Vanus James
Let us be clear. The country has entered Kamla II’s reign in 2025 with a bad economic and political hand – a losing hand based on the historical record.
The constitution ultimately says that the prime minister is responsible to play the hand, but so far, no prime minister has succeeded. It is also worth noting that no Tobago House Assembly (THA) chairman or chief secretary has delivered success in Tobago either.
Whatever the obfuscations of the constitution or the THA Act, it is in fact the collective responsibility of citizens to work out why we are failing and the way forward. So, let us take a shot.
First, the inheritance. T&T is still running what Best called an almost pure plantation economy, featuring excessive dependence on a highly capitalised oil and gas industry that is operated by international corporations. It produces and exports a primary or intermediate product that mainly services international intermediate consumption. Every Monday morning, it is buffeted by either sharp price increases that create a “golden age” accompanied by a false sense of success or a collapse of prices that produce “gall and wormwood,” another term Best used to describe serious social and economic trouble.
Even the Heritage and Stabilisation Fund funded by oil surpluses in good times is not sufficient insurance against that kind and scale of turmoil.
The historical record is full of similar economic and social gyrations and disruptions caused by dependence on sugar, cocoa and coconut, to name a few plantation industries.
Second, in the rest of the economy there are still large pools of undereducated and, more generally, undercapitalised workers in activities such as agriculture, retail, and “make work” government programmes, like CEPEP, URP and others.
Overall, about 60 per cent of the country’s labour force is undereducated and undercapitalised. In Tobago, that undereducation rate is closer to 68 per cent and most are underemployed by the Government sector. In all these activities labour efficiency, when properly measured, is very low.
Our most famous Professor of Economics, Arthur Lewis, described that inefficiency as a “marginal product of labour that is near zero and sometimes even negative”.
These conditions make economic transformation away from oil and gas both necessary and difficult, but they also point the way forward.
Two basic principles
Now, there are three basic principles of economic transformation and development that emerge from the life’s work of the two esteemed professors referred to above.
The first basic principle is that we must find a way to grow activities that produce capital – output used to produce output - faster than the activities that produce consumer supplies.
And, we must grow labour productivity in the consumer supply activities while restructuring.
For easy reference, capital-producing activities refer here to those that produce education, healthcare, financial services, creative output (like the Carnival industries), housing stock, physical and digital infrastructure and the like.
The second basic principle is that we must increasingly rationalise our international trade towards increasing exploitation of the country’s structure of comparative advantage. Structure, because ultimately, what is at issue is the ability of the country to undertake many activities and so produce types of output much more efficiently than others.
In particular, leaving aside oil and gas as inheritance, we can produce the capital services mentioned above much more efficiently than the consumer supplies, so we must shift our trade increasing towards those.
In fact, there is an ordering of efficiency of the products which is informed by the intensity of use of high levels of knowledge, skills, and self-confidence used to produce them, the high rate at which value is added, and the regularity of innovation and creativity during production.
The ordering runs from tertiary education, healthcare and financial services, through the creative industries to the services of associated plant and accommodation facilities, on to tourism which provides a platform for exporting the other services. At the low end of the ordering are manufactured consumer supplies.
The ordering is reinforced by the fact that as local and global incomes grow, an increasing share of it is spent on the highly ranked products. Innovation and creativity cause some industries to jump the queue; in our case, the creative industries would upset the order, jumping the line from time to time.
In practice, we have cornered ourselves near to or at the bottom of this list but there is room at the top. And, from the available evidence, there are countries right here in the Caribbean that are successfully exploiting that room.
St Kitts/Nevis is moving increasingly into the production and export of tertiary education to complement their beach tourism industry. The Bahamas has been moving into financial services to underwrite their long-stary tourism product. Both Cayman and Bermuda have found a way to penetrate the global financial services industry and operate as leaders in it, albeit with British cover. All four cases are achieving growth with development and without the instability experienced by T&T which can only grow without development. If we follow their lead, the economy could be put on a path to growth with development in under 50 years.
Lewis pointed out that capital production by Caribbean countries makes commonsense as well as economic sense. It is not wise for a people to spend scarce foreign exchange on importing stuff it can produce efficiently, even if with international help, and it makes sense to export some of what is produced as a source of foreign exchange.
A key clue here is that the gains from restructuring output and trade are rising wages and rising profits and profit rates. Rising profits and profit rates can attract international profit-seeking risk-finance and foreign direct investment, so we need not think of doing this alone. It is possible to attract international collaboration to undertake the transformation. What is more, a careful look at the historical record will reveal that no country has made the transformation without international collaboration mainly achieved through capital and skill inflows; not Bahamas, or Cayman, or China, not Japan, to cite just a few. Even so, we must be clever when going about all this.
By and large, this is the agenda of economic transformation that must be understood and embraced by Trinidad, by Tobago, and by Trinidad and Tobago, and especially by the new government of Kamla II.
The critical third principle
Failure to understand these issues has produced excessive dependence on oil and gas (before that sugar), and systematic failure to pursue a relevant development agenda over seven decades. That failure rests on under-appreciation of the critical significance of the third principle of transformational growth articulated in different ways by both Lewis and Best – the need for sound and well-informed facilitating public policies.
When running an undercapitalised economy, markets cannot be left alone to produce the restructuring of output and trade needed to solve existing problems. There are too many barriers and bottlenecks to allow the markets to do the job of moving resources around, all rooted in capital supply shortages.
For example, a straightforward matter like the lack of availability of credit at suitably low cost could block the initiatives of entrepreneurs in the creative industries. The same applies to physical and digital infrastructure.
Sound policies and interventions of active government are needed to motivate and facilitate the movement of local and international capital with knowledgeable and skilled workers into the right industries.
Active government itself may also have to be entrepreneurial, even if that is unlikely to be successful at the level of the Cabinet in Trinidad or the Executive Council in Tobago. More likely, communities will have to be liberated and empowered.
Sound policies require an adequate flow of data, information and knowledge to decisionmakers and lawmakers alongside rapid learning on the job.
Data, information, knowledge and fast learning are like the fuels on which an economy and society runs.
So, a huge problem confronting the country is that the current constitutional arrangements in Trinidad and in Tobago amount to systematic barriers to the necessary flows.
T&T has historically run a constitutionally mandated executive Government. Cabinet has run the country under various incarnations of the current Section 75(1) with no arrangements for legislative oversight and thus inadequate arrangements for routine and systematic data, information and knowledge sharing and communication. The public service is a useful but very inadequate device for this purpose.
Section 34 of the THA Act #40, 1996, provides similarly for authoritarian Executive Council rule in Tobago.
The result of this design was correctly characterized by Gypsy during the reign of ANR: “Captain you tell we what to do” even if you do not really know the state of the ship and that it is sinking.
Over the past 69 years, these arrangements have produced a sequence of governments that have all failed and have all left office under crisis and cloudy conditions – all have failed to address either the constitutional or economic imperatives of the country’s development.
The evidence is there for all to see. The dark clouds of energy price collapse and related budget crises have recurred in 5 or 10 year cycles, depending on how you count. The history of Tobago is broadly similar, with similar causes and a track record of chronic dependence on Trinidad.
A word to the wise
This historical record is a warning to KPB and the country that she has again inherited “a losing hand,” as poker players would say. She has inherited conditions that are eerily similar to those inherited by ANR in 1986.
Mid-term budgetary reviews are on us, and the specter of authoritarian responsibility looms large for KPB. She cannot fold and she cannot win unless she buys new cards.
Her only path to success is to learn from the past and move immediately to initiate action to address both sources of repeated failure:
(i) legislatively mandated arrangements for effective data, information and knowledge sharing and communication with all stakeholders; and
(ii) legislatively mandated initiatives to push towards economic restructuring and trade in accordance with the structure of comparative advantage.
It is only in that context that the country can work out sensible and politically feasible risks and approaches to mid-term budgeting and the upcoming 2026 budget. Only in that context can the society discipline stakeholder instincts to pursue self-interest and want more without regard to affordability. That path is very narrow and mined with an authoritarian culture, so walking it requires appropriate politics on the part of KPB and the stakeholders of the country.
We know what is to be done but whether we can grapple with the challenges of authoritarianism while trying to do it is quite another matter that requires clever devices of national discourse and give and take.