Summary: Caribbean Economic Policy Practice and Proposals by Sophia Williams

Part 1
The correct relationship between your economic theory and practice is that the practice
(economic policy conclusions and strategy), should be based on your theory and not vice
versa.

The Plantation Economy's (PE) Central Hypothesis: -

Caribbean economies today are marked by a legacy (acquired from the foundation period)
of mechanisms of economic adjustments, which are “non-dynamic” and which in effect,
result from patterns of income distribution and disposal which do not facilitate economic
transformation.

Thus, there is no dynamic internal in the region.

Assumption:
Caribbean economies function in a similar manner as they did in post colonisation.

 Characteristics of the PE
1. No national economy as "total economic institutions" held together by law and order
exist. Therefore, there was no macro-economy and thus no macro-economic policy.
 Each plantation's output (cane sugar) was exported. Thus Q=Exports and X=GDP.
 Inputs were land (local), labour (African, Indian), capital (raw materials, intermediate
goods, food) and enterprise, the last 3 being imported. (The input-output approach for
GDP thus used). N.B.- Labour was "chattel property" i.e. had no wage but a minimum
was expended to maintain them. Thus, there was no local value added and this implied
no spin-off and multiplier effects locally. Further, there was no interface between
Caribbean countries and thus, no regional trade or development. Hence, there were no
economic benefits to Caribbean countries as all resources are obtained from the rest of
the world. There was also no rational currency.
 The "metropolitan exchange standard" used as the plantations exported all Q so earned
sterling, and imported all inputs so paid for them in pounds.
Law and order held these economies together, so the balance is between X and M.
Thus, the currency of national trade is crucial for the survival of these economies.
Eric Williams - slavery contributed to the rise in capitalism in terms of surplus
concentration, which went to the bank to facilitate the industrial revolution.

2. The Plantation Economy is part of an overseas economy made up of metropol/centre

and a number of "hinterlands" (colonies/periphery).
There were hinterlands of:
(a) Conquest - much of Latin America- genocide- but indigenous population so large
built colonies with them
(b) Settlement – genocide - but most of indigenous population disappeared – metropole
sent its people e.g. convicts
(c) Exploitation - Caribbean, Mauritius, Southern USA (Georgia)

 There is no economy in continuous space in a Caribbean island, but the Plantation

Economy is connected to an economy across geographic space (a borderless economy).
N.B. John Stuart Mill - the "West Indies is no less a part of the British economy than
Manchester."

 The Metropole (the brain) makes economic decisions on what, how, for whom to
produce and hence, the periphery (no brawn) needs on educating.

 There are no economic reactions of one plantation to others in the same geographic
space. You import what you need from abroad and export all output. There are no
externalities and thus no linkages in the economy. The firm is the meaningful unit of
analysis. Further, there is no response in the hinterland economy to changes in
aggregate demand.

 The Caribbean economies can be considered as the first creation of globalisation.

3. The Incalculability of Value Flows - This is due to the integrated nature of the
Plantation Economy with the implementing of imputed accounting prices. As labour is
not paid, a value is imputed for it.

 Rules of the Game (PE)

1. Inter-caetera: The rule of division of labour
2. The Muscuvado/ Monoculture Bias restricted Plantation Economy to primary
production.
3. Navigational Element- must move e.g. sugar, slaves, via metropole ships hence a ship
market created and maintained by Britain.
4. Metropole exchange standard - allows full convertibility with metropolitan currency at
a fixed exchange rate and the assurance that the liabilities of the financial institutions in
the hinterland are matched by more than or equal to the same assets in the metropolitan
financial institutions (Pure Currency Board System).

 Income Distribution and Disposal

1. Income Distribution - In the pure Plantation Economy (foundation economy), who
controlled the Y kept it. 5% of population controlled 90% of Y; 95% controlled 10% of
Y the 10% accrued in kind to the slave in the form of basic food, housing, clothing and
healthcare.

2. Income Disposal - Y disposed on imports (the majority) and in the domestic economy.
How you dispose of Y is crucial as to the secondary effects in the economy. The
secondary effects of expansion in Y are not felt in the Plantation Economy but in the
metropole/ rest of the world as it's spent on M.

Mechanisms of Adjustment for a boom or decline.

1. A boom is expressed in capital flight.
2. The Plantation Economy has no means to adjust to a decline because of the type of
their Q. Thus non - existent flexibility of response means Plantation Economies have
to persuade others to buy their Q, which leads to preferential arrangements. There is
also a shift to new terrain, and to new export crops.
 Critique of the model
Does the Plantation Economies hypothesis truly reflect what actually happened or does
it simply dictate "reasoned" history?

 The Hypothesis is about how the Pure Plantation Economy (PPE) functioned.
1. In essence contemporary Caribbean economies function the same way in terms of the
Plantation Economy's characteristics, rules and mechanisms of adjustment.

Historians agree to (1) but do not necessary agree that (2), the legacy, still persists today.
 The 3 1/2 periods of the hypothesis
(a) Period 1- Pure Plantation Economies- from slavery to Emancipation
(b) Period 2- Emancipation to 1930's
(c) Period 2 1/2 - 1930's to end of World War 2 (not explicit in the model)
(d) Period 3 1/2- World War 2 to the present.

In essence the Plantation Economy model argues that the legacy remained till period 2.
Emancipation reduced fixed overhead costs of the Plantation Economy as no longer had to
maintain labour but paid them a wage. However, emancipation brought no rapid change to
the Plantation system. In periods 1 and 2, the maroons emerged. From 1929 to 1939 (Great
Depression), there was a decline in demand for all world products including plantation
output. Thus, a decline in sugar production ensued and less labour was employed. (Butler
Labour Riots of 1930's). In World War 2 (1939 to 1945), the threat of U boats who were
cut off supplies (M) and reduced X. How then, did the Plantation Economy survive? Here
lies the possibility of economic transformation.

Part 2
Part 1 described the economic breakdown in the Plantation Economy which then led to the
"Golden Age of the Residentiary Sector", which began with the maroons, who cut of from
the M-X nexus had to provide for their own consumption. The ex-slaves returned to the
plantations because they had restricted access to land (most of which planters owned), the
laws prevent them from owning any, and they needed money to purchase imports. During
World War 2 (Inter-Regnum period 2 1/2) colonial powers encouraged own-food
generations especially. Domestic producers faced a relatively closed market so they had to
produce.

The Mysterious Part of the period –

From World War 2 an influx of foreigners came e.g. Americans in Trinidad to set up bases.
They imported but also spent a lot locally. E.g. the base attracted plentiful labour.

 Impact on the Economy

1. The Mystery- An inflationary spiral could have occurred (increase in purchasing power
with no increase in supply) but did not, as Y increased, domestic supply increased
alongside restricted to imports meet demand. This lead to economic transformation. A
multiplier and accelerator effect ensued. The increased supply resulted in the
development of the residentiary sector.
We can thus hypothesize that you can augment people's income if they will spend it
locally in areas that supply their needs.
 M-X management is essential to avoid BOP problems and maintain an excellent credit
rating. If M is greater than X continuously, then debt-repayment becomes a problem.

The Residentiary Sector is the sector which has the potential to create internal dynamic.
The Plantation Economy model deprives the area of internal dynamic but the Residentiary
Sector has proven dynamic because it is not a total economic institution but a "normal
economy" i.e. where GDP constitutes domestic Q, a % which is sold on the domestic
market (70%) i.e. most industries dispose of their Q locally. The Residentiary Sector is
however, constrained by: -
1. Land Policy- limited access to good land for Residentiary Sector producers as land is
controlled by traditional sector i.e. sugar.
Policy Recommendation - Land Reform

2. Credit market essentially a consumer import credit market, as opposed to targeting

producers
Policy Recommendation - Reform the financial sector to create institutions for
producers whether manufacturers or food
3. Constrained Education System
- which prepares students not to produce but to be employed.
Policy Recommendation - Educational Reform

4. Fiscal and Monetary Policies - spending patterns of government not encouraging

producers. (IMF responsible here too). Monetary -interest rates discriminate against
investors (higher) and favour consumers.
Policy Recommendation- fiscal and monetary reform e.g. depreciate the exchange rate
to make X cheaper and M dearer to create a space for domestic producers as the
rational consumer buys the cheaper good.

Summary
 Internal dynamic lies in Residentiary Sector

 Small open economies can't have absolute closure as M’s touch almost all production
sectors but M can be minimised and local talent maximised (encourage entrepreneurial
sector vs. importing), by just importing basic necessities (RM and K) and exploit local
resources by producing the final good.
This leads to local value added which results in spin-offs locally and an increased
multiplier, as well as simulating Y and employment.

 Macro policy intervention should support entrepreneurial talent.

(Note the Japanese who rationed their foreign exchange and invested it. They
sacrificed current expenditure for future gain.)

 The Residentiary Sector is due to economic transformation but a lack of local savings
inhibits it.