Professional Documents
Culture Documents
Downes
Downes
intheCaribbean:AnAssessment*
By
AndrewSDownes
ProfessorofEconomicsandUniversityDirector
SirArthurLewisInstituteofSocialandEconomicStudies
UniversityoftheWestIndies,CaveHillCampus
POBox64,StMichael,BARBADOS
Telno:(246)4174476
Faxno:(246)4247291
Email:asdownes@uwichill.edu.bb
June2004
Presented at a conference on The Lewis Model after 50 years: Assessing Sir Arthur
LewisContributiontoDevelopmentEconomicsandPolicy,UniversityofManchester,
July67,2004.
CONTENTS
Page
1
Introduction
Lewis'StrategyofIndustrialDevelopment
TheIndustrialisationExperienceintheCaribbean
12
TheFutureofIndustrialDevelopmentintheCaribbean
18
Tables
23
References
30
Caribbean:AnAssessment**
1
Introduction
The economic history of several developed or advanced countries indicates that industrial
development (namely, the expansion of manufacturing activities) has been an important
elementintheachievementofahighstandardofliving.Severallessdevelopedcountrieshave
soughttoemulatetheexperienceofthesedevelopedcountriesbyfosteringthedevelopmentof
manufacturing operations. Governments have provided the necessary infrastructure (roads,
water and electrical systems, ports, etc) and the policy framework to expand industrial
operationswhich wouldwiden therangeofavailablegoodsandservicesandprovideforeign
exchangeearningsandemploymentopportunities.
Countries within the Commonwealth Caribbean have not been an exception to this
industrialisation drive. Although smallscale residential manufacturing activity took place
during the early decades of this century, industrial development in the Caribbean has been
largelyapostWorldWarIIphenomenon.CommonwealthCaribbeancountriesexperienceda
long period of British colonial rule which fashioned the nature of economic activity until
independence inthe1960sand1970s.ColonialeconomicpolicytowardstheCaribbeanwas
reflected in the neomercantilist ideology of comparative advantage (Best, 1980). Colonial
economic policy reinforced by a political system which supported the interests of the agro
commercial elitedidnotincorporate measures tofoster industrial development in theregion.
The crux of the argument against industrial development in the region was that Caribbean
countries lacked the raw materials (coal, iron, etc), the capital and the industrial skills to
undertake fullfledged industrial activity. Furthermore, the small and fragmented domestic
marketsexistingintheCaribbeanwouldhavebeenunabletosupportmanymediumandlarge
scale operations. Official economic policy supported the continuance of agricultural
production(thatis, sugar,bananas)under a preferential trading arrangementwiththeUnited
Kingdom.Earlypostwardevelopmentplansproducedbythecolonialauthoritiesemphasized
*
agricultural development with a few `minor' residential industries processing local raw
materials.
Many local politicians and social commentators strongly advocated the need for industrial
developmentintheCaribbeaninanefforttocreateemploymentopportunitiesandtodiversify
domesticproductioninlightofthedepressionofthe1930s(seeBernal,1988Figueroa,1992
Downes, 1985 Farrell, 1980). Figueroa (1992), for example, traced the advent of
manufacturing in Jamaica back to the 1830s. He noted that while much of the early
manufacturingactivitywas linkedtotheagriculturalsector(thatis,thesugarindustry),there
was a growing manufacturingsector intheearly1900s producingprimarilyfor thedomestic
market(matches,bakingproducts,aerateddrinks,bricks).Figueroa(1992)furthernotedthat
pioneerlawstopromoteindustrialdevelopmentinJamaicawereenactedinthefirstdecadeof
the20th century.ItwasSirArthurLewis,however,whofirstformulatedacoherentstrategy
for industrial development in the Caribbean. In the aftermath of the uprisings in the 1930s,
Lewis(1938),writingonthebirthoftheworkers'movementintheCaribbean,advocatedthe
need for industrial development based on the utilisation of local raw materials (e.g., sugar
refining,chocolatemaking,copraanddairyproducts).Hispaperentitiled"Industrialisationof
the British West Indies", published in 1950, provided a fully articulated framework for
capitalistindustrialdevelopmentin the small statesof the Caribbean(Lewis,1950).Priorto
this seminal paper, Lewis had outlined aspects of a strategy for industrial development in
Jamaica inhiscritiqueof the Benhameconomic planforJamaicaandreviewedtheindustrial
development experience of Puerto Rico which provided important insights for the
Commonwealth Caribbean (Lewis, 1944, 1949). These works no doubt helped him to
formulateamoregeneral`model'ofeconomicdevelopmentasdiscussedinhiscelebrated1954
paperon"EconomicDevelopmentwithUnlimitedSuppliesofLabour"(Lewis, 1954).
ThepurposeofthispaperistoassessLewis'ideasonindustrialdevelopmentintheCaribbean
formulated over the period 1938 to 1950. In section two, Lewis' strategy of industrial
developmentinthesmallstatesoftheCaribbeanisoutlined.The industrialisationexperienceof
Caribbean countries since the 1950s is then reviewed in section three. The final section
*
examinesthefutureofindustrialdevelopmentintheCaribbeaninlightofthechangingregional
andinternationalenvironments.
Lewis'StrategyofIndustrialDevelopment
Lewis'writingsonindustrialdevelopmentintheCaribbeanoverthe19381950periodsuggest
an`exportledlabourintensivestrategyofindustrialdevelopment'.Therearetwovariantsof
this general strategy(seeDownes, 1985,pp.6071). Thefirst variant is the outcome ofhis
critique of the Benham economic plan for Jamaica and is based on the use of local natural
resources that is, `exportled natural resourcebased industrialisation' (Lewis, 1944). The
secondvariantisbasedontheexperienceofPuertoRicoandplacesgreatemphasisonforeign
investment and the grantingof fiscal incentives(Lewis, 1950). Thisvarianthasbeencoined
`exportledindustrialisationbyinvitation'(Best,1976).
Lewis'strategyisbasedonasetofpremises:
(i)
surpluslabour
(ii)
marketsize
(iii)
labourcost
(iv)
financialinvestment
(v)
riskaversion
Thesurpluslabourpremiseisprobablythemostimportantone.Lewisarguedthatthecasefor
industrial development in the Caribbean restedon the overpopulationexisting in the region.
Thepopulationtolandratiowastoohighforagriculturetosupportthegrowthinthelabour
force.Giventhehighlevelsofunemploymentandunderemployment,especiallyinBarbados,
Jamaica andtheWindward andLeewardislands,therewasanurgentneedtocreatejobsoff
the land.Hesawindustrialdevelopmentcomplementingagriculturaldevelopmentinraising
thestandardoflivingandprovidingproductiveemployment.
Withregardstothemarketsizepremise,itwasarguedthatthedomesticandregionalmarkets
*
were too small in terms of population size and per capita income to support the level of
industrial development needed to achieve `full employment'. Although regional economic
integrationisregardedasasinequanonforalargescaleindustrialprogrammeintheregion,
Caribbeancountriesneedtotargetmanufacturedproductsforextraregionalmarkets.
The relatively low labour costs in Caribbean labour markets (occasioned by high levels of
unemployment and low productivity in the agricultural sector) would be one incentive to
industrialistsseekingtominimizethecostsofproduction.Thisrelativepriceadvantagewould
encouragetheuseoflabour intensivemethodsofproduction.
Finally, Caribbean capitalists were regarded as `risk averse', expressing a preference for the
distributivetradesandprotectedagricultural productionratherthanmanufacturingproduction,
especially for export. In order to develop the industrial sector, there was a need to invite
foreignindustrialiststoestablishoperationssothatlocalcapitalistscouldbetaughtthe`tricks
of thetrade'(i.e.,industrialisationbyinvitation).Havinglearntthe`tricks',localindustrialists
wouldbeabletotakeoverthedriveforgreaterindustrialisationintheregion.
TherearethreemainelementsinLewis'approachtoindustrialdevelopmentintheCaribbean:
markets,resourceavailabilityandeconomypolicyformulation.Withrespecttothemarketfor
manufactured goods, Lewis argued that the extraregional market provided the greatest
potential for utilizing the surplus labour of the Caribbean. The primary reason for this
*
With respect to resource availability, Lewis indicated that the secret of successful industrial
developmentrestedonacountryspecialisinginthosegoods"towhichitsresourcesaremost
appropriate" and the avoidance of others (Lewis, 1950, p. 18). In his strategy for natural
resourcebasedindustrialdevelopmentinJamaica(variantone),Lewis(1944)suggestedthree
criteria to govern the selection of industries. First, there was need to encourage those
industrieswhichprocesslocallyavailablerawmaterials.Second,thoseindustrieswhichrequire
relatively small quantities of power, capital equipment and specialized skills should be given
priority.Third,industrieswhicharenotassociatedwithmarked`internaleconomiesofscale',
thatis,thosewhichdonothavealarge`minimumefficientscaleofplant'orhighcostpenalty,
should be developed. In addition, those industries offering a great scope for female
employmentshould also behighlyconsideredsincethehighestrateofunemploymentexisted
(andstillexists)amongyoungfemales.Lewisfurtherelaboratedonthechoiceofindustriesin
his seminal paper on industrial development in the British West Indies (Lewis, 1950). His
choice of industries was based on eight indices reflecting four aspects of his industrial
development programme for the Caribbean: the labour intensity of production resource and
energyrequirements,theextentofscaleeconomiesandthedegreeofagglomerationeconomies
(which reflects his regional approach to industrial development). Using available census
information,Lewisidentifiedthe`mostfavourable'industriesforestablishmentintheCaribbean
as:garments, footwear,leather andhosiery, textiles,chinaandglass,buildingmaterials(non
*
metallic mineral products), paper products and food canning. In addition, plastics, rubber
goods, electrical switches, toys and electrical lamps could be produced along with light
engineeringindustries.Lewis alsonotedthatindustrialdevelopmentcouldthrive"byimporting
rawmaterials,processingthemandexportingthefinishedproduct"(Lewis,1950,p.35).
First,themarketingofproductsisimportantforasmalldevelopingcountryembarkingonan
exportled path. Since the domestic market would be too small to support any meaningful
industrialisation, both traditional and nontraditional trading partnerships would have to be
forged(i.e.,strategicmarketingandalliances).WithinthewiderCaribbeancontext,therewere
(are)afew industries whichtheregional market couldsupportonaneconomicscale.Ifthe
planning of regional industrial projects can be carefully undertaken, then intraregional trade
canberealised.Theregionalmarketwouldhoweverbeabletosupportasmallpercentageof
theindustriesrequiredtoachieve`fullemployment'.ThecountriesoftheCaribbeantherefore
hadtolookoutsideoftheregionformarkets.
Two possibilities were identified by way of `SouthSouth' trade and ` NorthSouth' trade.
SincethesmallCaribbeanstatesarenotremotefromeitherLatinorNorthAmerica,thesetwo
areas offered the bestprospectsasextraregionalmarkets.AsLewishopefullynoted,if"the
West Indies could capture half of its own domestic market, plus 2% of the manufactured
imports of Latin America and of the USA, the islands' employment problems would be
completelysolved"(Lewis,1950,p.32).However,theinfluenceofthe`structuralist'schoolin
LatinAmericawouldhavemadeitdifficulttoexporttothatmarket.Prebisch(1949)wasat
thesametimemakingacaseforimportsubstitutingindustrialisationinLatinAmerica.Unless
special arrangements could be made, the tariff and other import restrictions associated with
*
importsubstitutionwouldhavemadeentryintotheLatinAmericanmarketdifficult.Itisnot
clear if Lewis was aware of the Latin American approach to industrial development in his
identificationofLatinAmericaasapossibletargetmarketforCaribbeanexports.
Therealitiesoftheinternationaleconomyinthe1950smeantthattheUSAwouldbethemain
market for West Indian manufactured goods. He felt that American industrialists could be
encouragedtoestablishoperationsintheCaribbean.Thesecompanieswouldbeabletoexport
theirmanufacturedgoodsthroughwellestablishedintrabranchtradingarrangements.Healso
felt that the workforce was flexible and adaptable to industrial tasks which were needed by
exporters. The Caribbeanwouldbe the centreof Americanoffshoremanufacturing activity
and`full'employmentwouldbeachieved.
Lewis considered four possible ways of achieving `full' employment through industrial
development (Lewis, 1944, pp. 1601, 1958, 1972). First, exchange rate policy, namely, a
devaluationofthecurrencywhichwouldreducethecostsofexportsintermsofworldprices.
Such a policy measure would enhance international price competitiveness thus expanding
foreign demand and through the foreign trade multiplier, increasing domestic income and
employment. The income and employment effects of this policy measure depend on the
relative price elasticities of demand for imports and exports (that is, the MarshallLerner
condition).Thesecondmeasureinvolvestheuseofanincomespolicy,wherebythepricelevel
wouldbereducedby"cuttingwages,salaries,profit,rentsandotherincomes.Thiswouldhave
thesameultimateeffectsasdevaluationproductionwouldexpand,importsbecut,payments
balanceandemploymentbecreated",whilemaintaininganominalexchangeratepolicyanchor
(Lewis,1944,p.160).Thethirdmeasure,whichisconsideredthebesttheoreticalandlong
termsolution,isincreasingproductivity.Thisrequiresamultidimensionalpolicyframework
since increases in productivity depend on health and nutritional facilities, education and
training, incentives, capital allocation and use and the social and political philosophy of the
peopleofthecountry.Byincreasingproductivity,especiallyintheagriculturalsector,incomes
would increase and consequently, the proportion spent on manufactured goods would rise.
*
The fourth measure relates to the direct promotion of manufacturing activities and is
consideredastheonlypracticalalternativetodeveluation.A"deliberaterestrictionofimports
and concentration on an attempt to increase production for home consumption" could be
adopted(Lewis,1944,p.161).Lewisthereforesuggestedan`importsubstitution'strategyof
industrial development as an alternative. Nevertheless,he regarded thisapproachas`second
best' visvis `export expansion' via devaluation. Thefour measures must not beviewedas
being mutuallyexclusivesincethepracticalitiesofeconomicpolicymakingmakeitinevitable
toconsiderthefourmeasuressimultaneously.Thefirstthreemeasures(devaluation,incomes
policy and productivity) reflect the measures needed to increase international price
competitivenessbyreducingacountry'srelativerealunitcostsofproduction.
theneedtofocusontheinternationalexportmarket,withanemphasison
internationalnichemarketing.Whererelevant,regionalintegrationshould
supporttheexportdriveintheformofregionalindustries(i.e.,aformof
asinglemarketandeconomy)
(ii)
sincetheexportmarketisvitaltotheindustrialisationdrive,small
developingcountriesneedtopursuepolicymeasureswhichwouldmake
theirproductsinternationallycompetitive(e.g.,exchangeratepolicy,
incomespolicy,productivitymeasures)
(iii)
giventheirnarrowresourcebaseand limitedbargainingpower,small
developingcountrieshavetoestablishstrategicallianceswith
10
international
(foreign)industrialists(e.g.,directforeigninvestment,joint
(iv)
ventures,franchising)
the State has an important role to play in the industrial development process via the
designandimplementationofappropriatepolicymeasuresandtheestablishmentofthe
institutional framework and social infrastructure needed to facilitate the
industrialisationprocess
(v)
the
technologicalchangestakingplaceinthemanufacturingsector
(vi)
industrialenterprisesshouldseektoutilizelocalresourceswherepossible
andthuscreatebackwardandforwardlinkageswithothersectorsofthe
economy(agriculture,generalservices,tourism).
TheIndustrialisationExperienceintheCaribbean
Prior to the 1950s industrial activity in the Caribbean was limited to the processing of
agriculturalproductsforexport(e.g.,rum)andanumberofsmallscaleresidentialenterprises
geared towards local consumption (bread, biscuits, clothing, bricks, edible oils, cigarettes).
Someoftheseoperationswereencouragedbytheshortagescausedbythedisruptionsofthe
world wars. Sir Arthur Lewis' work on industrial development however helped to fashion
industrial policy making in the 1950s. Political leaders saw Lewis' strategy as a vehicle for
overcoming the unemployment problem facing their countries. Rather than adopt a unified
approachtoindustrialdevelopmentinthecontextofacustomsunionassuggestedbyLewis,
Caribbeangovernmentsdecidedtoapproachindustrialdevelopmentindividually.
11
In terms of the institutional and policy framework, all the Caribbean countries enacted fiscal
incentives to encourage foreign and local capitalists to establish industrial plants. Pioneer
incentive legislation was introduced in most Caribbeancountriesin the early 1950s andlater
refined in the late 1950s and during the 1960s and 1970s. Industrial incentives legislation
includedsuchmeasuresas:
(i)
exemptionofprofitandgainsfromcorporateincometax(i.e.,thegranting
ofataxholidaywhichvariedfrom6to15yearsdependingonthedegree
of`localvalueadded'generatedbytheenterprise)
(ii)
theadjustmentofincomeandpropertytaxestoprovideacceleratedcapital
depreciationallowancestofirms.Thismeasurewouldallowcompanies
toquicklywriteoffcapitalequipmentandpurchasenewtechnologically
advancedequipmentandmachinery
(iii)
carryoverlossesmadeduringthetaxholidaytobesetagainstfuture
(iv)
exemptionfrompersonalincometaxforinterestincomeobtainedfrom
profits
debenturestockinanapprovedenterprise
(v)
relieffromtradetaxesandfees
(vi)
dutyfreeimportationofrawmaterials,machinery,equipmentandspare
parts
(vii)
theprovisionoflowrentalfactoryspaceestablishedmainlyinindustrial
parkssupportedbygoodroads,watersupply,seweragesystems,
electricity,etc
(viii)
specialtaxconcessionsforexportorientedcompanies.
EachCaribbeancountryofferedthesamebasicfiscalincentivestoindustrialists,sothatonthe
formationoftheCaribbeanCommunityandCommonMarket(CARICOM)in1972,therewas
aneedtoharmonizethoseincentivesinordertoavoidintercountryrivalry.Thisharmonizaton
wasachievedin1974.Thesefiscalincentiveshaveplayedanimportantroleinthelocationand
investment decisions of local and foreign industrialists, especially in the areas of textiles and
wearing apparel(garments),chemicals, assemblytype operations(electroniccomponents and
*
12
othermiscellaneousmanufacturingactivity).
Ithasbeenarguedthattaxincentiveslegislationislargelyredundantsincesuchinitiativeshave
limited,ifany,impactinattractingforeigninvestment[see,forexample,ChenYoung,1967].
Recentresearchindicatesthatbotheconomicvariables(exchangerate,marketsize,wagerate
differentials and tax on foreign firms income) and structural/locational variables (human
capital,physicalinfrastructure)aresignificantfactorsinattractingUSdirectinvestmenttothe
Caribbean[Lall,NormanandFeatherstone,2003].
Governmentsintheregionalsoestablishedindustrialdevelopmentcorporations(and,insome
cases, development banks) to promote and finance industrial development. For example, in
Barbados,aDevelopmentBoard wasestablishedin1957tofacilitateindustrialdevelopment.
This Board was divided into two institutions in 1969 the Barbados Development Bank to
providefinancialassistanceandtheBarbadosIndustrialDevelopmentCorporationtopromote
and administer the incentives to industry. Today, the Bank has been closed and the
Corporation has been renamed the Barbados Investment and Development Corporation. St
Luciahasestablished aNationalDevelopmentCorporationtopromoteindustrialdevelopment.
An analysis of growth and structural change in the manufacturing sector would indicate the
*
13
followingfeatures:
(i)
areductioninthenumberof`earlyindustries'cateringtolocaldemand
(handicraftindustries,bakeries,softdrinkfactories)
(ii)
afocusonlightmanufacturing(consumerorientedgoods)withlittleorno
capitalgoodsindustries(withtheexceptionofTrinidadandTobago)
(iii)
weakintersectoralandintrasectorallinkagesastheimportcontentof
manufacturedgoodsremainshigh
(iv)
thegrowthofexportprocessing(enclave)companiesinJamaica,StLucia,
Barbados.Thesecompaniesareengagedinoffshoredataprocessing
theassemblyandmanufactureof garments,footwear,electricaland
equipment,toysandothergoods(seeWillmore,1994,1995).
largelyforeignowned(especiallybyUSnationals)
tradeprovisions(e.g.,CaribbeanBasin
807A/9802AandtheJamaica
and in
electronic
very`footloose'.
(v)
althoughsmallestablishments(lessthan25employees)aredominantinthe
manufacturingsector,theyaccountforarelativelysmallproportionof
industrialoutput.Mediumandlargeestablishmentsaccountforarelatively
smallproportionofindustrialoutput.Mediumandlargeestablishments
accountformostoftheoutputandtendtobeexportoriented. Small
enterpriseshowevercontributetothediversityofproductioninthesector.
IntheCaribbean,therefore,threetypesofindustrieshavedevelopedsincethe1950s:
(i)
importsubstitutingindustrieswhichwerefirstestablishedinthe1960s.
Theseprovidesuchgoodsasbeverages,tobacco,textiles/garments,
furniture,paperproducts.Someoftheenterprisesintheseindustrieshave
beenabletoexportsomeoftheirgoodstootherCaribbeancountries
(ii)
exportprocessingindustrieswhich takeontwoforms:
(a)
thosewhichprocesslocalrawmaterials handicrafts,agro
14
products(soap,juices,foodproducts),
(b)
thosewhichhaveenclavestatus garments,electronic
components,officemachinery,informationprocessing
(iii)
heavyprocessingindustriessuchasaluminaprocessinginJamaicaand
andpetrorefiningandenergybasedindustriesinTrinidadand
Guyana
Tobago.
Themainreasonbehindtheindustrialdevelopmentdriveintheregionhasbeentheprovisionof
employment opportunities both directly and indirectly. Data on employment in the
manufacturingsectorintheCaribbeanaredifficulttoobtain.TheavailabledataforBarbados
indicate that in 1980, the manufacturing sector accounted for 15 percent of the employed
labour force of 100,300 persons, whilein 2000, the contribution was 10 percent of125,500
persons.InJamaica,thecontributionswere11.1%and8%for1978and2000,respectively.
Willmore(1995)indicatedthatin1993,themanufacturingsectoraccountedfor12.2%oftotal
manufacturing employment (i.e., 6000 persons), with export processing firmsaccountingfor
approximately 47 percent of these employed persons. Trinidad and Tobago has however
witnessedanincreaseintheproportionofpersonsemployedinthemanufacturingsectorfrom
9.5percentin1987to12.3percentin2000.Despitetheindustrialisationdrive,unemployment
still remains a serious problem in the region (see Table 2). Data for selected Caribbean
countriesshowthatinthe1990s,officialunemploymentratesweregenerallyover10percent.
Unemployment is particularly acute among young females (also identified by Lewis in the
1940s). Export processing industries (garments, electronic assembly and informatics) have
beenabletoprovideemploymentforyoungfemales,butgreaterindustrialexpansionisneeded
inordertoovercometheproblem.
The manufacturing sector has contributed significantly to the domestic exports of Caribbean
countries. For example, manufactured exports accounted for 30 percent of total domestic
exportsinthe1990sinmostcountries(seeTable3).InBarbadosandJamaica,manufactured
exports accounted for 50 percent of domestic exports in the 1990s. Manufactured exports
have however suffered from recession in the world economy and economic difficulties in
CARICOMstates.
*
15
The principal manufactured exports from the region include rum (Bahamas, Barbados,
Guyana), chemicals (Bahamas, Barbados), clothing (Belize, St Kitts), alumina (Jamaica),
petroleumproducts(TrinidadandTobago), agroproducts(Barbados,Belize,Jamaica).The
USAisthemainexportmarketforCaribbeanproducts[seeTable4].Althoughtheproportion
ofCARICOMexportstotheUSAdeclinedfrom48.7percentin1980to35.2percentin1998,
exportsofthemanufacturingsectorhavebenefitedfromspecialtradingagreementssuchasthe
CaribbeanBasinInitiative(CBI)andthepresenceofAmericanforeigninvestorsinthesector.
There has been some notablegrowthin intraCARICOM trade from 8.9 percentin1980to
22.5percentin1998.
Thomas(1988)hasidentifiedseveralweaknessesintheindustrialisationdriveintheCaribbean
over the past three decades which have affected the realisation of the potential which was
envisaged.Theseweaknessesinclude:
(i)
afocusinthedomesticmarketthroughimportsubstitution.Therehas
antiexportbiasinthedesignandimplementationofindustrial
been an
walls),
(ii)
highcapitalintensityofproductionwhichhasbeenanoutcomeofthefiscal
incentivesgrantedtoforeigninvestors(e.g.,accelerateddepreciation
allowanceanddutyfreeimportationofcapitalandequipment),
(iii)
underutilisationofplantasaresultof(i)and(ii)above,
(iv)
fewbackwardandforwardlinkages,especiallyinexportprocessing
industries,
(v)
ahighdegreeofindustrialconcentration,thatis,oneortwofirms
dominateinthemarket,
(vi)
theabsenceofregionalindustrialprogrammingtopromoteregional
industriesasenvisagedbyLewis.Thereareveryfew(56)companies
operatingonaregionalbasisinthemanufacturingsector.TheCARICOM
Enterprise Regime, designed to promote regional firms, has not taken root in the
16
region,
(vii)
industrialdevelopmenthasbeenassociatedwithincreasingurbanisation
especiallyinJamaica,BarbadosandTrinidadandTobago,
(viii)
anunderdevelopedindigenousindustrialclasswhichcandevelopstrategic
allianceswithforeigncapitalists.Theemphasisonexportprocessingzones
has stymied the development ofthis classand therefore it has notlearntthetricksof
thetrade.
TheFutureofIndustrialDevelopmentintheCaribbean
Overthenextdecade,themanufacturingsectorintheregionwillfacemajorchallengeswhich
can affect its abilityto contributemeaningfully to domestic production, employmentcreation
and foreign exchange generation. First, the postUruguay Round world of trading
relationships,beingoverseenbytheWorldTradeOrganisation(WTO),wouldmean:
(i)
tariffreductionsforarangeofmanufacturedgoods(woodandwood
products,metals,textiles,clothing,etc)
(ii)
thephasingoutofthebilaterallynegotiatedimportquotasontextilesand
clothingundertheMultifiberArrangement(MFA)whichcameinto
existencein1974.DuringthephasingoutoftheMFA,goodssubjectto
17
MFAquotaswillgraduallybeintegratedintoGATT(theGeneral
AgreementonTariffsandTrade)
(iii)
theeliminationofsuchnontariffbarriersasvoluntaryexportrestraints
(VERs)
agreementbetweenanimportingandanexportingcountry
whereby
agreesvoluntarilytorestrictexportstotheformer and
orderly
arrangements(OMAs) whicharesimilartoVERswith
theprovisionthatifthe
agreedlimitisexceededanexplicitimportquota
the
latter
marketing
bytheimportingcountry
(iv)
prohibitionofexportsubsidies
(v)
(vi)
ageneralagreementontradeinservices(GATS)whichcanimpactonindustrialpolicy
[seeBora,LloydandPangestu,2000].
These measures would intensify the degree of trade liberalisation within the world economy
andhastentheneedfornewindustrialpolicies.
Second, the formation of the North American Free Trade Area (NAFTA) between USA,
Canada and Mexico and its possible extension to the Free Trade of the Americas (FTAA)
incorporatingotherLatinAmericanandCaribbeancountrieswouldmeangreatercompetition
in the NorthAmerican market for Caribbeanproducts. Inasmallscalequalitativesurveyof
manufacturing firms in selected Eastern Caribbean countries, Marshall and Williams (2002)
foundthatonlyafewfirmshadthecapabilitytocompetewithinaFTAAarrangementandto
achieve world class manufacturing standards. The main areas in which firms had a strong
potentialtobeworldclasswerefoodandbeverage(thatis,abrewery),electronicsandpaper
products.Thesefirmshavelinkswithforeigninvestors.
18
Third,thegradualreductionoftheCommonExternalTariff(CET)withinCARICOMwould
enhanceinternationalcompetitivenessandforcerationalisationofproductionstructures.
19
There is evidence of an evolving new industrial thrust in the region [see Farrell, 2003
CARICOM, 2000]. Several Caribbean enterprises are merging or amalgamating inorderto
achieve the critical size required for the extraregional market. These are becoming Pan
Caribbean firms, very much along the lines suggested by Arthur Lewis: Grace Kennedy
(Jamaica), Neal and Massy, Bermudez, TCL (Trinidad and Tobago). These regional
companies are diversifying into servicesoriented activities as part of their market extension
diversification strategies. Furthermore, several of these companies are crosslisted in the
regionsstockexchangesthusgainingaccesstoaregionalcapitalmarket.
Althoughtheeconomicenvironmenthaschangedsincethe1950s,severalofthefundamental
elements of the industrial development strategy for small developing countries suggested by
*
20
Lewisarestillrelevant.Inmanyrespects,thedrivetowardsaCSMEandtheformationofthe
FTAAwillhighlightseveraloftheelementsofthestrategywhichhavenotbeenimplemented
byCaribbeangovernmentsoverthepastfiftyyears.
There isnodoubtthatSirArthurLewis'workhashadapowerfuleffectoneconomicpolicy
makingintheCaribbean.Areassessmentofhisworkonindustrialstrategyandpolicywould
indicatethatmanyofthefundamentalsarestillrelevantintoday'seconomicenvironmentand
thattheframeworkshowsakeenunderstandingoftheanalyticalissuesfacingsmalldeveloping
countries.Theseelementsarecriticaltothediscussionintheinternationalarenaontheneed
forspecialanddifferentialtreatmentforsmalldevelopingcountries.
**AnearlierversionofthispaperwaspresentedattheinauguralSirArthurLewislectureheld
attheSirArthurLewisCommunityCollege,Castries,StLuciain1996.Iwouldliketothank
MichaelHoward,DelisleWorrellandMarkFigueroafortheirusefulcommentsontheearlier
version.Iamfullyresponsibleforthecontentsofthispaper.
Table1
*
21
TheContributionofManufacturingtoGrossDomesticProduct
1980,1985,1990,1995,2000
(%)
Country
1980
1985
1990
1995
2000
Anguilla
Antigua/Barbuda
Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
Jamaica
Montserrat
StKitts/Nevis
StLucia
StVincent
Trinidad/Tobago
n.a.
5.3
n.a.
12.5
16.1
4.8
3.9
3.3
16.6
6.0
15.2
8.4
10.7
6.9
1.1
4.3
n.a.
10.6
16.7
6.4
5.1
9.8
20.0
6.0
12.1
8.5
11.6
7.3
0.7
3.4
3.2
8.0
15.7
7.1
6.5
5.2
19.5
1.0
12.8
8.1
8.5
8.6
0.8
2.3
3.2
6.7
13.7
7.2
7.4
3.8
17.5
3.2
10.7
6.9
8.4
8.1
1.4
2.3
n.a.
6.2
13.2
8.7
7.6
2.6
13.7
0.8
10.4
5.1
6.0
8.0
Table2
*
22
EstimatesofUnemploymentintheCaribbean19902002
(%)
Country
Anguilla
Antigua/Barbuda
Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
Jamaica
Montserrat
StKitts/Nevis
StLucia
StVincent
Trinidad/Tobago
1990
n.a.
6.8
n.a.
15.0
n.a.
n.a.
n.a.
n.a.
15.3
1.0
n.a.
n.a.
n.a.
1992
7.2
7.8
14.8
23.0
n.a.
n.a.
n.a.
11.7
15.7
9.0
n.a.
n.a.
n.a.
19.6
1994
n.a.
6.7
13.3
21.9
11.1
n.a.
29.1
n.a.
15.3
8.3
4.5
n.a.
n.a.
18.4
1996
n.a.
7.0
n.a.
15.6
13.8
n.a.
17.5
n.a.
16.0
n.a.
n.a.
n.a.
n.a.
16.2
19981
n.a.
7.8
n.a.
11.8
14.3
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
14.2
faauto20.0
Source:CDB,SocialandEconomicIndicators,1996
CDB,AnnualReport2001
CaribbeanCommunitySecretariat,TradeandInvestmentReport,2000
Table3
ManufacturingExportsasaPercentageofMerchandisingExports,
*
23
2000
n.a.
n.a.
n.a.
9.2
11.5
n.a.
n.a.
n.a.
15.5
n.a.
n.a.
16.5
n.a.
12.8
19702000
Country
Anguilla
Antigua/Barbuda
Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
Jamaica
Montserrat
StKitts/Nevis
StLucia
StVincent
Trinidad/Tobago
1970
1975
1980
1985
1990
1995
2000
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
3
n.a.
n.a.
n.a.
n.a.
n.a.
13
n.a.
n.a.
n.a.
n.a.
18
n.a.
n.a.
3
54
n.a.
n.a.
23
n.a.
6
n.a.
n.a.
n.a.
n.a.
18
54
8
n.a.
63
n.a.
n.a.
42
14
5
n.a.
n.a.
n.a.
n.a.
25
35
5
n.a.
53
n.a.
n.a.
26
n.a.
18
n.a.
n.a.
n.a.
43
15
32
20
n.a.
69
n.a.
n.a.
28
n.a.
27
n.a.
n.a.
n.a.
59
12
47
15
n.a.
71
n.a.
41
32
14
26
n.a.
n.a.
43
52
11
56
65
16
73
n.a.
73
20
13
29
Source:WorldDevelopmentIndicatorsDatabase
Table4
DistributionofCARICOMsTotalExportsbyPrincipalDestinations
*
24
19801998
(%)
Destinationof
Exports
1980
1985
1990
1995
1996
1997
1998
USA
EuropeanUnion
CARICOM
LAIA1
SelectedAsian
Countries
RestoftheWorld
48.7
16.5
8.9
1.9
0.4
47.2
17.8
12.8
2.1
1.3
40.7
20.6
12.1
2.8
1.2
34.1
20.9
16.5
5.4
1.5
38.5
18.0
18.3
5.2
0.9
35.3
18.1
19
4.6
1
35.2
16.9
22.5
3.7
0.6
23.6
18.8
22.5
21.6
19.1
22
21.1
Source:CARICOMSecretariat.2000.CaribbeanTradeandInvestmentReportandaQuickReferenceto
someSurveyData,19801996
Notes: 1IAIA:LatinAmericanIntegrationAssociation
Table5
TrendsinAverageTariffRatesforCaribbeanCountries,
19801999
*
25
Economy
1980
Antigua/Barbuda
Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
Jamaica
Montserrat
StKitts/Nevis
StLucia
StVincent
TrinidadandTobago
n.a.
29.8
n.a
n.a
n.a.
n.a.
n.a.
16.0(82)
n.a.
n.a.
n.a.
n.a.
n.a.
1985
12.0(86)
32.3(87)
17.3(86)
17.3(86)
31.9(87)
22.8(87)
17.4
17.0
n.a.
12.9(87)
12.0(87)
17.3(86)
n.a.
1990
1995
15.0(89)
n.a.
22.0
20.0
28.0
16.0(89)
20.0(89)
20.3(91)
n.a.
n.a.
n.a.
n.a.
18.6(91)
12.0
32.0(96)
17.0
17.0
15.0
10.8
17.0
n.a.
n.a.
n.a.
n.a.
n.a.
18.7
Source:TheWorldBank2002:Development,TradeandtheWTO:AHandbook
Table 6
Policy Measures Contributing to the Success of East Asian Economies
1
ACCUMULATING CAPITAL
a.
technology
b.
26
1999
9.0(98)
n.a.
13.6
9.2(98)
n.a.
7.6
n.a.
8.7
n.a.
92(98)
9.7(98)
9.2(98)
9.2(98)
Increasing Investments
create the social infrastructure to complement private investment
low price of capital goods by maintaining low tariffs on imported
capital goods
(iii)
use mild financial repression (deposits and lending rates kept
below marketclearing levels)
ALLOCATING CAPITAL
a.
flexible labour markets (little minimum wage legislation; productivity
driven wage increases)
b.
government intervention to control interest rates and to direct credit to
priority activities (e.g., shipbuilding, chemicals, automobile industries in
Japan
and Korea)
PROMOTING PRODUCTIVITY
a.
c.
exports
institutional support for exporters
liberalized exchange rates and currency devaluations to support export
growth
manufactured export growth encouraged
*
27
technological upgrading
References
Barclay L A (2004). The Competitiveness of Trinidadian Manufacturing Firms in an
Increasingly Liberalised Trading Environment (Department ofManagementStudies,
UWI,Mona,Jamaica).
BernalR.(1988).TheGreatDepression,ColonialPolicyandIndustrialisationinJamaica.
SocialandEconomicStudies,Vol37,nos1and2,MarchJune,pp3364.
BestL.(1976).TheChoiceofTechnologyAppropriatetoCaribbeanCountries. Working
Paper,No15,CentreforDevelopingAreaStudies,McGillUniversity.
BestL.(1980).InternationalCooperationintheIndustrialisationProcess TheCaseof
TrinidadandTobagoinUNIDO, Industry2000 NewPerspectives,
*
28
CollectedBackgroundPapers,Vol6,October,pp153299.
BoraB,LloydPJandPagestuM(2000).IndustrialPolicyandtheWTO,PolicyIssuesin
InternationalTradeandCommodities,StudySeries,no6,UNCTAD,Geneva.
CARICOM (2000). Caribbean Trade and Investment Report (Georgetown, Guyana,
CaribbeanCommunitySecretariat).
ChenYoungP(1967).AStudyofTaxIncentivesinJamaica,NationalTaxJournal,Vol
xx,no3,pp292308.
DownesAS(1985),IndustrialGrowthandEmploymentinaSmallDevelopingCountry:
TheCaseofBarbados19551980.(PhDThesis,UniversityofManchester).
DownesAS(2003).ProductivityandCompetitivenessintheJamaicanEconomy(Economic
and Sector Study Series, RES03002, InterAmerican Development Bank,
Washington,DC, July).
FarrellT(1980).ArthurLewisandtheCaseforCaribbeanIndustrialisation.Socialand
EconomicStudies,vol29,no4,December,pp5275.
Farrell T M A (2003). Caribbean Economic Integration: What is Happening Now, What
NeedstobeDone(DepartmentofEconomics,UWI,StAugustine,October).
FigueroaM(1992).PreWarIndustrialisationinJamaica:PolicyIdeasandInitiatives.
(DeptofEconomics,UWI,MonaCampus,Jamaica,May).
Harris D J (1995). An Approach to Industrial Policy for Jamaica (report prepared for the
IndustrialPolicyUnit,PlanningInstituteofJamaica,Kingston,Jamaica,May).
Lall P, Norman D W and Featherstone A M (2003. Determinants of US Direct Foreign
InvestmentintheCaribbean,AppliedEconomics,Vol35,pp.14851496.
LewisBynoeD,GriffithJandMooreW(2002).TradeLiberalizationandtheManufacturing
Sector: The Case of the Small Developing Country, Contemporary Economic
Policy,Vol20,no3,July,pp272287.
*
29
LewisWA(1938). LabourintheWestIndies:TheBirthofaWorkers'Movement.
London:FabianSociety.
LewisWA(1944).AnEconomicPlanforJamaica.Agenda,Vol3,no4,November,
pp154163.
LewisWA(1949).IndustrialDevelopmentinPuertoRico.CaribbeanEconomicReview,
Vol1,nos12,pp153176.
LewisWA(1950).TheIndustrialisationoftheBritishWestIndies,CaribbeanEconomic
Review,Vol2,no1,May,pp151.
LewisWA(1954).EconomicDevelopmentwithUnlimitedSuppliesofLabour,
ManchesterSchool,vol22,no2,pp139191.
LewisWA(1958).EmploymentPolicyinanUnderdevelopedArea. Socialand
EconomicStudies,vol7,no8,pp4253.
LewisWA(1972). PresidentialAddresstotheBoardofGovernorsoftheCaribbean
DevelopmentBank(SecondAnnualGeneralMeeting,Bridgetown,CDB).
MarshallDDandWilliamsGB(2002).AStudyofManufacturingCapabilitiesofCompanies
in the Eastern Caribbean and the FTAA Horizon (SALISES, UWI, Cave Hill
Campus,Barbados).
PageJ(1995).TheEastAsianMiracle:BuildingaBasisforGrowth. Financeand
Development,vol31,no1,March,pp25.
PrebischR(1949). TheEconomicDevelopmentofLatinAmericaanditsPrincipal
Problems.NewYork:UnitedNations.
ThomasCY(1988). ThePoorandthePowerless:EconomicPolicyandChangeinthe
Caribbean.London:LatinAmericanBureau.
WillmoreL(1994).ExportProcessinginJamaica. CEPALReview,no52,april,pp91
104.
*
30
WillmoreL(1995).ExportProcessinginSaintLucia:Ownership,LinkagesandTransfer
ofTechnology. BulletinofEasternCaribbeanAffairs,vol20,no2,June,
pp2537.
Wint A G (2003). Competitiveness in Small Developing Economies: Insights from the
Caribbean(Jamaica,UniversityoftheWestIndiesPress).
31