Economist Dr Justin Ram is calling for fundamental change in the economic model used by Caribbean countries “if we want to improve development outcomes in our region”.
Ram, a former director of economics at the Barbados-based Caribbean Development Bank, made this recommendation in his recently published research paper Comparative Advantage, Cheap Consumption, And Poor Development Outcomes In The Caribbean.
The economist has a problem with what he sees as the flawed notion “the availability of cheap consumption measures economic well-being”. He believes instead that the focus should be more on the human development outcomes – well-being.
“As an economist, I look at solutions via two routes: one, tackle the root cause, two, or help people cope with the effects. Because most economists are steeped in the comparative advantage doctrine, the economic problem is misdiagnosed,” he noted.
“So most structural reform programmes focus on number two, helping people cope with the effects when the reformers believe they are tackling the root cause.
“This is why the problems of lack of competitiveness, low growth, and high debt levels keep resurfacing as economic problems in the Caribbean: the current economic model will always lead to these outcomes.”
He continued: “Fundamentally, our economic development, well-being, and performance measures are flawed. We need more micro measures of development that focus on what Sir Arthur Lewis once described as the study of economics, which is ‘the conditions under which people live’.
“We need to return to this earnestly to develop our small economies as places worthy of human occupation, with formidable and resilient conditions under which people live.”
Ram pointed out that “most economic observers using their typical macroeconomic lenses would say that [Caribbean] economies have performed reasonably well from the time of independence until about the first decade of the new millennium, and with a relatively recent stagnation
due to a lack of competitiveness, poor business environment, and bloated state sectors”.
“I believe that . . . the root cause of the problem has not been identified, or economists are unwilling to even consider it since the theory that underpins much of the global economic order and, indeed, globalization could be the problem.
“Since the 1980s, the economic doctrine has measured economic progress by consumption efficiency. However, I would like to say that what we have followed is not economically efficient since this would imply that all other factors and the economy are operating efficiently.”
Ram observed that the region had instead “followed the notion that the availability of cheap consumption measures economic well-being”.
“This implies that countries should seek to open their markets so that residents can consume products made the most efficiently wherever they might be,” he said.
“Well-being is, therefore, measured by how residents can spend their incomes on the cheapest goods available globally to help their incomes stretch further. How much an individual can consume with their earnings rather than what they can produce is the predominant measure of development.”
Ram said this is the theory of comparative advantage, or as he called it cheap consumption, which underpins the global economic order.
The economist said that the region’s focus on imports and cheap consumption meant that an “economy never becomes truly innovative, or there is no need for deep technological know-how or innovation, when all global innovation is only one shipping container or a click away”.
(SC)
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