Caricom then and now: Challenging the global division of labour Guyana and the wider world
By Dr Clive Thomas Stabroek News
July 10, 2005
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We saw last week that in its original formulation Caricom was conceived as a "radical project." It was radical in the sense that its basic premises challenged the then existing global division of labour and the prevailing structures and patterns of world trade. It was, to put it bluntly, an anti-colonial and anti-imperialist initiative. In essence Caricom leaders at the time treated the world as an uneven playing field, one in which developing countries were disadvantaged and systemically exploited by the rich industrialized ones. In particular these disadvantages were found to apply with great force in the case of small developing countries, where smallness meant crippling vulnerability to natural as well as human-engendered disasters. The purpose of regional integration therefore, was to correct for this smallness and vulnerability through increasing national market size; pooling national resources: labour skills, enterprise, capital and technology; and, generalizing risks.

Autonomous self-centred development

Somewhat pretentiously, Caricom leaders boasted of promoting an autonomous self-centred path for the development of the region, which would lead to the structural transformation of its economies. They also accepted as essential to this purpose the pursuit of a state-led process of development, which emphasised regional import-substitution in the first instance. At the next phase of development, with regional industries well established on the regional market, an export platform could then be built for firms to engage the global market from competitive positions.

Not surprisingly, this development model also emphasised the role of domestic savings to finance the required investments rather than focus on attracting foreign capital inflows at all cost, combined with a focused effort to build-up the education and training of the workforce. As we saw last week, Caricom was also expected to be more than a trade arrangement, as from the onset it embraced functional co-operation, support for a wide range of regional institutions, and the pursuit of a common foreign policy by member states.

Over the years this original vision of Caricom has been badly derailed. This has been due to both negative developments in member states as well as the impact of globalisation on the region.

Derailing Caricom's trajectory

Starting from the mid to late 1980s, it is difficult to overestimate the negative consequences to Caricom resulting from the internal economic crises and dislocations that developed among several states. While Guyana and Jamaica are by far the worst examples of this, other Caricom states did not escape these afflictions entirely. The most dramatic manifestations of these internal crises showed up in the macro-economy: devaluation of national currencies; the growth of massive external indebtedness; the rampant spread of inflation; regular shortages of basic foods and services (including electricity and medical care); the rise of a flourishing underground economy; and, huge public sector deficits. In response, governments resorted to all sorts of administrative and heterodox measures to halt the disintegration. There was a proliferation of capital controls, credit controls, rationing, licensing of imports and restrictions on ownership of foreign exchange. Eventually all these measures failed and countries were then forced to turn to the IMF and World Bank for 'rescue packages.'

The standard structural adjustment programmes of those times (SAPs) are well-known and there is no need to repeat them here. The basic thrust behind them, however, was that in exchange for support from the IMF/World Bank, the donor community, and other international interests (in the form of loans, grants, technical advice and so on) member states were required to pursue strict economic policies (known as conditionalities). These policies brutally reversed the emphasis of those in vogue with governments at that time. Thus state-led development was abandoned and the private sector became the focus as the engine of economic growth. Government deficits were found to be unacceptable and had to be reduced, even if it meant cutting back substantially on government spending on essential services and wages. Administrative controls on credit, goods and services, and foreign-exchange were abolished. The state productive sector, which was spawned as a result of nationalizations, was dismantled and most, if not all such enterprises privatized. The economy was re-structured to facilitate the inflow of foreign direct investment (FDI). Import - substitution as a deliberate policy of governments was stopped because of the reported inefficiencies it created behind high protective barriers. Imports and exports of goods and services were also set free from administrative barriers and restrictions.

Open-regionalism

Although these were national programmes introduced into some member states, the end result was that these policies directed a re-focusing of Caricom. Caricom's strategic goal could no longer be to challenge the global division of labour. Instead, it had to provide a 'building block' for the further consolidation of the then existing division of labour. To ensure this, all regional integration measures had to follow policies generally described as favouring "open-regionalism."

Open-regionalism meant that the purpose of Caricom was to 'create' trade within the trading-block not to 'divert' trade of non-members into Caricom sources. In effect this meant that if Caricom led to increased competition among firms within it, so that the more efficient firms within the union out-competed the less efficient ones and captured greater market shares as a result, this would be seen as contributing to both its own (Caricom's) well-being and that of the rest-of-the-world. Caricom would have in this instance created trade. If, however, instead Caricom became a protective barrier or shield within which less efficient firms than those outside of Caricom captured the regional market for themselves, it would have reduced global welfare and that of Caricom as well. Caricom would have in this instance diverted trade.

Such policies negated the strategy of regional import substitution, which lay behind regional protection. As we shall see next week this position was later to be intensified as 'open-regionalism' itself gave way to what is now termed, the 'new regionalism.'

Last week I indicated that as a result of both internal and external factors, Caricom, initially designed to radically challenge the then existing patterns of trade and the global division of labour, became instead more an effort to accommodate the region to what was termed the 'global realities.' Because of internal weaknesses as a result of poor macroeconomic management in several key member states, the collapse of important export commodity prices (bauxite and sugar), rising oil prices, and extreme external indebtedness countries were forced to enter into structural adjustment programmes (SAPs) with the World Bank and the IMF. At the time these were very doctrinaire programmes with rigid conditionalities designed to ensure that countries conformed to the then emerging globalisation. As I showed last week, this meant that regional integration schemes had to practise "open regionalism" in order for its members to fulfil their WTO commitments.

This open regionalism was based on a model of development that favoured free trade, private enterprises and market-oriented policies. Thus it was in keeping with the privatisation of state enterprises, the dismantling of administrative and bureaucratic intervention in the economy and an emphasis on export-led growth, foreign direct investment, and the liberalisation of imports to ensure competition for local firms. The previous policies of import-substitution were therefore frowned upon, as were policies of foreign exchange control, directed credit, and the subsidisation of local enterprises.

The new regionalism

More recently, however, this open regionalism has given way to what has been termed the 'new regionalism.' If open regionalism reversed the strategies of development with trade that were being pursued in the original regional integration efforts, the new regionalism has taken the process one step further. Its goal is nothing less than to prepare countries, particularly the developing ones, for full participation in the WTO-led process of global trade liberalisation. As a consequence two striking developments have occurred.

Formerly it was the view that if regional integration was to be an instrument of development it would best serve this purpose if it involved countries at broadly similar levels of development. In this circumstance countries would have roughly similar economic and technical competences and their development needs and the strategies pursued to achieve these would also be broadly similar. If, as in the case of Caricom, history, institutional arrangements and traditions favoured closer cooperation, these would be big pluses. It is for such reasons that countries of the same broad geographical region tended to form these integration arrangements. In the case of Caricom all the above-mentioned forces were at work in its formation.

Geographical contiguity and similar levels of development

With the 'new regionalism' geographical contiguity and similar levels of development are no longer matters of prime consideration. Thus rich and poor countries can form trade and integration schemes, as well as near and distant ones. When one considers this, the outcome has been a far-reaching transformation of the notion of economic integration as a development tool compared to when it was first promoted. Clearly, schemes that involve rich and poor, near and distant countries would replicate at the regional level much of the asymmetries and inequalities that already exist at the global level. Such schemes, therefore, are more than likely to reinforce the existing patterns of global trade and the geographical division of labour on a world scale than challenge and transform them. We have as examples of these schemes the proposed Free Trade Area of the Americas (FTAA) and the Economic Partnership Agreements (EPAs) designed to replace the Cotonou Agreement in 2008, this agreement having replaced the Lome Convention.

Multilateralism

A question that I am often asked is what is the world view which drives the processes of this 'new regionalism'? A short answer as an approximation is that it is favoured by the outlook of multilateralism. Multilateralism takes the world view that nations can and should work in harmony with each other. While this is clearly desirable, in practice it is not happening. Indeed, the reverse might be, more often that not, the reality. Multilateralism is best suited for a world that is comprised of nations where four features are approximately the same. These are economic size; technical, institutional and scientific capacities; diplomatic leverage; and military effectiveness. Regrettably, our world is made up of countries with vast disparities in all these characteristics. Indeed it is the prevalence and pressures arising out of these disparities that have done much to push the region into closer and closer forms of economic cooperation. Today, therefore, we can safely conclude that multilateralism's vision of the world is under continuous threat.

Such is the threat that the disparities in the characteristics listed above have given rise to global hierarchies. Indeed, the Cold War era had distinguished itself with the emergence of two superpowers locked in deadly confrontation with each other. Since then the superpower rivalry has receded as one indisputable hegemon has emerged - the USA.

The existence of a hegemonic power contradicts the very essence of the liberal view of multilateralism.

This is starkly revealed when the USA insists on its own way, regardless of the world consensus around it. We find many on-going examples of this such as the issue of global warming, the jurisdiction of the World Court, and in attitudes and dealings with the United Nations and its agencies. This hegemonic response has given rise to new formulations and coalitions around the USA. Again, as examples we have the 'coalition of the willing' for the Iraqi war and the 'can-do nations versus the rest,' which emerged after the collapse last year of the WTO Ministerial at Cancun, Mexico.

The important observation for us from all this is that despite the limitations of multilateralism's vision of the world, it still inspires the new regionalism. As a force, this new regionalism has been growing and its open embrace by the WTO, a body dedicated to the multilateral liberalisation of trade in goods and services is the best testimony to this outcome.