Is Trinidad and Tobago economic model appropriate for a petroleum-based economy?

THE EDITOR: TT operates a free-market capitalist system. However, given price fluctuations characterising petroleum-based economies with its consequent revenue intake, which precipitates a serious ripple effect throughout the economy, should this model be maintained?

Government revenues rise sharply during years of high petroleum prices and/or high production levels as obtained in 1973-1983. When government revenues climb there is a clamour by trade unions for steep salary and wage increases.

Given the stark disparity in income levels in the 1950s and 1960s, a government led by a renowned historian cognisant of the then conditions was not hesitant to use the new-found wealth/revenues in an attempt to redress this unequal income distribution by agreeing to hefty salary and wage increases, broad subsidies and transfer payments.

The private sector now had to compete more vigorously with the government for workers, further sending up the price of labour. This action by the government and trade unions has been blamed for growth strangulation of the sole trader/artisan-sector cobblers, pipefitters, ironmongers and spare-parts developers. The agricultural sector became starved for low-wage workers.

There was also a change in the mentality of semi-skilled and unskilled workers who now valued their labour above what obtained in comparative countries, particularly in the Far East. This high labour cost made TT uncompetitive, holding back development while pushing the developed countries to outsource production and investment to the more labour-competitive countries of the Far East.

But this is only one side of the story. The other side relates to the level of built-up expectations when revenues fall precipitously as petroleum prices and/or production falls, and government revenues become incapable of maintaining expected continued salary and wage increases, subsidies and transfer payments.

During the period 1984-1994 the country was forced to go to the International Monetary Fund (IMF). Conditionalities imposed included the slashing of wages and salaries of government workers as well as reduction in transfer payments and subsidies.

Citizens showed their anger by loud street protests, almost obliterating the government of 1986-1991 as a reminder that their expectation of a high standard of living remained regardless of a change in economic fortunes, occasioned mainly by the fall in the price of petroleum. People had adjusted upwards during the “good times of high petroleum prices” but seemed unable or unwilling to cope with changed circumstances

There was some respite during the decade of the 1990s and early 21st century as petroleum prices recovered and successive governments were able to increase spending, which served as a catalyst for the private sector to increase its economic involvement.

Yet another factor relates to the introduction of drugs in the society aided by TT’s proximity to North America, making the country an ideal transshipment point to the markets of the North. This drugs use increased the need by users for money, encouraging the growth of gangs and gang rivalry, aided by returning deportees and boosted by the easy access to firearms.

The real problem is when petroleum prices/production and revenues fall, with expectations remaining high, what then should be the response of the authorities?

Some posit that the Government should find a way to maintain wages and salaries at a “living wage.” This idea resonates with the lowest income groups that insist that their labour is undervalued. But with declining revenues the Government’s ability to maintain high living standards is constrained.

Secondly, any attempt to prop up incomes will make the country even less competitive, chasing away much needed foreign investors.

The Government has responded with the implementation of several projects, even with stipends. However, maintaining a competitive price for labour with high expectations appears illogical to many youths, providing some perceived justification for their involvement in criminal activity. Therefore the current economic model is being challenged.

What then do our renowned economists and academics have to say?

D THOMAS

Port of Spain