FOUN 1301

ECOMOMY LECTURE # 1

CARIBBEAN ECONOMIC THOUGHT

What is Economics?
1. Economics is an academic subject with the primary
objective of examining the problems and decisions of
economic agents from a social perspective.

2. A knowledge of economics is necessary because we all live

and need to function in an economy. Also, most political
problems have an economic characteristic, whether it deals
with the budget, the tax structure or even environmental issues
and concerns. Individuals who have some knowledge of
economics are better able to think critically about policy
proposals that emerge from governments and that are debated
in the mass media.
Branches of Economics

1. There are two branches in economics: microeconomics

and macroeconomics. Between these two components
of economics answers or solutions to the four key
problems discussed above are sought. Attempts to solve
the first two problems (What is produced and how? What is
consumed and by whom?) are undertaken in the sphere
of microeconomics, and the latter two (How much
unemployment and inflation exist? Is there economic
growth? ) falls in the domain of macroeconomics.
Microeconomics

1. Microeconomics is the study of decision-making by individual economic

agents, such as the consumer or the producer. It seeks to understand how
consumers meet their material needs and achieve maximum satisfaction, and how
firms go about satisfying these consumer needs, while simultaneously serving their
own self-interest by profit maximization.

2. Three major goals dominate microeconomic policy-making:

Efficiency: an inefficient economy wastes resources and fails to provide the

highest possible standard of living for consumers.

Equity: Huge gaps between the “haves” and “have-nots” may leave most
people impoverished while a privileged few live luxuriously.

Freedom of Choice: maximum freedom requires people to have the widest

possible range of choices available to them.
Macroeconomics

1. Macroeconomics focuses on the whole, or aggregate view, of the

economy and is concerned with aggregates such as, consumption,
investment, government expenditure, savings, taxation, imports
and exports. Thus, macroeconomics is concerned with the
functioning of the economy as a whole.

2. Macroeconomics seeks to explain the causes and effects of

increases and decreases in the aggregates. Macroeconomics studies
how Governments can assist microeconomic actors in achieving their
objectives, since there are a number of unavoidable economic
functions which can only be entrusted to a Government.
 These economic functions, among others, include:

issuing a national currency. In the modern world, only Governments have

the authority to issue money, and so, they must have Monetary Policy.

providing internal security, external defense and some basic forms of social
security and public infrastructure whether physical (such as roads, water
supply and telecommunications) or social (education, health, etc.). Most of
these are considered public goods. For Governments to provide these public
goods, they must raise money through various ways. For example, taxation
is one way through which Governments raise their revenue. They must,
therefore, have Fiscal Policy.

putting in place mechanisms for some orderly arrangements for trade in

goods, services, and movement of money between countries. A country,
therefore, requires an Exchange Rate as well as Trade Policy.
Some of the common goals of macroeconomic policy include:

1. High employment: Citizens of a country undergo much hardship when

the resources of that country sit idle. In particular, unemployed persons
undergo both social (psychological stress) and economic costs (income
foregone) since unemployment entails a loss in output for the society as a
whole. Labor is a cost that can never be recovered because as a resource
it cannot be stored and used at another time.

2. Price-level stability: If average prices are volatile, people may be

uncertain about how much their wages will buy or whether to consume now
or invest in hopes of future returns.

3. Economic growth: People want higher incomes each year and most
hope their children will be even more prosperous than they are. The world’s
population keeps growing, so for this to occur there must be economic growth.
Plantation Economy and Dependency (1968-1979) -
Beckford, Best and Levitt

1. George Beckford (1972), Lloyd Best (1968), and Best and

Levitt (1975) represent the major articulation of
dependency and underdevelopment thesis of the Plantation
Economy school of thought. Norman Girvan (1975, 1991)
emphasizes the reproduction of races and class structures
leading to a flawed notion of independence.
2. Beckford emphasized the institutional setting, the mode of
production and social relations of the plantation. These
were the most important variables in his plantation analysis.
“Underdevelopment derives from the institutional environment
– the nature of economic, social and political organization. Not
surprising because it’s through institutions that human
activity is organized.”(1972; 9)

3. Key institutional features impose particular structural

constraints which limit the possibilities for growth and
development. The institutional features help to explain the
relative stagnation. Such structural constraints derive from
the plantation legacy.
4. Best (1968) and Best and Kari Levitt (1975) emphasized
the reproduction of dependency and disarticulation –
through different historical epochs – in the plantation
dominated economy of the colonial epoch. Key in the
construct is the notion that the historical circumstances
generated “institutional and neocolonial trade linkages” which
propelled the plantation economy towards stagnation.
Beckford’s Plantation Economy

1. For Beckford (1972) the key to an understanding the

plantation economy lies in the fact that it is (from the very
start), an extension of the metropolitan capitalist economy.
The Plantation Economy is a theoretical construct (derived
from historical circumstances) where “internal and external”
factors … “dominate the country’s economic, social, and
political structure and its relations with the rest of the world”
(1972: 12).
2. The quasi proletariat, the quasi-peasantry and the quasi-
bourgeoisie are all creations of the plantation export sector. In particular
the post slavery peasant sector was viewed as a sub sector within
the general framework of the plantation.

3. Further, “In most of the countries in which plantations are important

they co-exist with peasant producers who normally are engaged in
farming cash crops (sometimes the same crop as the plantation) in
addition to providing for their own subsistence. These peasant
farmers are affected by the plantations in at least two important ways:
competition for land and other resources and the provision of wage
work on plantations to supplement their incomes from the main pre-
occupation of farming on their own account (1972; 13).
4. Decision making is highly centralized business and the
pattern of management organization is authoritarian.
Workers and decision makers are separated by social and
cultural differences. “Authority and control are inherent in
the system.” Further the plantation is geographically
isolated and so those who live within its boundaries cannot
easily enjoy interaction with the outside world. Because of
this isolation, “people living and working on a plantation make
up a distinct community which derives its full flavor from
the system itself.”
5. The authority structure that characterizes the pattern of
economic organization extends to social relationships and
what is left is a “…inherently rigid system of social
stratification…” normally with Europeans as owners or
managers at the top, culturally mixed skilled personnel in the
middle and culturally different (black) unskilled laborers at
the bottom (Beckford, 1972, 53-54).

6. The predominant social characteristics of all plantations

areas of the world is the existence of a class – caste system
based on differences in the racial origins of plantation workers
on the one hand and owners on the other. Race was thus a
convenient means of controlling labour.
7. The plantation was designed as a unit of authority with
control over all aspects of the lives of people within its territory.
Heavily reliant on immigrant labour of different ethnic and
cultural origins the plantation also provided “the locus of rules
of accommodation between different groups.” What results
is a power structure which bequeaths to the plantation “…all or
many of the characteristics of a small state with a
classification of people into different statuses together with a
formal definition of the relationship between them.…the
institution affords the very means of survival. Everyone owes
their existence to the plantation.” To rebel is tantamount to
biting the hand that feed
8. Because the plantation is but an extension -
overseas economy – reinvestment in the social
infrastructure which would extend the internal
linkages (backward and forward) and enhance the
reproduction of capital, labour and internal consumer
markets are all absent. The plantation is therefore
tied to the capitalism of the center in a dependent
manner which blocks the development and
reproduction of any independent mode of production.
The Best-Levitt Plantation Economy Models

1. Best (1968) and Best and Levitt (1975) share common ground
with Beckford (1972) in that the plantation is defined by the
domination of a “hinterland” by transnational corporations of the
countries at the center of world capitalism.

2. This approach differentiates between three types of analytical

“hinterland.” ·

Hinterland of Conquest ·

Hinterland of Settlement ·

Hinterland of Exploitation
3. Conquest hinterlands were those associated with
Spain, Andean America and New Spain.

4. Settlement hinterlands would be those of the Middle

Colonies of the United States.

5. The exploitation hinterlands apply to the Caribbean

Plantation Economy’s. Exploitation hinterlands are a
direct extension of the economy of the center, the
raison d’etre is to produce a staple required for
metropole consumption and for trade to third countries.
7. Best-Levitt model sought to isolate the institutional
structures and constraints which the contemporary
Caribbean economy had inherited from its plantation
legacy. “The historical stages which underlie the
models are to be seen in the contemporary
perspective of successive layers of inherited
structures and mechanisms which condition the
possibilities of transformation of the present
economy.”
8. In this theoretical construct, the authors allow for a diversification
of the PEM with a differentiation between the island and mainland
hinterland, closed and open hinterlands.

9. The post war (1945) experience of Jamaica, Guyana and

Suriname (bauxite) and Trinidad and Tobago (petroleum) provide the
concrete examples.

“The result is a reinforcing of traditional economic and social

structures of dependency, a ratooning of the old plantation
relationships, both external and internal. It follows that structural
transformation requires, as a precondition, the dismantling of the
corporate mercantile links between the hinterland and the
metropole.” (Best and Levitt, 1975, p.38)
10. The key to understanding the inner workings of the
plantation economy lies in a proper appreciation of its origins.
The authors argue that the plantation hinterland was crafted
first in the mercantilist epoch. As such four rules of the game
apply:

· The Muscovado Bias

· Navigation Provision

· Metropolitan Exchange Standard

· Imperial Preference
11. These four rules confine the PE to:

a) Terminal activity (primary production and/or the

distribution of consumer goods).

b) Advanced local processing of staple export products

For the center the rules ensure a supply of raw material transported
exclusively by its own carriers. In a dubious ruse the hinterland’s
currency is backed at a fixed exchange rate which facilitates
center/periphery trade erected on a mutual system of preferences.
12. Old metropolitan ties are cut, but the traditional export
sector is maintained intact. The country which breaks traditional
metropolitan ties may be forced into a new quasi-metropolitan
relationship in order to solve the problem of marketing the export
staple – or in order to protect the country’s continued existence as a
politically independent entity RAM, Page 19 4/4/2005 (Cuba and
the Soviet Union).

13. Old metropolitan ties are cut and the traditional export
sector disintegrates. The traditional export sector is dismantled,
ownership is localized and old metropolitan ties are cut. The
economy is closed with respect to the metropole. Haiti is a good
example of a country which won political independence from the
metropole, ceased to be hinterland and has existed in a state of
chronic stagnation ever since.
14. Metropolitan ties are maintained or restored and a quasi-staple
is developed. In an island hinterland which leaves its institutional
base unaltered but does not discover a new major staple when the
old staple economy breaks down, the only resources available are
location and cheap labour. If these resources can be employed to
establish quasi-staples it remains in the interest of the metropole to
keep the hinterland passively incorporated in its overseas economy.
The quasi staple economy specializes in finishing touch assembly
manufacturing, tourism, and the provision of labour to the
metropole by emigration. The more extreme case of a quasi-staple
economy is Puerto Rico. Barbados and Antigua can be characterized
as quasi-staple economies.
15. Metropolitan ties are maintained and reinforced by the
entry of a new staple. In the event that the economy is
salvaged by the discovery of a new major staple, a fresh
cycle of expansion and production begins. Income grows
and the economy is pressed into perpetuation of its
traditional role. The new staple sector enters a hinterland
system whose plantation heritage imposes continuation of
the old structures on the new activity. The terms on which
bauxite staple entered the economies of Jamaica, Guyana,
and Suriname and the oil industry of Trinidad have reinforced
the structures of the plantation economy.
Contemporary Caribbean Politics and its effect on Caribbean
Economies

1. Positives:

1. Freedom

2. Democracy

3. Some CARICOM members have high Human

Development rankings (Barbados, the Bahamas, Antigua
and Barbuda, St. Kitts and Nevis, Trinidad and Tobago)
2. Negatives:

1. Issues in the democratic system: crime

2. Unemployment and underemployment rates

remain high

3. Electoral turnouts have been declining over time