SUNDAY 3RD APRIL, 2016 – UWI TODAY
21
Based on this analysis, to achieve inter-generational
equity, the resource rents generated fromexhaustible or non-
renewable resources must be re-invested in reproducible
capital.
But the authors then apply this reasoning (called the
Hartwick rule) seemingly to justify economic and social
outcomes in Tobago. In my view this is another case of
forced fit.
First of all, the transfers from the Central Government,
which comprise the bulk of the Tobago’s budgetary
resources, are treated just as commodity export revenues.
They are certainly not. Moreover from2005 to 2013, a period
in which there was a substantial increase in commodity
export earnings, there was no commensurate increase in
budgetary transfers to Tobago.
Secondly, the calculations use several proxies because
of the “unavailability of data.” The Central Statistical Office
has produced inflation data for Tobago for many years. Yet
the article uses the prices of agricultural commodities and
construction materials as a proxy for inflation in Tobago.
The Office of the Secretary of Finance produces annual GDP
data for Tobago so it is not entirely correct to say that these
data are unavailable. At any rate, it is not obvious that foreign
tourist arrivals are a good proxy for economic activity in
Tobago. There is a view that since the start-up of the new
inter-island ferry service in 2008, the increase in domestic
tourism may have more than compensated for the decline
in foreign tourists.
It is likely that ongoing oil and gas exploration off
the Tobago coast, if successful, could create pressures
associated with Dutch Disease. Thus the recommendations
for increased investment in human and physical capital are
in order.
I do not think it is realistic to expect the oil companies
to play a major role in the financing of these infrastructural
investments, as a demonstration of corporate social
responsible. (At least in this article the authors are somewhat
less sanguine about the possibility.) I would suggest that an
alternative approach, from a policy view-point, would be a
government levy on the extractive industries with the funds
earmarked for community development.
The last of the articles on the economy is authored by
three staff members of the World Bank and deals with our
pressing challenge of economic diversification. For those
who like to dabble in econometrics, the article contains
a very interesting survey of a number of studies on the
determinants of economic diversification in resource-
rich countries. Not surprisingly the results are sometimes
conflicting and counter-intuitive, underscoring the fact
that there is no one blueprint for diversification. Instead
diversification policies need to be tailored to the specific
circumstances of each country.
Applying their econometric model to the specific
case of Trinidad and Tobago, the authors conclude that
the main impediments to economic diversification are
the usual suspects: Dutch disease, largely brought on by
counter-cyclical fiscal policies; the unsatisfactory quality of
education; inadequate economic infrastructure; insufficient
innovation and technological readiness outside the energy
sector and a business climate still in need of improvement.
While the factors cited are indeed critically important,
the article fails to adequately consider the role of our
institutions in our still unsuccessful efforts at economic
diversification. Recent research has begun to analyze the
diversification challenge faced by resource-rich developing
countries not solely in terms of economic incentives but
through the lens of political economy.
Thus, AlanGelb fromtheCenter ofGlobal Development
puts the blame squarely on weak institutions and poor
governance. Gelb argues that “large natural resource rents
make young democracies malfunction and there is tendency
for these countries to lack accountability and to practice
patronage politics.” According to Gelb, these small countries
tend to become hostage to economic policies that are driven
by short horizon, patronage-driven electoral competition
and a non-transparent allocation of resource rents.
Some of that may be operating here in Trinidad and
Tobago, reflected in the disproportionate concentration
of government expenditure on subsidies, transfers and
make-work programmes, as against economic and social
infrastructure. Our economy has serious skills gaps,
particularly in the public sector, yet patronage politics tend
to keep many competent managers and professionals from
full participation, resulting in the under-utilization of scare
human resources.
BOOK REVIEW
This is a very informative and provocative article,
which perhaps does not go far enough. For economic
diversification, we certainly need to get the market
incentives right but we need to do more than that – we
need to work on our institutions. Improving our business
climate is central to building international competitiveness.
However, it is time that we accept that this requires not only
reducing red-tape and improving our work ethic; it also
means dealing with crime and corruption, which too, are
major blots on our investment climate.
“In the Fires of Hope” has certainly brought greater
clarity to some of the economic and political challenges
Trinidad and Tobago still faces 50 years after independence;
and that is an important service. The three articles on
the economy have all pointed to issues in the energy
sector which have impeded progress towards economic
diversification. The recent slump in oil and gas prices has
made economic diversification even more urgent but a
bankable diversification strategy is still not in the offing. I
have tried to point out areas where the economic analysis
and the policy prescriptions could be strengthened. Even
with these shortcomings, “In the Fires of Hope” is a
formidable undertaking and all those who made it possible
should be commended.
Mr. Ewart Williams, Chair of the Campus Council, was invited to critique the first of a two-volume series, dedicated to celebrate the 50
th
anniversary
of Trinidad and Tobago’s Independence, “The Fires of Hope” at its launch on March 2, 2106 at The UWI.
“For economic
diversification, we
certainly need to get the
market incentives right
but we need to do more
than that – we need to
work on our institutions.
Improving our business
climate is central to
building international
competitiveness.”
Mr. Ewart Williams,
an economist and
former head of the
Central Bank of
Trinidad and Tobago,
at the launch of
“The Fires of Hope”
at The UWI.
PHOTO: ANEEL KARIM
Our economy has serious skills gaps
,
particularly in the public sector, yet
patronage politics tend to keep many competent managers and professionals from
full participation,
resulting in the under-utilization of scare human resources.
