Industrialization by Invitation, Oil Booms and Structural Adjustment: An Investigation of the Trinidad & Tobago Experience

• Author: Bhoendradatt Tewari/Roger Hosein
• Pages: 1-36

Chapter 1

Industrialization by Invitation, Oil Booms

and Structural Adjustment:

An Investigation of the Trinidad & Tobago

Experience

The economy of hydrocarbon rich Trinidad and Tobago prospered during

the 1970s when it realized an increase in both the production of crude oil

and the international price that crude oil fetched. For a period of time,

and within the context of the oil boom, the country was able to record

average rates of growth for the period 1976–1982 of 4.7%. Immediately

thereafter, however, the country fell into recession with an average

annual growth rate for the period 1983–1989 of -4.6%. The

implementation of a Structural Adjustment Program (SAP) eventually

assisted in restoring economic growth and dampened the State’s interest

in controlling the commanding heights of the economy. This paper

examines the macroeconomic impact of oil on the T&T economy, and

how some of the oil-induced ills were eventually rectified in the context

of a SAP by the multilaterals.

A version of this chapter was first published in 2002 as one of the

Research and Working Paper Series of the Faculty of Social Sciences,

The University of the West Indies, St. Augustine.

Trade, Investment & Development

2

1.1 INTRODUCTION

Lewis (1950), in his policy advice to the islands of the Caribbean, argued

that ‘industrialisation by invitation’ (IBI) was the appropriate economic

solution to problems of ‘surplus labor’, given the presence of foreign

exchange, managerial, technological and market access bottlenecks. He

argued that by focusing on those industries, which facilitated a wholesale

importation of technologies, capital and managerial skills, these

constraints could be overcome and that the principal constraint really lay

in the ability to find and penetrate foreign markets.1 Lewis expressed the

concern that due to the small size of the domestic market an inward-

looking program of industrial growth would stifle the employment

absorption potential of manufacturing firms and went on to note that for

islands with such small populations:

“Neither their own growing demands nor the replacement of imports can

provide a large enough market. The domestic market for manufactures is

too small to support more than a fraction of what is needed” (Lewis 1950,

pg. 14).

In particular, he emphasized the importance of a well-defined and ready

market for exports from developing economies and went so far as to

suggest that ‘every inquiry into industrialization must begin with the

market.’2

In 1957, the government on the prompting of Lewis established an

Industrial Development Corporation (IDC). Lewis felt that an IDC was

indispensable for the industrial development of a country. The task of the

IDC was to assist the government in setting up its production platform

and to assist investors (including foreign firms) with their investment

problems. Lewis also argued that it was necessary to have a battery of

incentives to encourage exporting firms. (See appendix 1 for a brief

review of some of the incentive legislation offered by the Trinidad and

Tobago government, during that period).

However, although initially pursued by the government of T&T, the

Lewisian suggestion would enter into disrepute and was eventually

shunted. Primarily this resulted from two factors: the ideology of the

New World Group (NWG) – the minor factor and the effects of a

resource boom in the petroleum sector – a major factor. These two

1 Lewis argued that because of the tremendous cost of industrialization, the islands of the

Caribbean should woo and fawn upon foreign industrialists to encourage them to come

into the islands and set up plants.

2 Lewis (1949, pg. 3).

Industrialization by Invitation 3

factors emerged in an environment that was sympathetic to change in

T&T as in 1962 this country gained its political independence. In 1970

there were massive street protests concerning unemployment and

growing discontent with regards to the presence of ‘foreign control over

the commanding heights of the economy’. A wave of nationalization

programs would follow, with the oil boom providing the resources for

greater government involvement.3

The NWG expressed their discontent with the Lewisian proposition of

“industrialization by invitation” and cited the multi-national corporation

(MNC) as being representative of the metropolis and merely extending

the colonial legacy (Best 1969). Identifying with the problems induced

by slavery and indentureship, the NWG suggested that an end to

‘persistent poverty’ lay in de-emphasizing foreign capital. Two of the

main proponents of this perspective, Best and Levitt (1969), argued that

Lewis’ propositions were ill-suited to the needs of the Caribbean and his

model was alien to the operational structure of the production unit in the

West Indies – the plantation.

Also, and as Ryan (1968) would point out, they (the NWG) perceived

that:

“the tax concessions made to these fugitives from the law of the land of

diminishing returns on the mainland are too generous, and they fear that

many of them will migrate once the “tax holiday” period is over, thus

making the sacrifices in terms of revenues “lost” worthless.” (pg. 196,

emp. added).

In this context they looked upon the Lewisian IBI strategy as destined to

fail and they took serious issue with it clamouring instead for greater

government control over the commanding heights of the economy.

Commencing with their Third Five-Year Development Plan (TFYDP),

the government ushered in new policies to regulate the behaviour of

MNCs. In particular, the TFYDP proposed that MNCs be more flexible

and disallowed sole proprietary ownership in areas considered to be the

commanding heights of the economy to MNCs.

The rest of this chapter proceeds as follows. The next section clarifies a

particular data issue. Section 1.3 examines in detail the influence of oil

on both the tradable and non-tradable parts of the macroeconomy, whilst

section 1.4 comments on the contributions of the SAP to restore a

Lewisian “industrialization by invitation” environment. The paper then

concludes.

3 See Sargeant and Forde (1992) for a review of the government’s involvement in the

industrial sector of Trinidad and Tobago.