CAN THE BAHAMAS DIVERSIFY ITS ECONOMY?
(Development Economics with specialties in Public Finance and Fiscal Policies)
The luminary politicians throughout the Caribbean region have been baffling with the concept of diversifying their economies recognizing the vulnerability of the small islands. It is one thing to indicate diversification of one’s economy but putting the mechanism in place is more complex than one can assume.
The Report of the Vulnerability of Small Island Developing States (SIDS) in March 2000 states that approaches to “sustainable development” typically embody two major elements relating, respectively, to “intergenerational equity” and the need to incorporate environmental factors into national development strategies and policies. In this context, “intergenerational equity” refers, in general terms, to the pursuit of developmental objectives at the present time without prejudicing the prospects of future generations to do likewise. This concept is used in a more comprehensive way in relation to the SIDS, to refer to the primary challenge to these geographical entities against the backdrop of a physical and spatial environment that is not only at risk but also imposes severe constraints on their sustainable development prospects. Both elements find expression in the Small Island Developing States Programme of Action (SIDS POA), which was adopted in 1994, at the United Nations Global Conference on the Sustainable Development of Small Island Developing States (UNGCSIDS).
The Report of the Parliamentary Assembly of the Council of Europe on October 25, 2011 (Doc. 12779) characterizes that about half of the Council of Europe member states can be considered as small economies. They are confronted with specific development problems and socio-economic vulnerabilities due to their small domestic markets, limited diversification of local production and exports, high dependence on foreign markets, insufficient local resources, weaknesses in public and private sector capacity, difficulties in managing cross-border capital flows and attracting investment, as well as susceptibility to population movements and natural disasters.
Sustainable employment in respect to manufacturing in small island countries, while it may be commendable to pursue this direction, one must be cognizant of the fact of the unfavourable economic tendency that would obviously threaten long term manageability in small sector manufacturing industries, particularly coming from Asia.
The Report of the Vulnerability of SIDS also indicates that one of the central themes that informed the deliberations at the UNGCSIDS was the proposition that the “sustainable development capacity” of SIDS was severely undermined by a number of characteristics that were unique to such entities and which translate into specific development problems that impede their achievement of such development. These characteristics may be crudely categorized, recognizing the inevitable overlapping of categories, by reference to the overall geo-economic, social and environmental/ecological profiles of the entities concerned. It is in the structure of those profiles that the specific aspects of “vulnerability” or profound disadvantage are to be found.
A dilemma exists in choosing between investments in human versus physical capital. There is a bias toward the latter type because such investments are more likely to generate visible monetary returns to be matched with future growth.
So the political grandmerci in regards to diversifying the Bahamian economy is very complex and if anyone has the solution for this he/she should be nominated for a Nobel Prize in Economics. We are a service industry and we must focus on how we can enhance this industry like that of Singapore. In this incidence we must take into consideration that our national educational standard in The Bahamas is D and this cannot carry us into the global community at this stage of our development. Singapore’s national educational standard is A; I wouldn’t speak for Korea.
The Report of the Parliamentary Assembly of the Council of Europe also indicates that the global financial and economic crisis has affected small economies particularly strongly. It has highlighted the importance of good governance in underpinning development and the need to ensure sound macroeconomic fundamentals, economic diversification, stronger institutional capacity and competitiveness, optimal use of local resources, adequate transport and energy interconnections, and steady human progress.
Hla Myint explored the concept of international aid as “pre-investment for an infant economy”. In order for underdeveloped countries to absorb and utilize foreign capital in a more efficient and productive manner, a substantial amount of “pre-investment” was needed in the areas of social overhead capital, health and education. (Myint, 1971, pp. 198-199).
The Report of the Vulnerability of SIDS states that the significance of this observation lies in the fact that elements identified as constraining the development of all developing States would, in all probability, be applicable to most, if not all, such entities. However, in the context of SIDS, these elements are held to acquire an exaggerated significance and, consequently, impact in a manner that presents what are recognized by SIDS to be in the nature of peculiar expressions of the particular constraints in question.
The verisimilitude is that some of the politicians are not telling the world that we have a serious illiteracy problem in the Bahamas amongst the unemployed. The ambiguity is that some politicians are advertising the diversification of the economy being cognizant that we have a massive illiteracy problem. We cannot compete against the world in any shape or form in respect to manufacturing. It would take billions of dollars to rectify our problem. The world does not evolve around the Bahamas, the Bahamas revolves around the world. Such bombastic statement leaves me minimifidianism and nonpulus with respect to the politicians’ political agendas.
The Report on Education and Economic Growth in Historical Perspective by David Mitch of the University of Maryland Baltimore County in 2010 indicated that in his introduction to the Wealth of Nations, Adam Smith (1776, p.1) states that the proportion between the annual produce of a nation and the number of people who are to consume that produce depends on “the skill, dexterity, and judgment with which its labour is generally applied.” In recent decades, analysts of economic productivity in the United States during the twentieth century have made allowance for Smith’s “skill, dexterity, and judgment” of the labor force under the rubric of labor force quality (Ho and Jorgenson 1999; Aaronson and Sullivan 2001; DeLong Goldin, and Katz 2003). These studies have found that a variety of factors have influenced labor force quality in the U.S., including age structure and workforce experience, female labor force participation, and immigration. One of the most important determinants of labor force quality has been years of schooling completed by the labor force.
The Report further indicated that Maddison (2001) has placed the start of sustained economic growth in the early nineteenth century. Maddison (1995) estimates that per capita income between 1520 and 1992 increased some eight times for the world as a whole and up to seventeen times for certain regions. Popular schooling was not widespread anywhere in the world before 1600. By 1800, most of North America, Scandinavia, and Germany had achieved literacy rates well in excess of fifty percent. In France and England literacy rates were closer to fifty percent and school attendance before the age of ten was certainly widespread, if not yet the rule.
The Report on Education and Economic Growth in Historical Perspective by David Mitch also indicated that growth accounting can be used to estimate the general bounds of the contribution the rise of schooling has made to economic growth over the past few centuries.[3] A key assumption of growth accounting is that factors of production are paid their social marginal products. Growth accounting starts with estimates of the growth of individual factors of production, as well as the shares of these factors in total output and estimates of the growth of total product. It then apportions the growth in output into that attributable to growth in each factor of production specified in the analysis and into that due to a residual that cannot otherwise be explained.
The question is can the Bahamas diversify its economy to a manufacturing industry being cognizant of its low educational standard?
In conclusion, the diversification of a distribution of items, such as the products of a firm, reflects both the number of items and the relative amount of each item. The diversification of an economy reflects the number of industries and relative size of each, and the diversification of assets in a portfolio reflects the number and relative size of the assets. Diversification is thus similar to concentration in being a function of the number and inequality of items, except that as concentration increases, diversification decreases; diversification is an increasing function of number and decreasing function of inequality. Diversification (D) is thus the inverse of concentration:
(9) D = 1 / C
The index D is equal to N when the units are all equal, since
(10) D = N / I
diversification being defined and calculated as the number of items divided by their inequality.
The inequality index I = CN hence also provides a method for measuring diversification. Diversification, concentration, and inequality are thus measured by one common system, e.g. using the Herfindahl-Tideman-Hall index for C.
The first three criteria specified by Hall and Tideman (1967) for concentration also apply to inequality. The index IH satisfies the first Hall and Tideman criterion as an unambiguous one-dimensional measure. It satisfies their second criterion as being a function of all the elements of a distribution and their relative shares. The third criteria is that a change in relative shares changes the index, which is satisfied. Since CH satisfies all their criteria for C, I using CH satisfies those that are relevant to inequality.
Something for the politicians to ponder when talking diversification of one’s economy!
“Deo adjuvante, non timendum.”
“With God as My Helper, I have nothing to fear
About the Author:
Dr. Kevin J Turnquest-Alcena
Chairman of the Board of Governors
Rector, Michael University
LLB (Hon-1st Cl.), LLM (Hon-1st Cl.)
Ph.D. in Economics / Ph.D. in Clinical Psychology- MD/ Ph.D in Biogenetics
Ph.D. in Pharmacy (Pharm D)
Ph.D. in Public Health / Ph.D. in Herbal and Holistic Medicine
Titular Professor Lawyer & Fellow-FCILEX; AClArb; & Snr. Fellow-AMLA
