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DEVELOPMENT POLICY Changing Perspectives and Emerging Paradigms

By Professor Denis Benn Michael Manley Professor of Public Affairs/ Public Policy UWI, Mona

Keynote Address Presented at the ECLAC-Sponsored Training Conference entitled 'Framework for Caribbean Investigation and Analysis' Trinidad and Tobago 24-25 May, 2004

Contents:

i. ii. iii. iv. v. vi. vii. Notes

Introduction Development Policy in Historical Perspective: National and International Dimensions The Neo-Classical Counter-Offensive: Theoretical Premises and Practical Consequences The Impact of the Neo-Classical Approach on Development Policies of the UN System Emerging Development Paradigms Development Policy in the Context of Caribbean Regional Integration and Cooperation Conclusion

References

I Introduction I feel extremely privileged to have been invited by ECLAC to deliver this address entitled Development Policy: Changing Perspectives and Emerging Paradigms. I am conscious of the fact that the Commission has had a distinguished record of advancing path-breaking ideas, ever since its establishment in 1948, which have exercised an important influence on development policy, not only in Latin America and the Caribbean but in other developing regions and indeed in the wider international community. Needless to say, development policy has been the subject of a wide range of interpretations. What I would therefore like to do in this presentation is to identify the evolution in thinking on development policy, as it applies to developing countries, including those in the Caribbean, and on this basis highlight the changing perspectives and emerging paradigms on the subject. While the presentation focuses on development policy, it should be noted that there is a close relationship between development policy and development theory. Indeed, in terms of definition, the latter may be said to embody the broad principles which inform approaches to development, whereas the former involves the adoption and application of those principles in a practical development context. Consequently, despite the conceptual distinction, the two terms are closely inter-linked and cannot therefore be entirely separated from each other in the discussion of development issues.

II Development Policy in Historical Perspective; National and International Dimensions The origins of development policy can be traced back to the initial preoccupation during the 1940s and 1950s with the development challenges facing the developing countries, which was further accentuated in the wake of the quickened pace of decolonisation during the 1960s as a number of former colonies attained independence and acceded to membership of the United Nations. Indeed, the programme for international economic cooperation adopted for the first UN Development Decade (1961-1970) was premised on the need to accelerate progress towards self-sustaining growth and also to achieve 'a substantial increase in the rate of growth of developing countries'. At the theoretical level, the intellectual genesis of developing policy can be found in the tradition of development economics, associated with the writings of Raul Prebisch, Arthur Lewis, Hans Singer, Paul Rosenstein-Rodan, and Walter Rostow, among others, which sought to highlight the structural

4 underpinnings of underdevelopment and on this basis to formulate appropriate strategies aimed at stimulating growth and development. These efforts gave rise to the formulation of a number of theoretical frameworks, including structuralism associated in the case of Latin America with the writings of Raul Prebisch1 and others, dependency theory in which Andre Gunder Frank2 was perhaps the best known exponent, stages-of-growth theory, based on the work of W.W. Rostow3, the dual economy model developed by W. Arthur Lewis4, capital accumulation advanced by Samir Amin5 and unequal exchange associated with the writings of Arghiri Emmanuel6. A major theme underlying these formulations, particularly in the case of Latin American structuralism associated with Raul Prebisch, was the claim that the developing countries were placed at an economic disadvantage derived from the adverse terms of trade between the primary commodities produced by them and the manufactured products produced by the developed countries. Consequently, special emphasis was placed on initiatives aimed at accelerating the pace of industrialisation in the developing countries in an effort to reduce their dependence on primary commodity exports. As a result of this policy - and notwithstanding the criticisms of the 'terms of trade' thesis advanced by Prebisch and also by Hans Singer7, among others

during the 1950s and 1960s and, indeed, up to the

1970s, many developing countries embarked on a strategy of import substituting industrialisation which in fact sought to modify the traditional Ricardian notion of comparative advantage, that was subsequently elaborated in the form of the Heckscher-Ohlin theory8, which was seen as a static concept that served to perpetuate the underdevelopment of the developing countries. In the case of the Caribbean, Arthur Lewis' 'Industrialisation in the Caribbean' (1950)9, which was published in 1950, and which was to some extent influenced by the Puerto Rican model of industrialisation in vogue during the 1940s, served as the blueprint for the programme of 'industrialisation by invitation' based on the grant of tax incentives and import duty concessions to investors. The intellectual rationale for this pattern of development was initially outlined by Lewis in his book, 'Labour in the West Indies' (1938)10 and subsequently elaborated in his seminal article entitled 'Economic Development With Unlimited Supplies of Labour'11 (1955), in which he argued that the relative lack of capital in the region together with the existence of a large supply of labour necessitated a strategy aimed at attracting external capital for investment in the industrial sector. In addition, given the small size of the economies of the region, Lewis advocated a strategy of regional economic integration in an effort to expand market size. It should be noted that William Demas, who in 1965 published his book entitled 'The Economics of Development in Small Countries with Special Reference to the Caribbean',12 also became a major advocate of regional integration as a strategy for optimising the growth prospects of the countries of the region.

The theoretical insights associated with the tradition of development economics not only shaped the approach to development in Latin America and the Caribbean and in developing countries in other geographical regions, during the 1960s and 1970s, but also exercised a significant influence on the orientation of development policy at the global level. This was evident in the fact that not only did the UNCTAD secretariat, which was established following the first UNCTAD held in Geneva in 1964, endorse the industrialisation thesis propounded by the Latin American structuralists but actively sought to promote increased market access for the exports of the developing countries through the adoption of the Generalised System of Trade Preference (GSP). This orientation on the part of the UNCTAD Secretariat was not unrelated to the fact that Raul Prebisch, one of the main architects of the 'declining terms of trade' thesis, became the first Secretary General of UNCTAD. In addition, the demand by the developing countries for changes to be effected in the international economic system, as was reflected in the adoption by the UN General Assembly in 1974 of the resolutions on the New International Economic Order (NIEO), was inspired to a large extent by the theoretical perspectives derived from the tradition of development economics mentioned earlier. Not surprisingly, the proposals embodied in the UN resolution on the NIEO envisaged fundamental reforms in respect of a wide range of development issues, including international trade, with special reference to the trade in primary commodities, industrialisation, science and technology, the control over national resources, money and finance, and the structuring of the economic and social sectors of the UN system. A notable feature of development policy, as it emerged during the 1960s and 1970s, under the influence of both Structuralism and socialist-oriented models of development, was the need for the state to play an active role in the development process by orchestrating wide ranging interventions in the economic sphere aimed at accelerating the pace of development. Indeed, this had become an important article of faith not only of the developing countries but the concept of a developmental state was also embraced by international development institutions such as the World Bank as well as the regional development banks. The emphasis on the role of government in the development process was also reflected in the formulation of five year and ten year development plans which were premised on government intervention aimed at stimulating investment, particularly in the industrial sector, designed to achieve higher levels of growth. In another paper entitled 'Aesthetics, Psychic Income and Development - The Neglected Equation' which has been circulated to the meeting, I have shown how, apart from these broad trends, a number of concepts such as sustainable development, which grew out of the study entitled 'Our Common Future' (1987) based on the work of a panel chaired by Geo Harlem Brundtland; sustainable human development, promoted by UNDP; human resources development; social development; human capital; social capital, which is associated with the work of Robert Putnam and others; as well as Ramesh Deosaran's attempt to redefine

6 aspects of the social capital thesis, particularly in terms of his advocacy of the concept of 'social

psychological capital', have also shaped development policy perspectives. However, seeing that these issues are dealt with at some length in that paper, I will not address them in this presentation. III The Neo-Classical Counter-Offensive The emergence during the early 1980s of conservative governments in Britain under Prime Minister Margaret Thatcher and in the United States under President Ronald Reagan, both of which subscribed to an uncompromising neo-liberalism underpinned by the writings of conservative economists such as Milton Friedman, Bela Balassa, Ann Krueger and Deepak Lal, among others, resulted in a major ideological shift away from the assumptions of traditional development policy. In fact, the emphasis on the primacy of market forces and private sector initiatives, which constituted the ideological bedrock of the 'new conservative economics', not only advocated a reduction in the role of the state but also succeeded in reorienting the focus away from development to the principle of allocative efficiency. As a result, under the new dispensation, there was a significant retrenchment of the functions of the state based on a minimalist conception of its role in the development process. The new 'monetarism' which became the guiding principle of a resurgent neo-liberalism also produced a shift in the policy stance of the international financial institutions, notably the IMF and the World Bank, which, under US influence, actively embraced the new economic philosophy. In fact, the economic stabilisation and structural adjustment programmes espoused by these institutions during the 1980s were directly influenced by the premises of the new economic orthodoxy. The triumph of neo-liberalism was further bolstered in 1989 with the collapse of the Soviet Union and the consequent weakening of the world socialist system. At the geopolitical level, these developments resulted in the unchallenged hegemony of the US as the sole surviving superpower. The new reality led to the assertion of a triumphal capitalism and bold and confident predictions regarding the end of ideology, as was posited by writers such as Francis Fukuyama in his 1992 book entitled 'The End of History and the Last Man' 13 which in effect asserted that liberal democracy together with free market economics represented the end point in the ideological evolution of human society. Notwithstanding the unabashed proclamation of the merits of structural adjustment, the evidence obtained from a review of the experience of many developing countries in Africa, Asia and the Pacific and Latin America and the Caribbean indicates that although these programmes succeeded in some cases, in reducing public sector deficits and in controlling inflation, they have had a negative impact on the economies of these countries, notably in terms of an increase in poverty, growing income inequality and a deterioration in

7 the social conditions in many countries as a result of a cutback in social sector expenditure which was often stipulated under the programmes in an effort to reduce public sector deficits. The mood of capitalist triumphalism, based on neo-classical economic assumptions, was manifested not only at the national level but during the 1980s and 1990s a conscious attempt was made by the developed countries to promote an assertive strategy of globalisation and economic liberalisation, as was evident in the expansion of the influence of transnational corporations, the conclusion under the Uruguay Round, of a series of multilateral trade agreements dealing with investment measures (TRIMS), intellectual property rights (TRIPS) and trade in services (GATS), and also the establishment of the World Trade Organisation (WTO) in an effort to promote a liberalised global trading regime based largely on the principle of reciprocity, albeit with some temporary concessions to the preferential arrangements traditionally granted to the developing countries. Of special significance is the fact that the developed countries have sought to put on the WTO agenda a number of new issues such as competition policy, trade facilitation, and transparency in governmental procurement, despite the demand by the developing countries for a prior review of the implementation of the agreements already concluded in respect of investment, intellectual property rights and services, which have had a negative impact on the economics of many developing countries. In addition, the developing countries have objected to the lack of transparency in the negotiations within the WTO reflected in the undemocratic practices involved in the 'green room' process which have effectively excluded the majority of developing countries from the negotiating process. These concerns on the part of the developing countries, together with the insistence by the developed countries on maintaining large subsidies on their agricultural products, while calling for further liberalisation by the developing countries in several sectors, and the attempt to introduce new issues for negotiation, were at the heart of the collapse of the WTO Ministerial meeting held in Cancun in 2003. IV. The Impact of the Neo-Classical Approach on the Development Policies of the UN System The fundamental shift which has occurred in development policy in the wake of a resurgent neo-liberalism has had a negative impact on the approach to development by the UN system in the period since the mid 1980s. Specifically, there has been a significant shift from the traditional emphasis on development policy as a holistic phenomenon, as was the case during the 1960s and 1970s, to a focus on more limited goals and targets. This is clearly reflected in the changing content of the International Development Strategies adopted by the UN General Assembly during the past four decades. Compared with the strategies of the first (1961 - 1970), Second (1971 - 1980) and Third (1981 - 1990) Decades, which clearly emphasised the importance of economic growth in the overall development equation, the Strategy for the Fourth Decade

8 (1991-2000) places much greater emphasis on poverty eradication and social development. Quite

significantly, it states that while growth is desirable, 'the developing countries need not await the transformation in per capita income to do away with the existence of poverty, particularly hunger and destitution, since some developing countries with low per capita income had succeeded in obtaining relatively good results in the social field'. Moreover, notwithstanding the fact that during the 1990s the UN sponsored a series of global conferences on issues such as human rights, population, gender, and social development, it has failed to recapture its previous holistic conception of development. Indeed, the Millennium Development Goals which embrace issues such as poverty eradication, universal primary education, gender, infant mortality, maternal health, HIV/AIDS and other diseases, environmental sustainability and the establishment of a global partnership for development, fall essentially within a social development universe rather than within the broader parameters of development to which the UN system had previously subscribed. In fact, this development seems to reflect a de facto division of labour among international institutions in which the IMF deals with macroeconomic policy, the World Bank with structural and development policy, the WTO with trade policy and the UN with social development, humanitarian affairs and international peace and security. Within this schema, it is clear that the core economic development issues have been assigned to the IMF and World Bank, notwithstanding the desirability for global development issues to be brought under the purview of the UN General Assembly as the most universal and democratic international forum. One initiative within the UN system which requires special comment relates to the publication of the UNDP annual Human Development Report (HDR). The HDR, which has been published annually since 1990, seeks to advance the concept of human development as an overarching philosophy. It in effect posits a substitute perspective on development, compared to the traditional growth-oriented models of development based on growth indices and per capita GNP measurements. At the heart of the HDR is the Human Development Index (HDI) which is a composite index comprising three elements, namely, longevity, educational attainment and an income element, measured in terms of purchasing power parity (PPP). Over the years, a number of other indices have been added to the original HDI, including a human poverty index (HPI), a gender-related development index (GDI), a gender empowerment measurement (GEM) and a Technology Achievement Index (TAI), which is intended to measure technological progress based on four criteria, namely, the indigenous creation of technology, the diffusion of old technology, the diffusion of new technology and human resources development.

9 Essentially, the HDI is underpinned by a new conception of development reflected in Amartya Sen's redefinition of development as a process of 'enlarging people's choices' and ensuring greater freedom.14 The ideas advanced by Sen, who served as a consultant to UNDP in the preparation of the first Human Development Report, have been very influential in shaping the philosophical orientation of the HDR. However, despite the claim that it offers a substitute perspective on development, in reality, the reports have placed considerable emphasis on social sector investment as the basis for promoting human development. This has lessened, to some extent, their ability to achieve a holistic development focus since issues relating to macroeconomic policy, capital investment in the directly productive sectors of the economy, such as agriculture, industry, etc., and also economic infrastructure are also essential to the achievement of an optimal level of development. It may be argued of course, that UNDP's emphasis on social development is based on an explicit recognition of the division of labour between the UN system, the Bretton Woods institutions and the WTO to which reference was made earlier. Indeed, the sensitivity in the relations between international development institutions in respect of perceived areas of responsibility is illustrated by the recent controversy surrounding the publication by UNDP of the book entitled Making Global Trade Work for People in which the WTO objected to aspects of the publication on the ground that it was not adequately consulted in an area for which it had responsibility. For this reason, some developed countries attempted to suppress the publication. Fortunately these objections were overcome since the publication has succeeded in promoting an enlightened debate on the benefits of 'fair trade' versus 'free trade' and also endorsed a number of the positions that the developing countries had sought to defend over the years in the context of the multilateral trade negotiations within the WTO. It is also significant that despite its sponsorship of the annual HDR which has, over the years, covered, a wide range of development topics such as financing, people's participation, human security, gender, economic growth, poverty eradication, consumption, globalisation, human rights, governance and technology, at the operational level UNDP, at the behest of the donors, has increasingly sought to limit the focus of its activities to a number of select themes or practice areas, such as poverty eradication, governance, and environmental sustainability, While these issues are of undoubted importance, the increasingly narrow focus of UNDP's development orientation is likely to prevent the organisation from dealing with a number of the central structural obstacles to development such as trade, production and the application of science and technology - all of which were encompassed within the development policy matrix traditionally supported by UNDP and other organisations and agencies of the UN system. For this reason, in recent years the nature of the role of the Executive Boards of funds and programmes such as UNDP and UNFPA, vis--vis ECOSOC and the UN General Assembly has provoked considerable debate. One school of thought argues that it is within the province of the Boards to lay down broad

10 development policy to guide the operations of the various programmes and funds for which they are responsible. Others have argued nevertheless that UN programmes and funds such as UNDP and UNFPA, should be guided by the development policy directives laid down by ECOSOC and the UN General Assembly and therefore the Executive Boards should provide broad oversight to ensure that the funds and programmes effectively pursue the goals laid down and, as such, should not seek to stipulate, on their own, the goals to be addressed by the funds and programmes, as has been the tendency in recent years. While, by virtue of their contributions, the donors have continued to exercise a dominant influence in the Executive Boards in determining the development orientation of the various funds and programmes, it is likely that the nature of the role of the Boards vis--vis ECOSOC and the UN General Assembly will continue to generate debate within the UN system. It should also be noted that in recent years increasing emphasis has also been placed on the concept of international public goods, which Marco Ferroni15 has characterised as reflecting the opening up of a new policy space to deal with a number of global or trans-border issues, such as environmental sustainability and the HIV/AIDS parademic, which are beyond the capacity of individual countries. The initiative is motivated in part by the assumption that recent years donors have in been less inclined to increase aid allocations for traditional development purposes and that, by focusing on global issues which are of interest to both developed and developing countries, the donors may be encouraged to assign resources for this purpose. While it is important to promote international public goods, there is a danger that the already limited resources assigned to development would be reallocated to deal with issues falling within this sphere of activities. In fact, proponents of the international public goods perspective, such as Ravi Kanbur16, are quite explicit in their advocacy of 'a relative shift of resources from conventional country-specific aid to international public goods'. What is really needed, however - particularly in the face of the growing disadvantages experienced by the developing countries in the context of the inexorable march of globalisation - is an increase in overall development assistance instead of a reallocation of the present limited amount of such assistance, which is less than half of the 0.7 percent target for Official Development Assistance previously sanctioned by the international community. The review of the evolution of development policy in the UN system, both within the intergovernmental forums and in the operational programmes of various organisations, suggests that there has been a systematic shift in focus from the traditional broad-based approach to development to a more limited, theme-specific focus and that, as is reflected in the Millennium Development Goals (MDGs), there is an overriding emphasis on social development issues, including poverty eradication, which as stated earlier, is likely to limit the ability of the system to deal with the major structural challenges facing the developing countries, particularly in the context of the intensification of the phenomenon of globalisation.

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This development is all the more significant, given the fact that, under the so called 'Washington Consensus', both the IMF and the World Bank are fully committed to the neo-classical economic orthodoxy which means that they subscribe to a fairly limited conception of development, based on their reliance on market forces and private sector initiatives. It is important to note that neo-classical economics, which is largely the product of the 'marginalist' revolution of the late 19th century, and which was supplemented by monetarist approaches during the 1980s, has been the subject of a number of criticisms regarding fundamental weaknesses in it theoretical underpinnings. For example, a major weakness is seen as its attempt to apply a highly idealised conception of the economic system to describe a complex reality. It has also been criticised for assuming the existence of perfect competition, whereas in most economies, particularly those of the developing countries, perfect competition and economic equilibrium seldom apply. The attempt to define the function of the state as providing an enabling environment for private sector investment is also quite misleading since the role of the state must be defined in wider terms, given its responsibility to provide strategic inputs in the development process and to ensure social equity. At the international level, the theory of comparative advantage, has been criticised for being too static in its conception since comparative advantage is susceptible to change over time. Moreover, as economists such as Michael Porter17 have pointed out, competitive advantage can be created based on the application of technology. For this reason, it may be more appropriate to adopt the concept of competitive advantage instead of comparative advantage in seeking to determine the relative advantages of participants in the international trading system. Similarly, critics point to the lack of consistency in the application of the concept of comparative advantage in the context of globalisation and economic liberalisation, since although neo-classical trade theory is premised on the liberalisation of all factors of production, the free movement of labour is often excluded from the equation, which suggests that the system of free trade is far from being philosophically unassailable. More important still, as Dani Rodrik has pointed out, contrary to the conventional wisdom, 'countries that have done well in the post-war period are those that have been able to formulate a domestic investment strategy to kick-start growth and those that have had the appropriate institutions to handle adverse economic shocks, not those that relied on reduced barriers to trade and capital flows' 18

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In other words, the solution does not lie with liberalisation in itself, as the neo-liberal thesis suggests, but rather in the capacity of countries 'to engage the world economy on their own terms, not on terms set by the global markets or multilateral institutions.'19 Finally, the grant of substantial agricultural subsidies by the US and the European Union in a situation in which the developing countries are routinely precluded from granting subsidies under the terms of the conditionalities applied under IMF/World Bank sponsored structural adjustment programmes, implies a highly selective application of neo-liberal principles in international trade and economic relations.

IV. Emerging Development Paradigms Based on the perceived inadequacies of the existing neo-liberal economic orthodoxy which has failed to deliver the expected benefits and in a situation in which poverty not only persists at the national level but in which income disparities between rich and poor countries continue to increase, the need for the formulation of a new development paradigm has become an urgent necessity. Joseph Stiglitz has in fact called for an increased role for the state in the development process since government action is often critical to ensuring desirable policy outcomes, which cannot be guaranteed by the operation of the market on its own. Similarly, Thomas Palley20 has advocated the application of structural Keynesianism to the formulation of development policy in order to ensure that the interests of the working class are adequately protected. In the case of the United Kingdom, the Labour Party, in adopting the so-called 'third way', has sought to combine free market principles with a socialist ethic of distribution in an effort to ensure an optimum social outcome by limiting the negative impact of an unrestrained neo-liberal economic philosophy. number of major challenges in the formulation and application of an enlightened development policy. It is also becoming quite clear that the advent of new technologies such as microelectronics, biotechnology and new materials, will require the formulation of a new techno-economic paradigm in order to respond adequately to the challenges presented by these developments. The fact is that, despite growing recognition of the importance of science and technology in the development process, these subjects have not been adequately addressed in the formulation of conventional development policy. The maintenance of an adequate balance between the two elements of this strategy continues to present a

13 Similarly, although an attempt has been made in recent years to reformulate development policy in terms of human development goals, as in the case of the UNDP-sponsored Human Development Reports, this effort has failed to take into account, the psychic dimension of human existence which is clearly linked to the existence of an aesthetically pleasing social environment. In recognition of this need, an attempt has been made by some social science theorists to elaborate the concept of 'psychic income' and to reformulate the approach to development policy in order to ensure the inclusion of this important element in the overall development equation. The challenge outlined above is perhaps best captured by Paolo Sylos Labini, who posits that: .we have to enlarge the scope of our enquiries concerning development processes, especially if we intend to analyse not only countries that today are advanced but also underdeveloped countries.'21 Moreover, as Steven Durlauf has reminded us '.methodological eclicticism seems more than warranted when dealing with issues as complicated as growth,'22 and, I may add, with development policy.

V. Development Policy in the Context of Caribbean Regional Integration and Cooperation Having provided a general overview of the evolution in thinking on development policy globally, I would like to address the issue in the context of specific Caribbean realities. As was stated earlier, the Caribbean has not been exempt from the several shifts in development policy over the years. It was noted that Arthur Lewis, who was one of the pioneers of development economics, was a staunch advocate of a development policy focused on industrialisation in the context of efforts to promote increased regional economic co-operation. This position was also clearly supported by William Demas, particularly in terms of the need for regional integration as a means of optimising the development possibilities of the region and as a strategy for ensuring the exercise of 'effective', instead of merely 'formal', sovereignty, as he was wont to argue.23 However, the Lewis-Demas thesis came under increasing attack during the 1960s and 1970s from the New World Group24 of economists, such as Best, Beckford, Girvan and others, who starting from the premise that the transnational corporations in the region operated on the basis of the same exploitative logic as the traditional plantation system, advocated a strategy of nationalisation and the promotion of greater selfreliance. The development strategy supported by the Group was also premised on the need for the

14 government to play a critical role in the development process - which in fact became an important article of faith of the development policy to which countries in the region subscribed during the 1960s and 1970s. In the wake of neo-liberal revolution, to which reference was made earlier, the 1980s witnessed a fundamental shift in orientation towards a reliance on the market and increased private sector investment under the influence of the structural adjustment programmes on which a number of countries in the region embarked in an effort to deal with their balance of payments problems. Indeed, as was the situation in many other developing countries, the free market philosophy became the dominant influence on development policy during the 1980s. However, the less than optimal results from the policies pursued within this framework, has led to increased questioning of the unqualified application of the neo-classical model to the realities of the small economies of the Caribbean. Consequently, as in other parts of the developing world, and indeed in some parts of the academic community in the developed world, there is renewed interest in rethinking the premises of neo-liberal economic policies in an effort to arrive at a development paradigm more suited to the needs of the region. An important element in the rethinking of development policy in the region relates to the current effort of the member countries of the Caribbean Community to intensify regional economic integration in the context of the proposed Caribbean Single Market and Economy (CSME) both as a means of advancing their development and in an effort to strengthen their bargaining position in the context of the negotiations within the WTO, the FTAA and in the ACP/EU Cotonou arrangements, with special reference to the conclusion of a separate Economic Partnership Agreement (EPA) between the Caribbean and the EU. A number of commentators including Havelock Brewster25 and Norman Girvan,26 have pointed to the slow pace at which progress is being made towards the completion of the legislative and administrative arrangements that will be necessary for the launch of the CSME, which Barbados, Jamaica and Trinidad and Tobago, have committed themselves to introduce by the end of 2004. Of course, efforts are also being made to establish the Caribbean Court of Justice (CCJ) which, in its original jurisdiction, will be an important element in the functioning of the CSME, since it will be responsible for the settlement of trade disputes which might arise among member states. Notwithstanding the challenges which it presents, the establishment of the CSME constitutes a major element of the current development strategy pursued by the countries of the region. The reality is that the Caribbean Community possesses a number of critical resources such as bauxite/alumina, petroleum/natural gas, gold, diamonds, agriculture and forestry, significant tourism infrastructure and not insignificant human

15 resources, of which few other economic entities of similar size can boast. As such, it provides a solid basis for the promotion of a strategy of production integration in the region. Indeed, Article 52 of the Revised Treaty of Chaguaramas makes specific reference to the promotion of production integration, based on various models which are in fact identified in the Treaty. It is also noteworthy that at the thirtieth anniversary Conference of Heads of Government held in Montego Bay in July 2003, the Heads of Government agreed to appoint a group of experts to identify the possibilities for production integration in the region and also the related policy and institutional arrangements to give effect to the strategy. In terms of the current status of developments in the region, in recent years there has been a significant increase in cross-border investment in a number of service sectors, including in particular banking and insurance, notably among companies based in Barbados, Jamaica and Trinidad and Tobago. However, as Trevor Farrell27 and others have pointed out, these efforts have been motivated to a large extent by a desire to promote 'market extension' and have not been based on factor complementarity, which is at the heart of the strategy of production integration. It is worth noting in passing that recently the argument has been advanced in certain quarters that some countries would be adversely affected by participation in the CSME, based on their relatively low level of competitiveness vis-a vis other member states of the Community. But this position is quite indefensible since it is obvious that if countries are not competitive enough for the CSME, it is highly unlikely that they will be able to survive in an even more competitive environment outside the CSME. The debate also overlooks the fact that not only will the CSME strengthen the negotiating capacity of the member states of the Caribbean Community by facilitating the adoption of a joint platform on issues, but, as was stated earlier, it will provide increased opportunities for production integration, which is an indispensable strategy for optimising the development possibilities of the region and also for maximising the exercise of sovereignty at a time when small states, in particular, need to embrace the concept of the collective exercise of sovereignty. Of course, the logic of regional economic integration could be further extended by linking it to the possible creation of a growth pole or growth triangle in the region. The concept is most closely linked to the experience of Singapore which, in recognition of its limited geographical size, has sought to expand its development prospects by 'integrating' parts of Malaysia and some of the neighbouring Indonesian islands into a common development framework or growth triangle which generates economic benefits for all the participants in the arrangement.

16 Significant benefits could be derived by promoting a similar arrangement within the Caribbean/South American region, given the small size of many of the islands. In this connection, it should be noted that with the blessing of CARICOM, Guyana has recently concluded a trade agreement with Brazil, in which the former is seen as providing a 'gateway' for Caricom countries into a major trading bloc, bearing in mind that Brazil is a member of MERCOSUR. In fact it is understood that a proposal by Brazil for the conclusion of a formal relationship between CARICOM and MERCOSUR is currently being studied by the Caricom Secretariat. Equally significant in this context is the fact that Guyana and Suriname are currently engaged in preliminary oil exploration which, based on US Geological Survey data, is likely to yield significant quantities of petroleum. Given the potential of these countries to exploit the petroleum resources of the Guianas Shield and the significant petroleum and natural gas production of Trinidad and Tobago, it would be feasible to establish a Caricom growth triangle involving the three member states of the Community, based on the promotion of closer economic links with Brazil, in which, as was stated earlier, Guyana could serve as the 'gateway' by virtue of its existing trade agreement with that country. This would be perfectly compatible with a strategy of production integration within Caricom based on the exploitation of the region's natural resources. Given these realities, development policy in the Caribbean will therefore need to expand its horizons and seek to encompass new and innovative possibilities, including geo-strategic initiatives which bear on economics, if it is to serve as a dynamic instrument in the service of the development in the region. It should also be noted that while development policy in the Caribbean has traditionally focused on economic and social development issues, including poverty eradication and sustainable development, governance arrangements at the regional level have also come under increased scrutiny as part of the effort to give effect to the CSME, since it is recognised that the effectiveness of regional economic arrangements will depend to a large extent on the nature of the political decision making process within the Community. At the present time, because of the reservations in some countries regarding the establishment of a federation or other form of political union, the Community is seen as a 'community of sovereign states' which tends to highlight the sovereignty vested in the individual states. However, in reality, a wide range of options is available to the Community for the flexible exercise of sovereignty at different levels, without resorting to political union. While it is true that, based on the provisions of the existing treaty, sovereignty resides in individual countries, it is clear that an effectively functioning Community will require innovative governance arrangements which would involve, in some cases, the collective exercise of sovereignty, as is indeed the case in respect of some aspects of the negotiations carried out within the framework of the Caribbean Regional Negotiating Mechanism (CRNM), and, in other cases, even the cession of

17 supranationality in specific areas - as indeed would be the case with the establishment of the Caribbean Court of Justice (CCJ) which will eventually function as a supranational entity and the decisions of which will be binding on member states of the Community. In recognition of the importance of effective regional governance arrangements, the CARICOM Heads of Government have appointed a Prime Ministerial Expert Group, comprising the Prime Ministers of St Vincent and the Grenadines (Chairman), Antigua and Barbuda, Barbados, Jamaica, and Trinidad and Tobago to examine the existing governance arrangements, with special reference to the possibility of establishing a Commission to advance relevant initiatives and also to force the pace of implementation in respect of CSME - related issues. The Prime Ministerial Expert Group was also requested to make recommendations for the more effective functioning of the Assembly of Caribbean Community Parliamentarians (ACCP). In addition, in an effort to put the funding of the Caricom Secretariat on a firmer footing, it was mandated to explore the possibility of introducing a system based on the principle of 'automaticity' of resource transfers to the Secretariat. In an effort to carry forward this initiative, the Prime Ministerial Expert Group appointed three technical sub-groups to review the various issues. At the intersessional meeting of Heads of Government held in St Kitts in March, 2004, it was decided that the reports of the technical sub-groups, which had been submitted to the Prime Ministerial Expert Group would be considered, in conjunction with a separate report prepared by a group of external consultants on the functioning of the Caricom Secretariat, at the next meeting of the Caricom Heads of Government to be held in Grenada in July 2004. The decisions to be taken on issues relating to regional governance will form part of the wider strategy on trade and economic integration within CARICOM which, as was mentioned previously, has become a central focus of development policy in the Caribbean. It should be mentioned that although the analysis has focused largely on the Caribbean Community, attention will also need to be paid to the wider CDCC membership and indeed to the Association of Caribbean States (ACS), which also cuts across the constituency for which the ECLAC Sub Regional Headquarters in Port-of-Spain has responsibility. Consequently, the development policy articulated by ECLAC, Port-of-Spain will need to focus on the possibilities for collaboration and the intensification of synergies among all member states of the CDCC. This will inevitably involve a rationalisation of effort in order to complement, rather than duplicate, initiatives within the region. It will be important therefore to organise periodic meetings between ECLAC, Port-of-Spain, the Caricom Secretariat and the ACS Secretariat in order to achieve this objective.

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VII Conclusion The foregoing analysis has sought to highlight the changing perspectives on development policy both globally and in the specific context of the Caribbean. The analysis suggests that the developing countries as a whole and the Caribbean in particular, face a number of major challenges which will require the formulation of new and innovative development paradigms in order to enable them to cope with these challenges. While significant progress has been made, particularly in terms of regional integration and in the management of external trade negotiations, with which the region has been forced to deal on a collective basis, ECLAC, Port-of-Spain, in keeping with its mandate to serve as an intellectual centre for analysis and policy formulation within the UN system at the regional level, and bearing in mind its distinguished record of contribution over the years, is well placed to provide the necessary intellectual support for the formulation of a creative strategy designed to promote the optimal development of the region based on growth with equity, and also the achievement of human development goals. This is a historic enterprise in which ECLAC must place a central role. _________________________

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Notes:
1

Raul Prebisch, The Economic Development of Latin America and Its Principal Problems, New York, United Nations, 1950. See also Raul Prebisch, Stages in My Thinking on Development, in Pioneers in Development, G.M. Meier and D. Seers (eds), New York, Oxford University Press, 1984. Other Latin American writers who built upon, but who also departed from, the basic trends of structuralism include Celso Furtado, Osvaldo Sunkel, Fernando Cardoso, Enzo Falleto and Theotonio dos Santos. Andr Gunder Frank, Capitalism and Underdevelopment in Latin America, New York, Modern Reader Paperbacks, 1969. W.W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto, Cambridge, U.K., Cambridge University Press, 1960 W. Arthur Lewis, 'Economic Development With Unlimited Supplies of Labour', The Manchester School of Economic and Social Studies, Vol.XXII, May 1954 Samir Amin, Accumulation on a World Scale, Monthly Review Press, 1974 Arghiri Emmanuel, Unequal Exchange, New York, Monthly Review Press, 1977 Hans Singer, 'Lessons of Post-War Development Experience, 1945-1988', in S. Sharma, (ed) Development Policy, New York, St. Martin Press, 35-80 The Heckscher-Ohlin theory was developed as the neo-classical version of trade theory and comparative advantage. W. Arthur Lewis, Industrial Development in the Caribbean, Port of Spain, 1950 ___________, Labour in the West Indies: The Birth of a Worker's Movement, London, V. Gollanez Ltd and the Fabian Society, 1939 __________, 'Economic Development With Unlimited Supplies of Labour', The Manchester School of Economic and Social Studies, Vol.XXII, May 1954 William Demas, The Economics of Development in Small Countries With Special Reference to the Caribbean, McGill University, 1965 Francis Fukuyama, The End of History and the Last Man, New York, Avon, 1992 Amartya Sen, 'The Living Standard' in Economic Welfare', edited by Tyler Cowen, Edgar Elgar Publishing, 2000 Marco Ferroni, 'The Role of International Public Goods in Sustainable Globalisation and Localisation', presented at the WBI Course on Intergovernmental Fiscal Relations and Local Financial Management, Budapest, April 14, 2000 Ravi Kanbur, 'Cross Border Externalities, International Public Goods and Their Implications for Aid Agencies', paper prepared for Conference on Global Tensions, in honour of Ester Boserup, Cornell University, March 9-10, 2001. Michael Porter, The Competitive Advantage of Nations, New York: Free Press (1998)

5 6 7

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13 14

15

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Dani Rodrik, The New Global Economy and the Developing Countries: Making Openness Work, published by the Overseas Development Council, Washington DC, 1997 (distributed by the Johns Hopkins University Press) ibid. Thomas I. Palley, Plenty of Nothing: Downsizing the American Dream and the Case for Structural Keynesianism, Princeton, Princeton University Press, 1998 Paolo Sylos Labini, 'Growth Models and the Explanation of Forces Behind Development Processes' in Roger E. Blackhouse and Andrea Salanti, Macroeconomics, Oxford University Press, New York, 2000 Steven N. Durlauf, 'Economic Analysis and the Study of Economic Growth: A Sceptical Perspective' in Roger E. Blackhouse and Andrea Salanti, op cit. William Demas, West Indian Development and the Deepening and Widening of the Caribbean, Kingston, Ian Randle Publishers and the Institute of Social and Economic Research (ISER), 1997. The New World Group, which was formed during the early 1960s, proposed an alternative development strategy to that proposed by W. Arthur Lewis. For many of the economists within the Group, the plantation was seen as a defining characteristic of the Caribbean region. Havelock Brewster, CARICOM: From Community to Single Market and Economy in Kenneth Hall and Denis Benn, Government in the Age of Globalisation: Caribbean Perspectives, Kingston, Ian Randle Publishers, 2003. Norman Girvan, Reflections on the CSME, Keynote Address to SALISES Conference on the CSME, UWI, St. Augustine, 31 March 2004 Trevor Farrell, Caribbean Economic Integration: What is Happening Now; What Needs to Be Done, paper presented at the Caricom Thirtieth Anniversary Conference on Regional Governance and Integrated Development, held at the University of the West Indies, Mona, 17-19 October, 2003

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References: 1. Benn, Denis, Deconstructing the Neo-Classical Economic Model: Towards a New Development Paradigm, May 1999 (unpublished paper) Aesthetics, Psychic Income and Development: Equation, January, 2002 (unpublished) The Neglected

2. __________, 3. Blackhouse, Roger E And Andrea Salanti Brookfield, Harold Colclough, Christopher and James Manor (eds) Demas, William _____________ Haque, M. Shamsul, Hayami, Yugiro

Macro Economics and the Real World: Vol. 1 - Econometric Techniques and Microeconomics, New York, Oxford University Press, 2000 Interdependent Development, London, Methuen and Co. Ltd, 1975 States or Markets? Neo-liberalism and the Development Policy Debate, Oxford, Clarendon Press, 1995 The Economics of Development in Small Countries With Special Reference to the Caribbean, McGill University, 1965 West Indian Development and the Deepening and Widening of the Caribbean, Kingston, Ian Randle Publishers and ISER, UWI, 1997 Restructuring Development Theories and Policies: A Critical Study, New York, State University of New York Press, 1999 Development Economics: From The Poverty to the Wealth of Nations, Oxford, Clarendon Press, 1997 (reprinted 2000) The Legacy of Raul Prebisch, Inter American Development Bank, 1994 Economic Development and Social Change: United States and Latin American Relations in the 1990s, published by the University of Miami North-South Centre in Cooperation with Transaction Publishers, 1992 Labour in the West Indies: The Birth of a Workers Movement, London, V. Gollanez Ltd and the Fabian Society, 1939 Industrial Development in the Caribbean, Port-of-Spain, 1950 The Rise and Fall of Development Theory, Bloomington and Indiana University Press (London, James Curry), 1996 Theory of Economic Growth, Oxford, Clarendon Press, 1969 The Evolving Global Economy: Making Sense of the New World Order, A Harvard Business Review Book, 1995 Plenty of Nothing: Downsizing the American Dream and a Case for Structural Keynesianism, Princeton, Princeton University Press, 1998 Theories of Development, London, The Guelford Press, 1999

4. 5. 6. 7. 8. 9.

10. Iglesias, Enrique (ed) 11. Jorge, Antonio (ed)

12. Lewis, W.A. 13. ___________ 14. Leys, Colin 15. Moushima, Micho 16. Ohmae, Kenichi (ed) 17. Palley, Thomas I. 18. Peet, Richard with Elaine Hartwick

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19. Ramis, Gustave and T. Paul Schultz 20. UN General Assembly

The State of Development Economics: Progress and Perspectives, Oxford, Basil Blackwell, 1988 Resolution 1710 (XVI), United Nations Decade: A Programme for Economic Cooperation, Sixteenth Session of the UN General Assembly, (19 December, 1961) Resolution 2626 (XXV), International Strategy for the Second UN Development Decade, Twenty-fifth Session of the UN General Assembly, (24 October 1970) Resolution 35/36 , International Development Strategy for the Third UN Development Decade, Thirty-fifth Session of the UN General Assembly (5 December, 1980) Resolution 45/199 , International Development Strategy for the Fourth UN Development Decade, Forty-fifth Session of the UN General Assembly (21 December, 1990) The New Global Economy and the Developing Countries: Making Openess Work, published by the Overseas Development Council, Washington D.C. (distributed by John Hopkins Press), 1999 Problems of Industrialisation of Eastern and South-Eastern Europe, Economic Journal 153 The Uncertain Quest: Science, Technology and Development Tokyo, Paris, London, United Nations University Press Globalisation and Its Discontents, New York, W.W. Norton, 2002 The Third World Challenge: Preferences for Development, Hassocks, Sussex, Ditchling Press Ltd., 1967

21. _________________

22. _________________

23. _________________

24. Rodrik, Dani

25. Rosenstein-Rodan, Paul 26. Solomon, Jean-Jacques, Francesco Sagasti and Celine Sachs-Jeantet 27. Stiglitz, Joseph E. 28. Wall, David