“Small states in stormy weather”

Feature address by the RT. Hon. Owen S. Arthur, M.P. former Prime Minister of Barbados at Rotary World Understanding Day Dinner Pegasus Hotel georgetown, Guyana  February 27, 2009

In reflecting on his very many crises, Richard Nixon was moved to observe that:
“You do not become the finest steel, until you have gone through the hottest fires.”

The response of the Caribbean to the enormous challenge with which it is confronted as a result of the dangerous instability in the global economy will very much determine whether that outcome becomes the region’s destiny.

Crisis is no stranger to the Caribbean. Our small societies have always lived a difficult and hazardous existence. In our crisis-ridden history, we have had to endure the trauma of slavery and indentured servitude, colonial domination and exploitation, private pillage, and, for long periods, the effects and the consequences of war. Except in the most rare instance, our economies have been conditioned to accept and accommodate scarcity and instability as normal features. In the process, a special kind of resilience has evolved in the Caribbean that has enabled us to bear up in the face the most severe vicissitudes without becoming failed societies.

And we have managed to cope largely on our own to the crises that have come our way. In large measure, this has been because no matter how severe they may appear to our citizens; our problems are too small to pose any real threat to global economic stability. Hence, we never appear on the global radar as “emergencies” even when our problems are akin to those which exist elsewhere. In such a context, our call for special or empathetic treatment from the international community generally goes largely unheeded.

There is therefore a sense in which the contemporary crisis in the global economy merely heightens and more sharply defines for us our usual, our long standing and our very familiar circumstances.

There are however features of the contemporary crisis which confronts the region that perhaps qualify this period to be regarded as “the hottest fires” of which Nixon spoke.
It occurs at a juncture when the Caribbean would, in any event, have been faced with a testing time as it gropes with a special challenge that does not confront any other group of nations. It is the challenge of having simultaneously to radically reorder its economic relationships with its principal trading partners, while trying to reconstitute its component units into a single market and economy.

Owen S. Arthur
Owen S. Arthur

In both of these instances, the Caribbean ship of state is sailing in uncharted waters.
In such circumstances, there will be a natural inclination on the part of some to wish to cling to familiar landmarks, even if such landmarks have not proven to be safe havens in the past.
It should therefore come as no surprise that the task of adjusting to contemporary global crises has been made even more stern because of the existence in some quarters of the region of an overwhelming sense of dread and doubt, based on a fear of the unknown. The region’s circumstances are also made difficult by an increasing recourse on the part of some to the promulgation of intellectually bankrupt solutions to the region’s problems.

As a result, there is now sadly increasing evidence of a sense of either inertia or drift in the region’s affairs.
The laws of thermodynamics say that all physical systems left to themselves, and made bereft of energy, will lend towards a state of atrophy.
Our region will therefore perpetuate this spirit of drift in its affairs only to its peril.

The Caribbean’s challenge to prosper and survive in today’s stormy arena has been compounded by the fact that our region has seldom been left more on its own in having to cope with what comes its way.

To begin with, there is no doubt the Caribbean can and should benefit from having access to concessional development finance to enable it to deal with long standing effects of underdevelopment as well as the contemporary requirements to adjust.

Yet, curiously, it is precisely at this moment that flows of concessional finance to the region have abated. For example, in 2007, the InterAmerican Development Bank wrote no new loans for the region and made little or no disbursements on loans which were already on its books.

More critically, the international discourse on the nature and effects of the contemporary global economic disorder has been focused almost exclusively on the way in which it will affect the institutions, households and shareholders in the developed world. The programme for stimulus and recovery has been North Atlantic in design, scope and intent.
No consideration has been given, as expressed in any statement by any major world leader, as to how this global crisis, which has arisen out of excesses in the developed world, will bear upon the fortunes of the world’s most fragile and vulnerable economies.

And, as far as I am aware, none of the stimulus plans and programmes thus far outlined meet, in any way, the needs of developing countries such as the Caribbean.
The Caribbean faces an even greater peril.

A Caribbean solution to an economic problem which is global in source and scope clearly will depend in large measure upon the strength and soundness of the response by the international community.

If that response is not sound, to the extent that it is not rooted in analysis of the crisis that is realistic and meaningful, and if it is not strong and all encompassing in the scope of its proposed solutions, then countries such as the Caribbean will be left dangerously adrift.
The evidence thus far is that the response of those most capable of determining global policy has not been analytically sound as regards their explanation of the sources of the contemporary global disorder.

It is even more distressing that the proposed solutions which are focused on corporate bail outs and conventional macro-economic stimulus programmes are hardly likely to get the job done.
It is natural and necessary that whenever economic crisis arises, some attention should be paid to an examination of business cycles and the effects of the choice of macro-economic policies as likely causes of such instability.

In this regard, one of the most prominent global economic cycles in recent times has been associated with the dynamic of the USA economy. In some years, more than 50% of global growth has been induced by the growth of the USA economy. But the growth of the USA economy has been largely consumption driven, fuelled by the staggering and unprecedented levels of both public and private debt, and supported by the unique position of the USA dollar as the preferred reserve currency in the global economy.
Such, clearly, were unsustainable foundations for global growth. A large correction had to made at some time. That time is now.
Beyond these cycles however, some significant ideological factors have been at work – ideological forces whose effects have been more powerful and pronounced than the macro-economic cycles.

I speak this evening briefly to the workings of such ideological forces which have not been neutral, and in fact, have been highly destructive in their effects.
First, since the fall of the Berlin Wall, one feature of the global society has been the spread of global systems of production, the intensification of capital flows, and the standardisation of consumption and production patterns.

At the core of this drive to create a global economy, and in the absence of countervailing ideologies such as socialism and communism, a new dominant economic ideology has taken hold and has enjoyed wide practice everywhere.

It is the ideology of economic liberalisation. It is based on the precept that economic growth and development are best left to private initiative and the workings of the market. The freer the markets, the better. In such a context, supervision and regulation by the State, especially of the financial system has been judged to be more of a nuisance that a help to orderly growth and development.

Unbridled and unfettered liberalisation has become the dominant ideological force in the most powerful economic centres of the world. It has led to the dismantling of the supervisory and regulatory regimes which are required to support orderly development in critical areas of the economy, and most especially so in the financial arena.

The overwhelming evidence suggests that at the source of the contemporary disorder in the global society is an idealistic and impractical view of the role of unbridled markets in man’s material development. Market forces can be powerful tools for good. However left unchecked, they can yield socially and economically deleterious outcomes. For, markets are just another social institution. They are neither omnipotent nor omniscient. Worse, they are not necessarily either benevolent or impartial in their effects and workings. Indeed, the trick for society, at the national and global level, is to find the best way to harness the power of the market in the social and public interest.

History has however proven that excessive reliance on an unbridled market forces can lead to periods of extraordinary economic instability. I.G. Patel in a piece “Limits to the Current Consensus of Development” indeed reminds us that the policies which are at the core of contemporary economic liberalization were the order of the day almost everywhere during the several decades before the 1st World War. They did not work to the advantage of all countries and classes then. It is spurious to believe that they will be neutral and benign in all of their effects today.

An honest assessment of global economic developments since 1990 will therefore point not so much to cycles in economic activities caused by policy failures, but to the periodic and highly contagious collapse of markets and systems, invariably as a consequence of the lack or slackness of supervisory and regulatory regimes, as the principal causes of the economic crises which have been experienced.

The precept of the “maximization of shareholder value” as the principal guide to corporate behaviour has merely compounded the problems ensuing from liberalisation. Indeed the economic landscape of the developed societies is now strewn with the debris of corporate entities such as Enron and World Com which have fallen victim to the moral hazard of using illegal and unethical methods to inflate the market value of stock. It now appears that any sense of morality or respect for the public interest has vanished from the conduct of the main corporations that are responsible for the largest proportions of global economic activities. The present crisis in the global economy, which has its origins in the virtual collapse of the financial system in all of the major economics of the world, bears out the point.

It is therefore not appropriate to believe that economic disorder of the scale and source which now exists can be resolved by “stimulus packages” or the use of conventional techniques of economic management. A stimulus presumes that the system is fundamentally sound, and that all which is required is a boost of purchasing power. In the USA, it ought to be clear that a set of transformational policies and not just a tax-cut stimulus are needed. Its system for producing industrial goods has virtually collapsed. Its financial system is dysfunctional. Its infrastructure is in a state of total disrepair. Its housing sector is in total disorder. It is laboured with a massive public debt, but an even more insidious private debt that will require major adjustment in consumption habits by households.

A major transformation is required to develop its energy resources. Its educational and health care systems are areas of major crisis and add seriously to the financial burdens of households. Its corporate sector can no longer be held as a model of best practice or ingenuity It is to enter the theatre of the absurd to believe that structural defects of this magnitude can be corrected merely by adding a stimulus to existing activity.

Realistically, tax cuts and increased direct public expenditure will not suffice. In the face of the failure of unbridled markets, a greater reliance ought to be placed on post-capitalist types of policies and interventions. Public-Private partnerships, especially to build new technological capabilities that can be transformational and which can lead to sustainable fiscal deficits must be part of the way forward in the USA and elsewhere. Equally, there is a place for a role to be performed by an entrepreneurial state. There is no obvious justification for the ideological belief that all public investments are bad, and that the state should not be directly involved as an investor in creating productive activity. Rather there is a certain bankruptcy to the notion that the state should restrict its role largely to that of the bailer-out-in-chief of failed private enterprise.

The present global economic crisis also warrants a fundamental change in the institutions for global economic governance. The leading developed economies will seek to have the contemporary global crisis addressed by meetings of the G8 or the G20, without the reform of the systems of global economic governance and the involvement of all. This would be a strategic error. It should especially be resisted by Caricom States.  For the global economy is both under-governed and managed in a highly undemocratic manner.

The scale and global magnitude of the crisis of today suggest that this is indeed a time when there is a genuine need and opportunity for fresh ideas and initiatives to be discussed in fora rather than the usual power centres. It is especially the time for regional groupings of developing countries to be enabled to join, as never before, in the sustained pursuit of their vital economic and financial interests as participants rather than as observers in new institutions for global economic governance.
Should this be done, the global society may thereafter come to appreciate the words of a great American, Adali Stevenson:

“I have Bloomington to thank for the most important lesson I have learned; that in quiet places, reason abounds, that in quiet people there is vision and purpose; that many things are revealed to the humble that are hidden from the great.”

It would be pointless and in fact hypocritical for Caricom to seek to press the global community to put its house in order, without addressing serious deficiencies that are emerging in our own regional affairs. I referred earlier to a new spirit of drift and aimlessness in our regional affairs. By every account, the world is going through the worst economic crisis in more than 50 years. The Caribbean cannot expect to escape unscathed. Aspects of the response at the national, domestic level must draw upon new regional forms of co-operation to pool what we have to support each other in times of danger.

Amazingly, Caribbean Heads of Government, who have met in the past for less serious purposes, have yet to meet to consider how the region should respond to the unfolding global crisis. Indeed, in the face of this economic crisis, it appears as if our regional movement is at large.

I spoke earlier also about a kind of inertia that regrettably now seemed to have invaded our region. This inertia has most profoundly taken the form of the virtual suspension of the programme to create the Caricom Single Economy.

We have lost a year. And the consequences for the region are and will be adverse, as can be illustrated by reference to a situation that has evolved in the region’s financial sector.
At its meeting of July 2007, Caricom Heads of Government accepted the Development Vision and the Plan of Action for the creation of a Single Caribbean Economy as have been elaborated in the Girvan Report. Significantly, that Plan of Action prescribed that one of the first steps in building a Single Economy should be the adoption of a Regional Financial Services Agreement by December 2008. and rightly so; not just because the draft agreement has been under consideration for some time now. It is vitally needed because, even before Caribbean countries have constituted themselves formally as a single economic space, large Caricom financial conglomerates in the financial sector have started to treat the regional space as their own. Unregulated or inappropriately regulated financial institutions and systems have proven to be the biggest source of instability in modern economies. Caricom is not immune from the effects of such types of disorder.

It is therefore a significant failure of regional leadership not to have the Regional Financial Services Agreement in place to provide for the orderly development and operation of the regional financial sector. It is also a significant failure not to recognize that the financial troubles of a major regional financial conglomerate such as CLICO must be dealt with as a regional matter, requiring a regional rather than a series of national responses. CLICO is a financial enterprise which originated in Trinidad and Tobago, and now presents that country with a $10 billion threat to policy holders and investors in pension funds and annuities. It is important that such a problem be urgently addressed. But it is equally important to recognize that there are also other CLICO policy holders and investors in pension plans in other Caribbean countries who are as at risk as those in Trinidad and Tobago, and whose interests need to be protected as well.
It is disturbing that no move has been made thus far in this direction.

It will become almost impossible to justify enabling enterprises to have access to a common regional economic space if the common problems caused to all by such enterprises are not addressed in a concerted and equally urgent manner by all affected countries acting in unison.

I also spoke earlier of the dangers that our regional integration movement now faces from the invasion and application of new myopic and intellectually bankrupt philosophies. The more enlightened and practical perspectives on economic integration in the Caribbean have always recognized that meaningful integration in our region cannot be only a market phenomenon, merely entailing the removal of barriers of trade. The scope for intra-regional trade in the Caribbean arising from trade-creation or trade-diversion is limited. It has settled at around 10% of the region’s overall trade.

Brewster and Thomas in their seminal work “The Dynamics of West Indian Economic Integration” captured the matter well in these terms:

“Economic integration cannot be defined simply as mechanisms for linking disconnected units; whether this be by eliminating forms of discrimination . . . We interpret it to mean the diffusion of attributes of strength and weakness throughout the integral parts of a system. This takes place in such a way that the compensatory balancing of these attributes destroy their localisation, and invests each of the components with a greater potential than that of its pre-integrated state. It follows that the potential of the integrated system must be greater than that of the summation of the individual, unintegrated components.”

Drawing from such a perspective, the great strength that integration should serve to diffuse throughout the Caribbean is the possibility it creates for the use of our greatest and most abundant resources – the talents of our people – in a creative way, and in a manner that corrects centuries of a tortured and divided history. Indeed, if economic integration is to become a strong force to drive Caribbean development, and is to be the means by which we insert the regional economy into the global economy, that process must involve the building of strong and competitive enterprises by allowing them to have access to the skills of the people of the Caribbean, wherever they are available.

The Caribbean has never realized its developmental potential in large measure because we have never succeeded in putting the creative imagination of our people fully to work on the region’s behalf. That creative imagination is the region’s richest resource. It must be liberated for the Caribbean to progress.

The Treaty of Chaguaramas of 1973, establishing the Caribbean Community failed to accept this principle. At Article 38 it stipulated:

“Nothing in this Treaty shall be construed as requiring or imposing any obligation or a Member State to grant freedom of movement to persons into its territory whether or not such persons are nationals of other Member States.”

Ironically, by that provision, the founding fathers of Caricom committed our region to a less favourable regime for the movement of its people than that which obtained under Colonial rule, and which saw large numbers of Barbadians happily migrate to Guyana.

Happily, there are not only finer things for which the founding fathers will be remembered. Happily also, they came to their senses. For, speaking as if for the ages in his final speech to Heads in 1986, one of Founding Fathers of Caricom, the Rt. Excellent Errol Barrow spoke in these terms:

“If we have sometimes failed to comprehend the essence of the regional integration movement, the truth is that thousands of ordinary Caribbean people do, in fact, live that reality every day. In Barbados, our families are no longer exclusively Barbadian by Island origin.  We are a family of Islands nestling closely under the shelter of the great Co-operative Republic of Guyana. And this fact of regional togetherness is lived every day by ordinary West Indian men and women in their comings and goings. It is what some people call the underground economy. It is true that the laws of each territory get in their way.  But, for the majority of these decent and industrious sons and daughters of the Caribbean, I believe their business is spontaneous though unassisted; and legitimate though unregulated.
I should like to believe that we are all committed to the principle of mobility and people interaction . . .
It is a reality which is lived, but which we have not yet been able to institutionalise.”

The initiative to create a Single Caribbean Market and Economy seeks to institutionalize labour mobility as one of the crucial elements of the process. Article 46 of the Revised Treaty of Chaguaramas acknowledges that it has to be dealt with on a phased basis, and, indeed, a programme for the phasing in of labour mobility has been conceived.

An argument has recently been advanced that the labour mobility aspect of the CSME should be revamped because of the strain it is imposing on the social system of some countries.
If, as Mr. Barrow recognized, labour mobility should be undertaken in a manner that does not impose on any nation a greater strain than its resources are able to support, then effect should be given to implement the work of the Task Force on Functional Co-operation in Caricom which was established in 2007 precisely to address this issue in a positive way. That positive way is to make the provision of common services, the coherent development of our social services, and the sharing of the benefits of such development as much a part of our contemporary integration exercise as the creation of the CSME itself.

Another positive way is for us to define and implement a Decent Work Programme and Agenda for the entire region so that labour mobility leads to economic and social progress everywhere. An additional positive way is for us to agree on a policy in respect of the contingent rights that are to be associ

ated with labour mobility, and to implement that in a sensitive and coherent manner. This would ensure that as our citizens move across the region for employment, they will do so in an environment within which the social benefits to which they are entitled in any one place are clearly defined and known to all.

We have recently signed an Economic Partnership Agreement with the European Union which breaks important new development ground for the Caribbean. In that EPA, the European Union has agreed to a regime for the temporary movement of natural persons from the Caribbean to its markets. These include self-employed persons, cultural workers, entertainers, and professionals of all sorts.

Europe has, on this matter, agreed to grant Caribbean nations access to its markets on terms which are more favourable than it has agreed to its global dealings under the WTO or in any of its bilateral relations. It is this major concession which, in large measure, gives the EPA some of its worth to us as a possible instrument for Caribbean development.

It seems to me therefore to be a sharp contradiction and, quite frankly, an expression of backwardness for anyone to salute the extent of the provision for labour mobility which  we have managed to secure in the EPA, while at the same time to call for a reversal of the programme of labour mobility that we have located at the centre of our efforts to build a regional economy through the CSME.

Whether it be in relation to the CSME, the negotiation of an EPA with the European Union, our forthcoming negotiations with Canada or in any of our global relations, we simply must stop doubting ourselves.
Writing in 1977 in a piece called “The Birth of a Nation”, CLR James asserted:

“Nobody knows what the people of the Caribbean are capable of. Nobody has attempted to find out.”

The crisis that is unfolding will test the people of the Caribbean as never before but, as has been the case with every crisis we have faced in the past, the people of the Caribbean will find a way through; and I fully expect the people of this Co-operative Republic to be fully in the vanguard of our advance.

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