1989 in 65 countries with disaster incidence. While the overall ratio is 31%, thirteen small island states recorded the overwhelmingly highest ratio of 61%. (Briguglio, 1993)

In the case of the Caribbean, Collymore, McDonald and Brown. (1993), have estimated the impact of natural disasters, reproduced in Table 2(ii). They estimate that hurricanes between 1722‑1990 have caused 43,000 fatalities with the total damage between 19601990 estimated at US$3 billion. Volcanic eruptions concentrated in three islands have cost 30,621 lives, 29,000 of which were lost in the famous 1902 volcanic eruption in Martinique. Collymore et al also estimate that earthquakes have resulted in some 16,000 fatalities since 1691.

The prognosis for the future also suggests that climate change will lead to a exacerbation of the natural disaster impact. The UNEP background paper for the April, 1994 Small Island Developing countries (SIDS) conference warns that:

The wider Caribbean region with its many island based economies such as fishing and/or tourism is particularly vulnerable to the physical changes associated with climate change and sea level rise." (UNEP, 1993:7)

Gomes also notes in another background paper for the SIDS Conference that ten of the fifteen most recent natural disasters which led to individual claims of over US$ 1 billion involved wind damage. (Gomes,1993:10)

In the light of this empirical evidence it is a moot point to note whether, to date, it is the environment which has had a greater negative impact on man in the Caribbean, rather than the other way around, as is commonly felt.

Non‑island specific socio‑economic Disadvantages

There are more instances of this second category of disadvantage in the literature including limited natural resource endowment; reliance on a few primary exports; diseconomies of scale both in production for small domestic markets and in the provision of social and physical infrastructure and public administration;