Fundamental Mechanisms of CARICOM-Type Economies: Revisiting the Dynamics of West Indian Economic Integration

• Author: Clive Thomas
• Pages: 215-230

Fundamental Mechanisms of CARICOM-Type Economies 215

INTRODUCTION

The purpose of this presentation is to use the opportunity afforded by

this distinguished conference to first introduce some brief reflections on the

Dynamics of West Indian Economic Integration (co-authored with Havelock

Brewster) and thereafter to use that as a platform for addressing some of the

central mechanisms, which have in the past shaped, and still continue to

shape, the pattern and rhythm of growth and underdevelopment in

CARICOM-type economies. Indeed the Dynamics itself was an effort on our

part to address some of these issues and to correct them. The proposals for

Caribbean economic integration contained in that study were directed

toward altering this pattern and rhythm of growth, restructuring the

manner of the region’s international insertion, transforming Caribbean

society, and putting it on a self-sustained path of economic growth and

development. Section 1 deals with my reflections, which address certain

misinterpretations of the text; highlights a few of its key features and

indicates relevant work post-Dynamics. Section 2 examines some of the key

economic mechanisms under the headings of Preference-dependence and

Export-specialization and Macroeconomic management, Deflationary-bias

and Proneness to debt vulnerability.

SECTION 1:

REFLECTIONS ON THE DYNAMICS

Persistent Misinterpretations

There have been a number of persistent misinterpretations of the

Dynamics and I would like to refer to two of them in particular. First, there

is the repeated view that the Dynamics is a supply-driven or production

model of economic integration. If by this is meant that the model ignores or

for that matter underemphasizes the demand-side of the regional economy,

FUNDAMENTAL MECHANISMS OFFUNDAMENTAL MECHANISMS OF

FUNDAMENTAL MECHANISMS OFFUNDAMENTAL MECHANISMS OF

FUNDAMENTAL MECHANISMS OF

CARICOM-TYPE ECONOMIES:CARICOM-TYPE ECONOMIES:

CARICOM-TYPE ECONOMIES:CARICOM-TYPE ECONOMIES:

CARICOM-TYPE ECONOMIES:

REVISITING REVISITING

REVISITING REVISITING

REVISITING

THE DYNAMICS OF WESTTHE DYNAMICS OF WEST

THE DYNAMICS OF WESTTHE DYNAMICS OF WEST

THE DYNAMICS OF WEST

INDIAN ECONOMIC INTEGRATIONINDIAN ECONOMIC INTEGRATION

INDIAN ECONOMIC INTEGRATIONINDIAN ECONOMIC INTEGRATION

INDIAN ECONOMIC INTEGRATION

Clive Thomas

1818

1818

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216 PRODUCTION INTEGRATION

nothing could be further from the truth. The choice of the ‘basic materials’

and ‘basic wage goods’ vectors to be produced in a regionally integrated

system, which was the major innovation of the Dynamics, was governed by

the opportunities that regional demand, as distinct from national demand,

offered to make these economically feasible. Indeed, in a later work

(Dependence and Transformation) I had compared these two vectors of

production to ‘corn’ in the Ricardian model and Sraffa’s basic commodities.

Both of these constitute goods that enter into the means of producing all

other goods, whether indirectly (basic foodstuffs for workers) or directly.

However, the kernel of this idea is also clearly expressed in the Dynamics,

where for the sake of clarity and emphasis I quote at some length:

A way to view the state of structural maturity is through the gap

between the structure of domestic demand and the structure of

production. This gap may not be adequately revealed by the import

propensity (ratio of imports to GDP). If a significant proportion of

imports are purely an export input and the export commodity is not

consumed at home, the resulting high propensity will tend to deflect

important developments in the domestic economy. It is also not well

displayed by the import coefficient (ratio of imports to total expenditure

or supplies). This coefficient contains imports both in the numerator

and in the denominator and, depending on the relative size of the

domestic sector, may prove to be unsuitable for interpreting the course

of structural transformation of the domestic economy. Nor is an

import-content coefficient satisfactory because production for domestic

use may be equal to a portion of home expenditure.

Our proposal is that these concepts should be supplemented by a

new one called the ‘import domestic expenditure coefficient’ which

relates the value of imports for domestic use to domestic expenditure.

In effect, this is the import propensity less the import content of exports.

At once it will be seen that we are concerned about the fact that there

may be a large gap between the structure of production and the

structure of demand. This means that there may be a significant

difference between the import-content of export and import-content

of domestic expenditure. Thus, in the event of a disproportionately

large purely export sector, deriving its inputs almost entirely from

imports, there will be a sharp divergence between the import

propensity and the import domestic expenditure coefficient. The

former not only tends, as we argued above, to give a distorted picture

of developments within the domestic economy but also makes rather

misleading comparisons with countries where the divergence between

production and demand is less acute, even though such countries

may have a much lower per capita income …

It is not surprising that the concept we introduced should not arise

in the developed countries, for their production and demand coincide,

more or less. Exports generally arise as an extension of domestic demand.

(Brewster and Thomas 1967, 78–79)