July 11, 2013
In economic textbooks the theory of comparative advantage
is regarded as a fundamental cornerstone of how economies are
organized. Plainly stated, comparative advantage occurs when one country
(or in this case a group of countries) specialize in the production of a
particular product due to the fact it can produce this product more
efficiently than its competitors. Thus, with each country specializing
in a particular industry or product it is assumed that all countries
will become better off.
This was the assumption guiding the decision by the World Trade Organization
to put an end to the Caribbean’s protected trade with several European
nations because it undermined the fundamental principles of free trade.
With the distortions in the market eliminated by the adoption of free
trade, it was assumed that the Caribbean would be able to specialize in
other industries, particularly tourism and offshore banking.
Due to a few fundamental errors in the theory of comparative
advantage—such as the assumption that the resources (eg. land, labor,
and machinery) used in one industry can be absorbed by another and that
there are no negative consequences of the shift (ie. externalities)—the
experience of the Caribbean stands as an important case study as to why
theory does not always bear out in reality.
Firstly, the new shifts in global trade prioritized highly educated
workers in the new offshore financial sector—jobs which were out of
reach for the newly displaced farmers. Secondly, tourism is highly
dependent on imported goods, with an estimated 80%
of the food served in Caribbean hotels being imported. Thus, the lack
of opportunities for the many farmers throughout the Caribbean resulted
in an increase of unemployment, urban migration, and reduced government
revenues. To paraphrase what I have been told by several economists on
the topic “So what, that is capitalism, economies change and people have
to retrain and find new jobs.” This is the so what.
On July 3, it was announced that Interpol conducted an operation known as “Operation Lionfish,”
which seized nearly 30 tons of cocaine, heroin, and marijuana with an
estimated street value of nearly one billion dollars. The operation was
conducted across the Caribbean and Central America, spanning 34
countries and territories and involving the World Customs Organization
(WCO) and the Caribbean Customs Law Enforcement Council (CCLEC) with
assistance from the French Coastguard, the Royal Canadian Mounted Police
(RCMP), and Europol.
While the seizure is being portrayed as a great success for
hemispheric law enforcement cooperation, it also highlights the failure
of alternative and realistic sources of employment to emerge in the
region since the shift away from protected trade. While blame certainly
can be shared among Caribbean leaders, the United States, International
Financial Institutions, and multinational corporations—the reality is
that the forced reformation of Caribbean economies away from agriculture
without adequate resources to prepare for the socio-economic fallout
set up the region for a nearly impossible challenge.
Now during times of across-the-board austerity and reduced revenues,
Caribbean governments are being expected to help the United States win
its “War on Drugs” with increased law enforcement spending. At the same
time, this funding is shifting away from much needed social programs,
education, healthcare, and infrastructure projects. The sad truth is
that remittances and the drug trade
(the drug trade in Jamaica is estimated at having a value of nearly 80%
of the legitimate economy) have played a significant role in preventing
many Caribbean economies from imploding—but at the steep cost of a
It is this growing violence associated with the drug trade and rising
inequality which are the “externalities” which are not calculated into
the cost of reorganizing national economies. The tragic story is the
same when it comes to Haiti’s experience with rice and Mexico’s
experience with corn—it was assumed that sweatshops would absorb those
displaced from farming.
Contrary to the ideas of the United States, the War on Drugs cannot
be won by simply trying to shoot one’s way out of it. There are deep
structural causes which provide a steady stream of foot soldiers into
the drug trade; many young people are growing up without a source of
hope or opportunity. Thus, it is in this situation where Caribbean
leaders need to take a look at how their economies are developing and
who is being left out—and the subsequent consequences of these changes.
Caribbean leaders have implemented the prescriptions of the economic
experts, and they have failed to bring about increased prosperity in the
region. Regional leaders need to stand united and state that they are
seeking to put the priorities of their people first and are not willing
to be bullied by capital anymore. Whether it will happen is another
matter entirely. It will reveal to the people of the Caribbean whether
or not Caribbean leaders and their supposed “partners” such as the
United States or the International Financial Institutions want to
address the root of the problem or if they are happy with the
Caribbean’s current comparative advantage. It is a status quo which has
failed the people of the Caribbean both in theory and in practice.