20
UWI TODAY
– SUNDAY 3RD APRIL, 2016
I must confess that even before
reading the book, I was
seduced by the catchy title
“In the Fires of Hope”
which
conditioned me to expect as the dominant theme some
kind of message that would reassure me that “things were
going to be all right.” While the book did not quite provide
that assurance, it certainly succeeded in fulfilling one of its
aims – to add to the body of literature that illuminates our
society’s understanding of itself.
I have sought the permission of my hosts to focus on
the three papers on the economy (specifically on the energy
sector, leaving the very stimulating political discussions to
others who are more qualified and more daring).
Even so, I could not avoid making a passing comment
on [Dylan] Kerrigan’s piece on the history of Woodbrook
over the period 1920-1960.
Now, I am not from Woodbrook (according to
Kerrigan’s typology, I could not possibly have been part of
the Woodbrook of that era). However, I attended Fatima
College in the late 1950s and the early 1960s and I remember
well what Woodbrook was then. And believe me, it was far
from what is now – physically, culturally and in terms of
its socio-political significance. In college, I remembered
what it meant to be from Woodbrook. Kerrigan’s article
demonstrated clearly the road through which Woodbrook
travelled and left me to wonder about the origins and
significance of more recent changes. I really hope that I
could look forward to a sequel to this article.
I thought that it was most appropriate that the first of
the three articles about economics in this commemorative
publication sought to give recognition to our first Caribbean
Nobel Laureate and firstWest IndianVice-Chancellor of our
University, Sir Arthur Lewis. His contribution to economic
policy-making in the Caribbean as well as to a general
theory of economic development (if there is such a thing)
was enormous though perhaps not sufficiently recognized.
The article by [Ranita] Seecharan and [Roger] Hosein
gives a concise but insightful review of Sir Arthur’s
celebrated treatise on “Economic Development with
Unlimited Supplies of Labour,” and his development
blueprint christened by Lloyd Best as “Industrialization
by Invitation.” The blueprint was originally intended for
the small economies of the Caribbean but, over time, was
adopted by developing countries all over the world.
Sir Arthur challenged the prevailing orthodoxy which
insisted that the small economies of the Caribbean should
focus exclusively on agriculture since they had no hope of
achieving sustainable development throughmanufacturing
activity. While there is much disagreement on elements
of his framework even to this day, his proposed strategy
of fiscal incentives, export promotion as against import
substitution and the crucial role of Government intervention
in the development process, became standard fare in the
Caribbean and elsewhere. The notion that over time, the
locals would learn the tricks of the trade and take over the
manufacturing sector clearly did not envisage the capacity
of multinational firms to protect their turf.
In their article, Seecharan and Hosein see the Atlantic
LNG project in Trinidad and Tobago, started in the late
1990s as a special case of Industrialization by Invitation. In
my view that is somewhat of a stretch. While this project
has clearly been an important part of Trinidad and Tobago’s
strategy of gas-based development, to me it does not fit into
Lewis’ IBI framework.
added. In fact the value added is transported fromTrinidad
and Tobago to the industrialized countries. Many people
take the view that a better allocation of our exhaustible
gas supplies between the export and the domestic market
would have been more in our national interest. As total gas
production has been on the decline, our petro-chemical
industries have been starved for supplies.
There is also a view that our energy taxation regime
provides the wrong incentives.
Traditionally oil was more heavily taxed than gas
because gas was not considered as valuable. The disparity
in the tax regime has continued even when gas prices rose
sharply because the producing companies resisted changes
in the gas regime. Moreover because Atlantic was perceived
as a processing as opposed to an energy company it became
subjected to a tax rate of 35% while oil companies are taxed
at an effective rate of close to twice that level (about 67%).
The point is that Atlantic may not be the golden goose that
it is made out to be.
Seecharan and Hosein did, in fact, recognize some of
the limitations of Atlantic LNG’s performance and proposed
that these be addressed through an active policy of Localized
Economic Development based on greater Corporate Social
Responsibility. Quoting from the concluding remarks of the
article
“Atlantic could certainly do more to assist its localized
host community where the poverty rate is 24 per cent and the
unemployment rate is 13 per cent”.
I am not convinced that such an approach will yield
the required quantum of resources or has much chance
of succeeding, if only for the reason that the extractive
industries operating in today’s environment see CSR as a
marginal activity; a type of social service, not a strategy of
local development. A similar recommendation is repeated
in the article on Dutch Disease by [Roger] Hosein and
[Rebecca] Gookol.
The other two articles on the economy deal with
the hot-button issues of Dutch Disease and Economic
Diversification. The article by Hosein and Gookol gives an
interesting new spin to the theory of Dutch Disease. While
there are many definitions of the phenomenon, the term is
most commonly used to refer to the negative consequences
arising from large increases in a country’s national income.
It is most commonly used in the context of commodity
based economies and refers to a whole set of adverse factors,
including for example: inflationary pressures in the non-
commodity sector; these lead to a real appreciation of the
country’s exchange rate which, in turn, retards the non-
commodity export sector and promotes imports. The end
result is that the non-resource industries are hurt by the
wealth generated by the resource industries.
The article introduces us to a different dimension of
the Dutch Disease causality. It argues that Dutch Disease
leads to a decline in genuine savings, defined to take into
account the decline in commodity resource wealth as an
offset to increased export revenues.
According to the authors the causality works as follows:
resource boom brings higher depletion rates along with
higher export revenues. As commodity incomes rise there
is the well-known tendency for an increase in consumption
that can also negatively affect the nation’s savings. Lower
savings could in turn also contribute to lower rates of human
and physical capital formation. The line of argument has
merit.
BOOK REVIEW
FlickeringHope
B Y E W A R T W I L L I A M S
The underlying assumption of the Lewis approach was
that because the marginal productivity of labor and wages
in the agricultural sector were low and that this gave the
foreign investors easy access to a large pool of low-wage
workers to be combined with their advanced technology to
produce labor-intensive goods for export. Sir Arthur saw his
strategy as a way of increasing employment opportunities
for the excess agricultural labor force and at the same time,
using the manufacturing sector as an agent of economic
transformation.
For all its success, Atlantic LNG has been essentially
an extension of the mining sector, offering a negligible
contribution to employment and limited value added. It
came into being after the significant gas discoveries of the
1990s as a way of more fully exploiting our gas resources.
Atlantic LNG was no more a product of
“industrialization
by invitation
” than all the firms that made up the Point Lisas
Complex. They all got fiscal incentives in varying degrees
and they involved even greater value added. Atlantic LNG,
for all its success, represented an increased dependence
on our gas resources and could not have been seen as a
tool of economic transformation. Arthur Lewis saw his
manufacturing sector strategy as a way of transforming
the economy.
The paper notes the success of the Atlantic LNG plants
gave a major boost to government revenues and foreign
exchange earnings.This is certainly true. I was disappointed,
however, in not finding some discussion of the questions
and concerns that have plagued our gas-based strategy over
the years.
For example, several commentators have questioned
our gas-utilisation plan, of which Atlantic is an integral part.
About 80% of our gas production is converted into LNG to
be exported.The conversion simply involves the liquification
of gas to make it exportable, thus there is very limited value
