The UWI trade and economic development unit held a public conversation commemorating the work of Lloyd Best and Kari Levitt on the Plantation Economy Model.
Questions were asked as to the modern day relevance of the model, what we can learn from it to help in today’s recession and can Petrotrin learn anything from the plantation?
Lloyd Best et al describes the regional economies as plantation economies. In particular, he assigns the term “hinterland” to those lands that produce the basic products that are exported to the metropole, abroad.
In particular, the plantation that depends Non the exploitation of natural resources, eg petroleum, according to Best, the economy resumes its traditional role of the hinterland with the metropole being the primary source of capital, entrepreneurial talent, knowhow and technology.
Moreso the MNCs’ (representing the metropole) transactions between their hinterland subsidiaries and the parent companies result in the Muscovado bias.
Hence it becomes difficult to ascertain magnitudes such as profits retained and repatriated and the transfer of capital between parent company and the branch plant, a concern we now have today with the LNG exports.
These problems, even in developed countries, have spawned the rules of engagement that seek to reduce this problem of transfer pricing.
Best argues that the enterprise of the indigenous people dictates the pace at which economic development proceeds, and such dependence on imported enterprise builds into the local economy an assured backwardness compared with countries whose entrepreneurial dynamic is indigenous.
Therefore, Best says that the islands must regain control over their main staple resource, new staple or quasi staple. This means a transformation of the corporations and a drastic revision of their terms of participation.
In this circumstance, according to Best, the measures of nationalisation or even expropriation cannot be arbitrarily ruled out.
It is worth noting that you may acquire the physical plant, as we did with Petrotrin, but without the institutions that generate the knowledge, the technology, know-how or innovation Petrotrin was unable to be globally competitive.
Also petroleum exploration/production is a high risk, high capital enterprise in which a dry hole or a well accident can ruin a small indigenous low capital company—the Trintomar experience.
Though I pay my respects to Best on his plantation economy model I refer, in my use of the term plantation, moreso to the concept of the small open economy (SOE), that cannot produce most of what it consumes and has to import to support an adequate life style. Hence it has to export.
The plantation aspect to which I refer is when one sector—particularly if it is driven by foreign direct investment and its technology—is the major earner of the foreign exchange that is retained locally in order to purchase the needed imports.
Further the enterprise of the locals, their business activity, in general becomes focused on import, distribution, sales, construction and the business and financial structures to support these activities.
When the foreign investment is about natural resource exploitation it is important that, though the government may not have the capital required to exploit it, concern is paid to the share of the income retained locally and attempts made to avoid much of the Muscovado bias by getting significant added value done locally.
Though capital may be in short supply the local government has to acquire the knowledge and technology to properly manage the exploitation of the resource.
Such an economy will be at high risk if the prices of the exported products are volatile and this one horse economy becomes boom-bust.
The objective of economic adjustment/development then is not necessarily, as Best suggests, taking charge of the staple resource or even nationalisation or expropriation of the foreign-owned plants etc, but in diversifying the economy into more varied products and services and so reducing the overall risk in the economy in earning foreign exchange.
This, then, is about turning the indigenous enterprise in part away from import, distribution and sales into creating exporting companies, not necessarily like those in the traditional exporting sector. The concern, however, is how does the history of the plantation in the sense of the SOE affect the ability of the indigenous enterprise sector to adapt away from its traditional role to the higher risk of exporting globally, when competitiveness in such a market is about knowledge acquisition, its application, creation and innovation?
However Best concludes, as already noted, that dependence on an imported enterprise builds local backwardness as opposed to countries whose entrepreneurial dynamic is indigenous.
But the local enterprise in the SOE exists and it is different from the imported enterprise, though the success of the former depends on the foreign exchange income generated by the latter.
Therefore, the problem is not assured backwardness of the indigenous enterprise, but its ability to adapt to new and competitive global exporting.
This is the concern that Prof John Foster examines using his complex theory of economies and the risk of non-adaptability in an economic sector that has not experienced significant changes in its history.
Mary K King
