The inherent maladaptiveness of the onshore

Yet, the report says that the private sector “is not up to the challenge of supporting economic growth, creating employment, contributing to Government’s revenues in a significant way or improving the economic welfare of the nation’s citizenry.” The report also reminds us that only 14 percent of the onshore firms do some kind of exporting, and 65 percent of these firms derive less than 25 percent of their income from their export sales, while 4.32 percent of them derive greater than 75 percent of sales from exports.

Hence the energy sector that employs only four percent of the work force provides us with 90 percent of our foreign exchange. Indeed, 69 percent of the onshore firms are simply importers and resellers, supported by the foreign exchange earned by the energy sector. The aim of this report appears to be to advise on how the onshore sector should be encouraged to turn towards exporting.

What underpins the recommendations of the report is the following statement by the author: “Rather than refocusing efforts on cherry-picking or debating what sectors should be developed, a la vertical productive development, this report suggests that TT should employ structural policies that would improve the overall business environment and underlying macro-economic constraints, a la horizontal productive policies.” The horizontal policies recommended include macro and micro interventions by the Government that can provide a favourable business environment for firms that improve their research and development (R&D), access to financing, innovation and incentives to attract investments from foreign firms to invest in new technology, and a focus on continuously improving the infrastructure to support the non-energy sector. Still, the report tells us that the exporting firms are those that are large, young and foreign owned in the manufacturing sector (the iron/ steel plant was the main contributor).

However, most onshore firms in TT are small and medium size, mature, locally owned and operate in the services sector. The task then, according to the report, is how do we transform these firms into globally competitive exporters or encourage new ones? The report addressed the constraints that apparently restrict the adaptation of the onshore firms into exporters. The report suggests that the major contributors to this reluctance are the firm’s size, age, ownership and trading history (exporter or importer). Macro and micro-economic constraints are the second largest contributor; access to finance, crime, corruption, infrastructure, mismatch between education and firms’ requirements. Further, the report claims that the overvaluation of the TT $ is a fundamental constraint for both exporters and firms that cater for the local market.

Maybe there is a third contributor to this onshore characteristic of the firms.

Prof John Foster of the University of Queensland, Australia, in his paper, “From Simplistic to Complex Systems in Economics,” had this to say: “… an economic system is a complex adaptive system (with) the general properties … Such a system must exhibit some degree of structural irreversibility due to the inherent hierarchical and ‘bonding’ nature of the connections between components that are formed as structural development proceeds. It is this that results in the inflexibility and maladaptiveness that precipitate a structural discontinuity of some kind.” What Prof Foster is telling us is that our economy, a complex adaptive system, will exhibit a degree of structural irreversibility due to its history, which inhibits its ability to adapt to the current discontinuity of having to become exporters given the depletion of our natural resources and the global economic uncertain environment.

Our economy is, has been and was created to be a plantation in which the commodity sector (energy today) provides the exports and brings in the foreign exchange rents to the country, which are then used by the private sector to import the needs of the population. Our economy over its history has developed the inter-connections among its components that now exhibit structural irreversibility and an inability to adapt to the need to diversify into exports.

The horizontal policies recommended by this IDB report do not address this rigidity and incapacity of the non-energy sector to adapt. Recall that the Point Lisas investment was to encourage the local private sector to go downstream of the natural gasbased plants; this did not happen.

Recall again the abject failure of the negative listing era which was to allow the private sector to build things for the local market as a prerequisite to becoming exporters.

Also, industrial parks were built, tax incentives and small loans were given to firms and budding entrepreneurs, the enrolment in education especially at the tertiary level increased and public activity encouraged via a national competition. The rigidity and non-adaptiveness remain.

For decades I have been recommending along the lines of the Etzkowitz’s Triple Helix, a triad of government, R&D institutions and an embryonic private sector in a national innovation system to address a priori selection of technologies, even industries, in which we intend to become globally competitive. When such an approach is accepted by the public the conduct of a foresighting exercise has to take place to choose the areas of interest, an approach the IDB seems to be against, but which worked in Taiwan, South Korea, Ireland and even Norway.

Again, the Government has to be the investor of last resort given the risk averseness of the current financial sector.