So far, the sweet scent of petrodollars has been much more attractive than real economic diversification
WORDS By: Kevin Baldeosingh
Published in CONTACT Magazine
In his book The Armchair Economist, University of Rochester economist Steven E. Landsburg writes: “Most of economics can be summarised in four words: ‘People respond to incentives.’ The rest is commentary.”
This is the basic reason why Trinidad and Tobago has failed to diversify its economy for the past 40 years: because politicians and business people responded to the powerful incentive of oil and gas money.
As for the commentary, Dr Ronald Ramkissoon, a former senior economist at Republic Bank and present member of the Economic Development Advisory Board, noted in an interview with Contact that “while there was identification of the need for diversification, there was never any sustainable effort towards investment in research, innovation and the promotion of new high-value goods and services for export.”
In the last budget debate, prime minister Dr Keith Rowley listed the sectors that the government has identified as the foundations of diversification (see next page). They have all been on the table of different administrations for the past 15 years, but state funding has seen no returns, particularly in the creative industries. As Table 1 shows, the state has never made any consistent attempt to facilitate economic diversification, since this must necessarily start with government getting out of commercial activity.
UWI economist Dr Roger Hosein, in an email response to Contact, argued: “The fundamental reason why the Trinidad and Tobago economy failed to appropriately diversify in the period 1999-2016 was simply because the state did not show enough initiative, and the incentives or the lack of incentives provided to the Trinidad and Tobago economy were of such a nature that it was biased against the non-oil export-oriented sector.”
Dr Ramkissoon had a somewhat different view. “Diversification will only take root with the private sector, domestic and foreign, in the lead,” he said. “The Dutch Disease has the all-embracing pull effect of all resources, human and capital, towards the booming energy sector and the non-tradable services sector. The focus of politician and people is similarly drawn away from diversification.”
Economic trouble? Seize the moment
The apparent paradox, therefore, is that diversification is more likely to happen when an economy is in trouble rather than when it is booming. The economic slump in the mid-1980s resulted in a Divestment Secretariat being set up in the 1990s, with several state enterprise companies being closed or privatised. But this process was quickly reversed once the new energy boom started in 2003.
TABLE 1: State involvement in commercial companies
Sources: Williams, E. 1970; Mottley, W., 2008; Farrell, T., 2012
The French economist Jean Tirole, winner of the 2014 Nobel Prize, in his book Economics for the Common Good, notes that broad reforms of the state have happened in countries like Great Britain, Finland, Germany, Sweden, Canada and Chile. He adds that while “it is often objected that … a struggling economy makes it hard to compensate the losers of reforms … the great majority of the reforms mentioned here were made precisely under difficult conditions.”
Difficult conditions are exactly what T&T is now in, so the real question is whether the political incentives have changed sufficiently to trigger genuine economic reforms.
Diversification in the 2017 budget speech
“The Government is taking some bold steps to rectify the sector’s shortcomings by first addressing the governance arrangements in the sector. We have dissolved the Tourism Development Company Limited (TDC) which has been replaced by two new companies, one with oversight for Trinidad and the other with oversight for Tobago, bearing in mind that the two destinations have unique characteristics.”
“In the Music Sector, we will implement an Artiste Portfolio Development Programme which will support artistes who are on the verge of becoming export ready by leveraging their creative talents on the worldwide market. We will also launch a Production Assistance and Script Development Programme which will provide funding to film makers to produce high quality films.”
“We are rolling out a new yachting policy which will establish a foundation to improve the competitiveness of the industry, with a view to establishing Trinidad and Tobago as the premier destination for yacht repair services.”
Business process outsourcing
“In this area we are pursuing a two-pronged approach: taking the necessary steps to make Trinidad and Tobago a preferred location for ‘Business Process Outsourcing’ (BPO); and making Trinidad and Tobago an International Financial Centre, offering a broader range of services and serving as a financial gateway to Latin America and the Caribbean.”
“We shall establish an agricultural financial support programme, with grants for new and existing farmers of up to $100,000. Appropriate training or certification in farming will be a prerequisite for applicants for this financial assistance since the objective is to encourage rational, efficient and methodical participation in agriculture.”
As published in the first issue of the rebranded CONTACT Magazine, produced by MEP for the Trinidad & Tobago Chamber of Industry & Commerce. Read the full issue here, which was unveiled at the Chamber’s April 2018 AGM