THE CARICOM:MDCs & LDCs: WHICH DO BETTER & WHY?

JAMAICA(MDC)and ST. VINCENT & THE GRENADINES (LDC)

6/27/2012

MAIS 750 ASSIGNMENT 2 JOHN ALAN SUTHERLAND 2980775 ATHABASCA UNIVERSITY DR PAUL KELLOGG

Since the establishment of the CARICOM (Caribbean Common Market) its member states have taken very divergent development paths to build their economies with both positive and negative results. In general the region as a whole has declined in relative economic significance and now accounts for a mere 0.3 per cent in hemispheric trade (Levitt, 2005). While we can attribute some of these economic results to global trade liberalization which has widened disparities and degraded the social environment in the Caribbean, there are many other contributing factors. Domestic industries have collapsed, small farmers are threatened by the import of cheap and subsidized foods, migration continues to deprive the region of skilled labour, and crime is on the increase throughout the area (p. xxiv). These conditions threaten to worsen unless solutions are found to chronic poverty and unemployment in the region especially among young people and women. It has often been said that the economic aspirations of Caribbean nations and their citizens have been beyond the reach of the islands small scale economies. Influenced by the demonstration effect of the United States, the Caribbean people have naturally wanted the same standards. (Pastor & Fletcher, 1991) as Americans. On the positive side of the Caribbean economy, CARICOM has achieved: the creation of the Regional Negotiating Machinery; the start of implementation of CARICOM Single Market and Economy (CSME); the addition of new members such as Suriname and Haiti; and the establishment of the Association of Caribbean States. But its main achievement could be the sustaining and advancement of the larger vision of the entire Caribbean as a region with a distinct geographical, historical and cultural shared identity (p. xxiii). This coincides with the views of William Demas who conceived, nurtured and guided the Caribbean community. Demas observed that the case for regional integration does not ultimately rest on any economic

prepositions concerning benefits of scale, but on the sense of West Indian nationhood (p. xxiv). Has that ever existed? Why have there been such economic disparities in economic results between CARICOM members? CARICOM as a regional economic trade association has always been unable to fully integrate its members into one common political and economic unit because of its internal divisions into two distinct groups of sovereign states: the more developed countries (MDCs) and the less developed countries (LDCs). The MDCs such as Jamaica, Trinidad and Tobago and the Barbados have been characterized by their more developed post colonial political institutions and economic structures. They have used this advantage to dominate the workings of the CARICOM. From its beginning its policies have been shaped largely by the MDCs without whose support any implementation would be impossible. MDCs have either fully supported policies if these are in accordance with their national goals or if not they have refused to implement them within their sovereign jurisdictions. Consequently CARICOM initiatives have been justifiably criticized as benefitting the MDCs at the expense of the LDCs. In the interests of self preservation the LDCs of the Eastern Caribbean, many of whom are small islands , have formed their own Organization of Eastern Caribbean States (OECS). This has allowed them to take actions for their own mutual benefit without being dominated by the MDCs. By doing this small LDCs like St. Vincent and the Grenadines have been able to benefit from a single eastern Caribbean currency union and obtain financial assistance through the Eastern Caribbean Central Bank (Gonsalves, Interview, 2009) to further their development. The eventual goal of these countries has been to enter into a full economic union between the members of the OECS (Gonsalves). This was done in 2011 between the six LDCs which form the OECS. The prospect of such an economic union would be extremely unlikely within the

larger CARICOM as evidenced by the slow progress to date toward CSME implementation by CARICOM members. What part then has CARICOM played in the economic development of its members? This paper will examine that question from the perspective of two of its member countries representing the two groups within the association. Jamaica is an MDC and St. Vincent and the Grenadines is an LDC. While the colonial histories of both have similarities this paper will show that political and social factors rather than trade and economic factors have been the most important causes of each nations current economic development or lack thereof. It is important to keep in mind that the origins of these classifications of MDCs and LDCs within CARICIOM are based largely on the state of their development that existed in the late 1950s. This was when the British government forced their colonies in the Caribbean into becoming parties to the Federation of the West Indies. In 1958 a federal system was thought to be a good solution to Britains problems of having to administer thirteen separate colonial units which were seen as no longer politically and economically profitable (Levitt, 2005) spread across the wide expanse of the Caribbean Sea . However little attention was paid by Westminster to the aspirations of the citizens of the various island units. The larger colonies such as Jamaica, Trinidad and Tobago and Barbados already had achieved internal self government (Manley, 1982) and were seeking independence from Britain. These islands were not interested in being grouped with smaller entities such as St. Vincent and the Grenadines which were still crown colonies with little progress towards self governing ability. The political parties in these MDCs were more interested in the type of government that their own island would have after independence rather than supporting a federal governing body over all the islands. Jamaican nationalism proved too strong for the federal principle (1970, p. 103). There was a wide belief

in Jamaica that that country, as the wealthiest member(at that time), would be burdened by poorer and smaller territories (Levitt, p. xii).With such disparity of development among members there was little likelihood of the Federation being successful. The economic legacy left by colonialism in all the Caribbean islands was one of importing everything and exporting everything, given that virtually all agricultural products produced in the islands such as sugar, coffee, and bananas were grown for the export market. As well much of the surplus of capital was exported abroad to the foreign owners of the land and businesses used for production (Manley, p. 25) leaving little to put into local enterprises. Post colonial exports in the case of Jamaica averaged only 78% of imports (p. 36). Colonialism also left a society with an educated middle class of brown people: the bastard but free offspring of slave owners (p. 27) and their female slaves to rule over (after the departure of the British) a large population descendant from slaves. In the case of post independence Jamaica: unemployment was over 24% (p. 33); 85% had no post secondary education (p. 34); 40% were functionally illiterate (p. 34); and there was a need for housing of 15,000 units per year (p. 34). It is important to any discussion of the economic development of MDCs and LDCs to recognize that economic policies within each member state have been greatly influenced by the dominant personalities of national political leaders. This is particularly true in the case of Jamaica where politics since independence have often been reduced to struggles between strong leaders with deep philosophical differences which have affected the direction of economic plans. The political decolonization of Jamaica began with its independence from Britain on August 6th 1962 under the leadership of Prime Minister Alexander Bustamante and his Jamaican Labour Party(JLP). The JLP had won the election leading to sovereignty over the Peoples

National Party (PNP) led by Norman Manley. Jamaica voted herself out of (the) federation and without Jamaica the Federation collapsed (1970, p. 103). The JLP was the more conservative of the two political parties and governed Jamaica from the right of the political spectrum for the next ten years. With political decolonization came economic decolonization marked by national development planning which attracted the best and brightest economists to public service (Levitt, 2005) within these new governments. During that period of time following independence national governments of MDCs like Jamaica supported economic policies which focused on seeking to attract foreign capital by continuing to provide cheap labour, low taxes on businesses and absolute security for investment with the right to ship profits abroad to pay off the investment in a shorter period of time. This was commonly referred to as the Puerto Rico Model for development which sought capital from abroad to build local industry. Subsequent studies have shown that there is no relationship between growth and openness (Levitt, p. xi) to foreign investment. These policies offering best terms to attract foreign investment led to the expansion of the bauxite industry in Jamaica by foreign owned companies which paid a minimal royalty to the Jamaican government for bauxite and alumina production. However unlike Puerto Rico where government deficits of that new entity could be subsidized by the U.S. Federal government in Washington, Jamaica had to cover all its government overhead out of the revenues it received from these foreign companies. In direct contrast to the Puerto Rico model the export success of Asian countries (such as South Korea and Singapore) was based on high rates of domestic savings and investment rather than Foreign Direct Investment (p. xi) . While the ruling brown class in Jamaica controlled much of the local wealth they were relatively small in number and could not fund large scale economic growth on their own.

A change to the left for Jamaicas economic decolonization in the form of democratic socialism came with the election of the Peoples National Party (PNP) under Michael Manley in 1972. Michael, who was Norman Manleys son, had been exposed to the political thoughts of the North while serving in the RCAF during the Second World War (Ameringer, 1991) and then taking his degrees at the London School of Economics (Manley, 1974). Both he and his father along with many in the PNP were impressed by Fabian socialism as enunciated by that wing of the British Labour Party (Kaufman, 1985). Michael had returned to Jamaica in 1951 to become involved as associate editor of the weekly paper Public Opinion (Manley, 1975) which had been formed in 1937 to be nationalist, progressive and antiEstablishment (p. 21). Michaels political activist interests soon turned to the newly formed National Workers Union which was formed to change the working conditions for the bulk of Jamaicas working population who were living in extreme poverty. In 1968 when his father at the age of seventy-five decided to give up the leadership of the PNP Michael took over as party leader. The challenge the father gave to his son was to complete the mission of tackling the job of reconstructing the social and economic society and life of Jamaica (1982, p. 6). As a Jamaican brown man he (Michael) understood the divided political roles his ascribed group had played on both sides of the ideological spectrum (Beckles, 2002) as a connecting force between white masters and black slaves. He was a mixture of the enlightened rationalist and the subversive romantic (p. 34). Rationalist in the sense that he believed without reservation in the idea of social transformation and democratic progress, and with a kind of messianic religiosity associated with present day believers in the scientific validity of Strategic Plans (p. 34).

The economic structure of Jamaica that Manley and the PNP inherited in 1972 had key features which would turn out to be major obstacles to his economic and development plans. While bauxite was the most important export earner of foreign exchange for Jamaica the government revenue from it was quite small. Foreign ownership and an international market made revenues from bauxite and alumina production susceptible to dramatic price fluctuations. Tourism was mostly in the hands of foreign companies. It required high import costs in order to provide for foreign visitor needs. Agriculture was a disaster. Large amounts of land had been allocated to the aluminum industry and tourism. Much of the arable land was owned by wealthy Jamaicans who preferred to leave the land idle until the prices of agricultural exports such as sugar and bananas rose to higher levels. Failure to use more land for domestic food production led to rising food prices and a flight by agricultural workers from the country into the city (Kaufman, p. 40) resulting in overcrowded urban slums. The financial sector was largely in foreign hands which meant that investment decisions including the flow of capital to the country were controlled from outside Jamaica. There was a growing reliance by government to seek developmental aid, loans from international agencies and foreign governments to meet government deficits. In short capitalisms strength and depth as a mode of production were extremely limited in Jamaica. In his leadership of the PNP Michael Manley brought with him his personal philosophy of politics as being a means to achieve equality. He believed that since the purpose of society is to ensure the survival of every individual then everyone in society must have equal opportunities (Manley, 1974). To him social organization exists to serve everybody or it has no moral foundation (p. 18). To him this egalitarian society would only be achieved when every single member feels instinctively, unhesitatingly and unreservedly that his or her essential worth is

recognized and that there is a foundation of rights upon which his or her interests can safely rest (p. 38). In the election of 1972 Manley had appealed to Jamaican nationalism (Kaufman, p. 2) actually winning a majority of support from the middle and upper class (p. 74) along with the private business sector all of whom were disenchanted with the slow progress toward economic progress under the JLP. The bulk of the black population that did not support him were not totally enamored at that point with this brown man who appeared to them to represent the ruling classes left behind when the British departed. Upon his partys election to government in 1972 Michael Manley was determined to bring change to Jamaica to move the country towards the goal of equality for all citizens. Power for the people if they need it; Power for the people let them have it (Kaufman, p. 72) was one of his political slogans. That goal of equality was to be achieved based on a four point plan (p. 39) which included: the economy was to be made more independent of foreign control; the government would work towards the achieving of this egalitarian society; the ideal was to develop a truly democratic society; and the country would be encouraged to retrace the history of its people and their heritage back to their African roots not to the colonial powers. The production of sugar which was still the main agricultural commodity and tied into reliance on international market prices and quotas with reliance on first Europe and then the United States was to be controlled by a state marketing agency and sugar cooperatives were to be set up to put profits in the hands of workers. Industry that was foreign owned and deemed essential services would in some cases be nationalized with fair market compensation paid (p. 42). Revenues from bauxite and alumina production would be increased through the imposition of an increased levy and the organization of a cartel with the other producing countries in the Caribbean, Guyana and Suriname. The government would take steps to create a commercial banking system in Jamaica

to stimulate investment within the country. A program of land reform and land redistribution would occur to attract people back to the rural areas from the urban ghettos. Greater worker participation within the economy would be encouraged. The government would institute a wealth tax on the wealthy to enhance government revenues (pp. 42-44). It was essential to Manleys vision of building a strong economy for Jamaica that the nations of the Caribbean build a strong regional association to promote their economies (Manley, 1970). He recognized that Jamaica had an important role to play as a member of the Third World which was now marking its transition from an age of apology to one of assertiveness (1970, p. 100). While the Third world was experiencing the new taste of nationalism and political independence (1970, p. 101) it still had a need for external capital. Above all the Third World in its dealings with the industrialized nations needed the strength that can come from regional economic groupings: and more generally, the development of a common economic diplomacy (1970, p. 101). Manley believed that national survival of each Caribbean nation was like business survival ,..a matter of margins and that regionalism can provide the framework in which internal markets are increased, external bargaining power enhanced and international recognition maximized (1970, p. 106). He believed that the greatest threat to the sovereignty of each of the Caribbean nations was the overpowering power of the developed economies of the metropolitan world as opposed to the less developed economies of the third world (1970, p. 109). It was important that each of the Caribbean nations realize that regionalism was important to their individual development because it is the natural avenue through which it can enter and influence the stream of third-world politics (1970, p. 109). Despite Manleys efforts to build an independent economy for Jamaica along social democratic lines a shortage of investment capital caused partly by internal consumption

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pressures forced his government to seek a substantial IMF loan in 1978 which involved harsh terms, including holding back incomes against any increase in production, a limit on other foreign borrowing, big public spending cuts, and a devaluation of the Jamaican dollar by 32.25 per cent. As a result, prices of consumer goods rose by 30 to 50 per cent as did inflation and unemployment. Jamaicas external debt in September of 1978 stood at $877 million and foreign exchange reserves totaled $47 million. (Manley, North-South Dialogue, 1979). On the foreign affairs scene Jamaicas moral support of Cuba and its intervention in Angola led to the United States pressures on the IMF and the World Bank to withhold further loans to the Jamaican government which increased hardships on the poor. In the late 70s Jamaica was overcome by violence bordering on civil war, with charges and countercharges of external intervention by the U.S., C.I.A. the collapse of tourism, capital flight (by the wealthy and middle class), and the exodus of professional Jamaicans brought the country to near bankruptcy (Levitt, p. xv). In the Jamaican election of 1980 Manley and the PNP were defeated by the JLP. In retrospect Manley stated his great error had been in grossly overestimating what the state could do, how I could use the state as an economic machine, as a form of shortcut to development. I learned that I was wrong The other thing I did was to fail to make an adequate connection between perceptional problems arising from the ideology of concern for the masses, for poverty, equality, and foreign policy and its effect on the mind of the private sector. When working with the private sector , I am almost begging them to invest and produce and I am assuring them that we see them as a critical part of the engine of development. But they looked at the state activity and saw a threat. They looked at the egalitarian ideology and saw a threat. They

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looked at the foreign policy and perceived a threat. And so they became part of the problem instead of part of the solution (Manley, 1993). As a test case for the viability of a left of centre social democratic program Jamaica seemed to have had all the right ingredients for success: functioning parliamentary system; strong trade union movement; a history of state economic intervention; and a high degree of literacy by third world standards (Kaufman, 1985). But there were many roadblocks to change as sought by such a program promoted by the PNP. Many of these were local such as the fears by the brown aristocracy for their assets, power and position within a democratic socialist state. Many were also external led chiefly by the anti-communist rhetoric of the United States and its local Jamaican supporters who could point to Manleys close friendship with Castros Cuba as a sign that Jamaica was coming under the communist sphere of influence. The apparent inability to prevent the defection of elements of the capitalist class as well as the middle class from the all class alliance on which democratic socialism was premised proved to be a fundamental tactical error (Benn, 2002). After the 1980 election there were massive loans by the World Bank (under pressure by the United States) to the JLP government under its new leader Edward Seaga over the next nine years. Yet there was little improvement in economic growth in Jamaica to show in tangible terms (Levitt, p. xviii) . The result of this stagnant economy was that Manley was returned in the election of 1989 but with a changed outlook on his part as to what he could accomplish. His views had now shifted to the right and he appeared as a born again capitalist with his programs for social equality placed on hold. By 1993 he had resigned as prime minister of Jamaica and had been appointed as a sort of Ambassador Extraordinary (Manley, 1993) for CARICOM. He

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now saw the role of the association as a means of creating this wider area of economic cooperation, leading to capacity to survive in a globalizing economy and with NAFTA (Manley, 1993). By this time he was dying of cancer but he had not wavered in his belief that the ultimate answer to Jamaicas problems was democratic socialism. There has to be a place for human aspiration expressed in terms that incorporate everybody in mankinds dream. And the concept that there has to be a politics of activism for the realizing of our dreamthat cannot die, will never die. (Manley, 1993) The succeeding years and governments in Jamaica have never solved the problems of inequality in Jamaican society which Manley had unsuccessfully tackled. The currency has been devalued (now standing at $82J to the Canadian dollar), interest rates were sent soaring and are still high , the economys growth has been curtailed, inflation has skyrocketed, wage increases in the public service and social programs have been financed by more borrowing within and from foreign sources, the PNP and the JLP have traded places as the government without any real change, and 50% of government revenues go to service the public debt. The situation could have been far worse without remittances from Jamaicans abroad many of whom left during the Manley years.

In the 1970s Dr. Ralph Gonsalves, who currently holds the position of prime minister of St. Vincent and the Grenadines, was in Uganda doing research for his doctoral dissertation at the University of Manchester. While walking on a university campus there he was stopped by soldiers because he was wearing a beard and had allowed his hair to grow long. A sure sign of a radical! Both of these were forbidden by Ugandan law. Questioned menacingly by these soldiers

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as to where he was from and unable to make them aware of the location of his own country he finally blurted out Jamaica. Upon hearing this the soldiers uttered approvingly, Michael Manley, and Bob Marley (Gonsalves, p. 56). While the incident highlighted the fact that Jamaica is known worldwide for its reggae music epitomized by it favorite son, Bob Marley it also attested to the legacy that Michael Manleys public voice constituted Jamaica as a site where intense contests over the use and ownership of resources and the meanings of sovereignty were played out before a world audience whose imagination was captured by his ideological persuasiveness and depth of commitment (Phillips, 2002). Perhaps Dr. Gonsalves remembered the lessons from the trials and tribulations experienced by Jamaica under Michael Manley. More likely he has been helped by the fact that St. Vincent was and still is a middle-income country, with a per capita GDP of EC $19,323 (Grenadines) with a much smaller population spread over a number of islands. Like Jamaica it has similar economic restraints: geographically close to the USA with citizens who have highly sophisticated and expensive consumer tastes resulting in a very high level of expenditure on imported goods and services; negative economic growth but hovering just below no growth (Grenadines); heavy reliance on tourism; declining performance and production in agriculture (Thoumi, 1989); declining GDP; and in general a small resource-challenged, structurallydependent, open economy, which is prone to natural disasters such as hurricanes (Grenadines). What it does have which Jamaica lacks is a civil service which is amenable to accepting wageand-salary restraint and a historical development where because of its size and history there was neither a well entrenched ruling class nor a large working class (Bobrow & Jinkins, 1985) with a wide spread of inequality between the two. While the percent of the population at the general level of poverty is high-30.2%- the level of the population living at extreme poverty has dropped

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between 2001-08 to 2.9 % as a result of government programs focusing on poverty reduction policies (Grenadines). These have been helped by a decline in the birth rate and an increase in net migration. The Public Debt as of September 2011 was $1,221.70 Billion with a total debt service for 2012 is estimated to be $131.8 million or 26 percent of Current Revenue (Grenadines) which is approximately one-half of Jamaicas. Economic union among the six independent member countries of the OECS was signed in 2011 but the Economic Union Protocols are currently being worked on between the signatories (Grenadines). Currently with the help of foreign capital it is constructing an international airport on St. Vincent to bring in direct flights from Europe and North America. What then are the answers to why LDCs have in many cases outperformed the MDCs in economic performance? If we compare Jamaica and St. Vincent and the Grenadines we see that in the latter social cohesion has not been destroyed to the same extent as in Jamaica. (Levitt, p. 359). In other words personal relations between people in these smaller societies have not (as yet) been impoverished by a style of development which sanctions selfishness and greed by social approval in the form of monetary reward (p. 359). In these LDCs civil society is sufficiently strong enough to prevent the use of economic and political power to exploit the weak and the powerless. In the LDCs there is a social compact and the explicit and implicit negotiation between government, labour and the ruling elites, which have defended the national interest from external destabilization (p. xxii). On the other hand in Jamaica the real social contract is between the political and economic elites and excludes the laboring classes illustrated by mutually beneficial debt financing at the expense of the general population (p. xxii) and this as Manley found was an obstacle too strong to change..

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