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Caribbean Islands Role of Government
Government involvement in the economy increased rapidly with
early self-government in 1950. Spurred by the economic decision
making of Gomes, the young government embarked on an
"industrialization by invitation" strategy in an attempt to
emphasize manufacturing (see The Road to Independence, this ch.).
The strategy was a natural outgrowth of the success of import
substitution manufacturing that had occurred during World War II.
The most significant pieces of legislation that changed the
government's stance on the economy were the Aid to Pioneer
Industries Ordinance and the Income Tax Reform Ordinance to Benefit
Industry, both enacted in 1950. These measures provided wide-
ranging fiscal concessions for infant industries. Similar measures
were also developed for tourism. Fiscal incentives permitted new
investment to benefit from accelerated depreciation allowances,
duty-free importation of machinery and raw materials, and
provisions for the repatriation of profits. These fiscal measures
marked the first time Trinidad and Tobago sought foreign capital
outside of Britain. In 1962 drastically increased tariffs
complemented the fiscal incentives of encouraging manufacturing and
protecting it from outside competition. Although tourism did not
receive the attention of manufacturing, it did signify a renewed
interest in Tobago, the island traditionally neglected by Port-of-
Spain officials.
These policies, bolstered by an expanding world economy, proved
a general success as the unprecedented growth of the 1950s included
the establishment of over 100 pioneer industries by the mid-1960s.
These comprised basic manufacturing, such as bricks, beer,
textiles, glass, cement, paints, and chemicals. Although incentive
legislation helped expand output in manufacturing, many
expectations for the sector were not met. Although manufacturing's
share of GDP did rise, the sector never obtained the dominance it
held in Jamaica. Employment expectations were also not met as
foreign investment brought industries that were more capital
intensive than anticipated. In general, there were few economic
linkages forged between the oil and manufacturing sectors in the
1960s. The employment absorption of new manufacturing generally
went unseen as Trinidadian society experienced its fastest
population growth rate ever, increasing over 50 percent from 1940
to 1960.
The government's industrial push in the postwar era also
included heavy investments in the islands' physical, social, and
organizational infrastructure. To meet growing commercial and
residential demands, the country's water, electricity,
communication, and transportation systems were expanded. Likewise,
self-government emphasized the need for improved social services
such as medical and educational facilities. Beginning in 1958, the
government issued the first in a series of five-year plans. The
last five-year plan (1974-78) was never completed, as expectations
of continued oil wealth apparently precluded the need for further
plans.
The role of the government in the economy increased drastically
during the 1970s. The move toward increased government involvement
in the economy was the direct result of the Black Power movement of
1970 and the long-term consequence of decades of trade union
criticism of foreign ownership. Some foreign firms were
nationalized with compensation; the government typically acquired
only a 51-percent equity share of these companies. Other firms were
simply localized in ownership via the purchase of a majority of
shares by private Trinidadian citizens. In 1971 the government
bought a 51-percent share of the Caroni Sugar Company, which
controlled over 90 percent of sugar activity in the country. The
banking industry underwent a nationalization and localization
process in 1972. In that year the government purchased a 51-percent
share of the Royal Bank of Canada, subsequently renamed the Royal
Bank of Trinidad and Tobago. Meanwhile, Barclays Bank (renamed the
Republic Bank), the Bank of Nova Scotia, and numerous insurance
companies were localized in ownership. Although the government's
prominent entrance into the economy predated the oil boom,
increased government revenues from oil accelerated the process.
Between 1968 and 1974, the government entered the oil industry in
force, purchasing the oil holdings of the British Petroleum Company
and Shell Corporation and integrating them into the newly
established Trinidad and Tobago Oil Company (Trintoc). In the same
year, Texaco's gas stations were localized islandwide. By the late
1970s, the government had become the largest employer in the
country.
Petrodollar revenues expanded the state's range of activities
in the economy from nationalization and localization to the
introduction of widespread subsidies and large-scale public works
programs, the creation of numerous state-owned enterprises, and the
implementation of huge industrial projects. Like other oil
economies, Trinidad and Tobago suffered from the "Dutch disease,"
the process by which oil-wealthy nations tend to subsidize non-oil
sectors of the economy. During the 1970s, subsidies and transfers
represented the greatest share of current government costs, moving
from 25 percent of government expenditure in 1977 to 36 percent by
1980. Subsidies alone more than tripled during this period. For
example, subsidies on gasoline allowed prices to remain the same
throughout the decade, when market prices more than quadrupled.
Although subsidies were primarily redistributive in their intent,
they also handsomely benefited the private sector, whose inputs
such as water and electricity were also supported. Ambitious public
works programs, developed to alleviate unemployment, employed some
50,000 citizens but were largely inefficient and unclear in their
objectives.
The multibillion-dollar industrial park at Point Lisas, more
than any other single activity, symbolized the thorough role of
government involvement. The park was constructed, in part, with
revenues from the so-called Special Funds for Long-Term
Development, consisting of over forty different funds. Cost
overruns were so prevalent during the construction of the park that
no final cost was ever obtained. The park sought to use the
country's oil and natural gas reserves for a well-integrated
petrochemical industry, alongside heavy industries like steel. Most
of the site's plants came on-stream in the early to mid-1980s,
including steel, urea, ammonia, cement, and methanol plants and an
oil refinery. Although these plants were still young in the 1980s,
concerns existed that some of these projects could turn into white
elephants. Also considered, but not constructed as of the late
1980s, were an alumina (see Glossary) smelter (Trinidad is a
bauxite [see Glossary] transshipment site) and a plant to process
liquefied natural gas.
The government's attitudes toward its role in the economy
remained unchanged in the 1980s. Despite minor policy differences,
both Prime Minister Chambers (1981-86) and subsequently Prime
Minister Robinson (1986- ) continued to perceive an extensive role
for the state in the country's mixed economy. One significant
change enacted by the Chambers government was to reduce the number
of bids offered to foreign contractors for large industrial
projects. After a Ministry of External Affairs report concluded
that these foreign firms had financially exploited the arrangements
and hurt local competitors, the process was changed to favor
locals.
Chambers, however, confronted much more devastating economic
difficulties as a result of the deep recession brought on by the
sharp fall in oil prices in 1982. Decreased oil production lowered
government revenues, a sizable portion of which were derived from
the petroleum industry. Growing fiscal deficits prompted the
Chambers government to pursue unpopular domestic policies, such as
decreased subsidies, increased utility rates, an increased tax
base, and, most important, deep reductions in capital expenditures,
thereby eliminating most funds for economic development. To
stabilize the country's deteriorating balance of payments position,
the government opted for equally unpopular trade policies. These
measures included a new import licensing system and a dual exchange
rate, both of which drew the ire of other Caricom nations. To help
smooth the adjustment period, the Chambers government invited
William Demas, a well-known Trinidadian economist and president of
the Caribbean Development Bank, to write a broad "Imperatives of
Adjustment Plan" to help stabilize the country's accounts and work
toward a recovery.
A recovery, however, never materialized under Chambers, and the
Robinson government was faced with the same task of reversing the
recession, reducing budget deficits, and stabilizing the balance of
payments, but with fewer resources. In 1987 the Robinson government
proposed few policies that diverged widely from those of Chambers.
A major goal of the Robinson government, however, was to improve
relations with Caricom trading partners, which had soured because
of Trinidad and Tobago's protectionist policies in the early to
mid-1980s. The unification of the country's exchange rate in
January 1987, followed by the removal of a 12-percent import duty
for most Caricom countries in July, did help to revive regional
integration. On the budgetary side, Robinson continued to reduce
capital expenditures; unlike Chambers, however, he attempted deep
cuts in current expenditures, most notably the cost of living
allowances of civil servants. That proposal was withdrawn, however,
after a storm of protest. Nonetheless, the issue was important in
that it symbolized the difficulty the Robinson government might
face in seeking economic concessions after a decade of great
wealth. In his 1987 budget speech, Robinson warned of the possible
divestment of some state-run enterprises, thus earning his
government an early reputation as pro-business. In the late 1980s,
the NAR government's main economic objectives remained economic
recovery and diversification; nonetheless, the new government
cautioned that its economic program would require ten years to be
completely effective.
Data as of November 1987
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