Globalisation, the EPA and Bahamian Education

by Larry Smith

Globalisation - it means more cross-border travel, trade, information and investment than ever before. But what does it mean for the average Bahamian?

Well, a lot of us are understandably worried. That's because globalisation brings change, which favours the highly skilled and educated, while lower-skilled jobs are often shifted to lower-wage countries.

Although tourism and financial services are already 'globalised' in the Bahamas, our protected domestic economy includes retailing and wholesaling, publishing and the media, fisheries, entertainment, construction, transport and the professions, as well as a small manufacturing sector.

Now we are faced with a number of initiatives that threaten to demolish our cozy and old-fashioned business arrangements. Free trade proponents say we must become part of the global rules-based trading system because the alternative is a system based on power - in which we surely can't compete.

We can boil down our concerns over the Caribbean Single Market & Economy, the European Partnership Agreement and other liberalisation measures to fear - the fear of better educated and better-funded foreigners taking away our businesses and jobs.

In other words, by signing on to these agreements, will we hear, as former US presidential candidate Ross Perot once predicted, "a giant sucking sound" as jobs and profits rush out of the country? Will Home Depot replace Kelly's? Will Tough Call's ad agency be forced out of business by MCann Erickson?

More to the point, Will our smugly unavailable lawyers finally have to work for their living? Will our pothole farmers follow our poultry producers into oblivion? Will we outsource the civil service to India? Will "the Bahamian Supermarket" have to change its marketing? Will local contractors join the employment line? Will office workers be replaced by foreigners who don't eat breakfast on the job?

These are the questions about free trade and globalisation that most Bahamians want answered. But no-one is responding, on the theory perhaps that "nobody move, nobody get hurt." So it was left to Dr Don Boudreaux to make a generic attempt at a dinner meeting last week sponsored by the Nassau Institute, a local policy think tank.

Boudreaux chairs the economics department at George Mason University in Virginia and has published a guide to globalisation. He was invited to help us come to terms with what globalisation means for the Bahamas.

Clearly, we have mixed feelings about our integration with the global economy. On the one hand, foreign investment and foreign tourists already drive two thirds of our economy. Yet we are terrified of opening up the rest of our closed little world to foreign competition.

As if to underline this, a group of angry protestors demonstrated at the CARICOM meeting on Cable Beach last week. They claimed that our acceptance of a trade agreement with the European Union amounted to a new form of slavery because it talks about regional integration.

The Christie administration caved in to grassroots opposition to the CSME two years ago. But in the meantime, the European Partnership Agreement was being negotiated by CARICOM with Bahamian participation. We initialed the draft agreement in December, but there has been no effort to sell or explain its terms or consequences to the Bahamian people.

Indeed, after taking office last May, the Ingraham government initially spurned calls to sign on to the EPA. It later reversed itself, and although we still have a few months to determine the precise details of the agreement on services, experts say we cannot change anything of substance.

"We are left with the option to liberalise 75 per cent of our services sector," Bahamian trade economist Hank Ferguson told Tough Call. "The issue is which services, but I do not see this as particularly difficult as most of our economy is already open. There may be significant institutional changes, but we think minimal negative impact on the average business person."

He went on to say that small business would still be protected: "The agreement allows for reservations and advantages for local businesses and areas that are deemed sensitive, particularly those that are important for government revenue. And we will all benefit from greater transparency and clear guidelines that will apply to both domestic and international investment."

The EPA is a big step for us on the road to globalisation. And proponents say we are scrambling to jump a train that has long left the station. As soon as the EPA is behind us we will have to negotiate new trade agreements with the United States and Canada - to replace older preferential systems that are being phased out by the World Trade Organisation, which we are also on track to join.

"The EPA is a swift kick in the butt that has brought attention to the issue of modernization of our business practices," Ferguson explained. "Given its flexible implementation schedule (up to three years for goods and five years for services) it can help us become more competitive and prepare us for more engagement with the rest of the world."

There is still that unanswered question of why we need to engage further with the world, but most economists think it is a good thing. Dr Boudreax, for example, says the evidence is overwhelming that greater freedom to trade, both with persons around town and with persons around the globe, promotes prosperity. And the more free an economy is, the greater is the material well-being of its citizens.

"It is no exaggeration to say that our lives would be inconceivably less comfortable and more hazardous if it were not for global capitalism, and the prosperity that it produces," Boudreaux wrote in his guide to globalisation.

But there are plenty of skeptics out there. And some of them were at the Nassau institute meeting last week. How can a small country like the Bahamas compete with large economies like the United States and Europe? What will happen if foreigners are allowed in and local enterprises are not protected?

Boudreaux argues that free trade has no long-term effect on jobs, although there could be some short-term dislocation. The jobless rate in the United States at the start of 2007 was significantly lower than the average annual rate for the 1970s, the 1980s and even the high-growth 1990s - making a nonsense of Perot's 1994 predictions about 'sucking sounds' following the North American Free Trade Agreement between the US, Canada and Mexico.

And if job losses are a sufficient reason to restrict international trade, Boudreaux says, then they should also be sufficient to restrict domestic trade since "the root cause of such job losses is consumer sovereignty and economic change, not international commerce."

What this means is that removing tariffs on low-priced foreign chicken may well destroy our inefficient poultry industry, but those displaced workers will find jobs in other areas and become more productive. And since workers are compensated on the basis of productivity things should work out for the better.

As Ferguson points out, "the European Partnership Agreement has the potential to reform our economy, simplify the way we do busines, and modernize our Customs procedures and Immigration policies."

But it is pretty clear that wages do not track productivity in the Bahamas. In fact, our protected society allows workers to earn far more than their labour justifies, particularly in state corporations, the civil service and unionised industries. Economists say these gross inefficiencies could be fixed by opening our economy, but that is unlikely to be appreciated by those who would be directly affected.

Sure, these people will say, our society might be less wealthy and efficient, but we will be happier and more secure if we maintain barriers to global market forces. Boudreaux and others argue that it is economic change itself that will eliminate specific jobs, cut the profits of some firms and the wages of some workers, change our culture and generally upset our expectations and sense of security. In this view, globalisation is a false bogeyman.

But we must still deal with the question of education. How can we expect Bahamians to adjust to the competitive pressures of globalisation when they lack the basic skills of reading, writing and arithmetic. As Tribune columnist Andrew Allen once noted, the weakness of our human resources is a standing joke even amongst ourselves.

"Basic literacy and numeracy cannot be taken for granted among the Bahamian workforce," he pointed out. "Several generations of politicians have failed to find the formula for producing the abundance and kinds of skills that this economy needs...The result is a workforce that finds itself hemmed in at both ends, as low-skilled immigrants compete for jobs at one end, and high-skilled expatriates compete at the other. Without either, the whole thing would grind to a halt."

Everyone agrees that an understanding of basic maths and English is critical to both low-tech and high-tech jobs...from carpentry to information technology to the management of a small business and even the management of one’s personal finances. And everyone also agrees that we are producing very few high school graduates who have that understanding.

Somehow the country must awaken to the need to make hard decisions. If it doesn't, we can expect lower economic growth and increased social instability. And it won't matter how many free trade agreements we sign.

Comments

[Bill]

Bob,

Great Point. However, free trade would not ensure that beer from the Brewery would go down in price- the price of what is imported, to make the beer, determines this. Cheap beer over the border, would not alter consumption patterns either- especially if the beer tastes like piddle....we had "dollar beers" before and they lasted 6 months- at best. We sell Old Milwaukee and a few other chepo's, which even the hard core drunks would not touch. If you don't believe me, go and try a few more....then tell me what you think!

Through free trade, the increased demand for commodities, increases the prices- always. Especially with FTA's and Multi-Lateral arrangements, with 3 or more countries.

What would happen, as it usually does, price dips and then it spikes- and continues to rise. Factor in the normal intangibles beyond our control (weather, war and women), prices, when made unstable, would be unbearable just as how we have it now...no true "good" is produced in the long term. In fact, the price you would pay within a 3-5 year span, would be sticky upwards- especially in non domestic commodity goods.

The ugly truth about "free trade".... it is a sham to pry open developing markets. Tis all.

Bill

[Rick]

As usual you make your point very well, regretfully this weeks post opposes your post of last week where you argue that The Bahamas needs a great moderniser.
Mrs. Thatcher opened the British economy.
As Walter Williams always says, there are winners and there are losers in a dynamic economy.
Thankfully there are always more winners than losers.
For the record, I think we have access to almost every type of business or service imaginable through the Internet and somehow local businesses survive?

[larry smith]

My article, Rick,reviewed the concerns about opening up our economy. These concerns must exist because all the politicos and trade experts at the town meeting last night talked about reservations and continued protectionism.

Other than exploring the pros and cons of these concerns,the only "point" I was trying to make is that our education system has not prepared Bahamians to compete in an open economy.

[Bill]

Hi Rick and Larry,

Let me start off saying for the record- I am not a blind protectionist. Just against this model of "free trade"...it is not true free trade in my mind. Everyone knows it, but are afraid to say it against the "popular theory"...

I am a proponent of "smart" and "mutually advantageous" trade. Force feeding, or, prying open our markets to suit someone else- country or group of countries- does not serve our best interests in the long term.

While, I will not sit here, and say to you that there are NO advantages in regards to "free trade"...the bad, far outweigh the good- economic, political and social.

Some brave academic, with a strong voice, needs to put an end to this model of "free trade" and start anew with a new term- and make it popular. Krugman, Stiglitz and/or Bghwati, need to re-state their version of the truth. AGAIN!

In relation to the Bahamas; I certainly do not trust our "trade specialists'" like Laing and/or Hank Fergusson. One of who has repudiated his entire book "Who stole my Conch" and the other, sounds as if he has a few "foriegn friends", who decide to have coffee with him when they have nothing better to do.

For the latter, Fergusson, to say that this is a continuation of the Contonou Agreement, where that agreement was not centered around trade liberalization primarily. In regards to trade, is is what they always have done; "give you sweetness, and then hit you with the bill" they made trade of goods non reciprocal, knowing full well it was against WTO rules (like they ever follow WTO rules)...to turn around now, and to sign onto an agreement, with Hank Fergusson's endorsement, where the terms of "competition policy" and "trade faccilitation" are vague at best (as it was in the Contonou Agreement, which is a continuation of the Singapore Issues, which caused many Developing countries to balk at it's mandate.

These "terms" are left up to an arbitration arm "to be determined", who base their agreements on "a memorandum of understanding"...to what "they think is best" for the group...this is insane.

Not trying to make myself sound like a smart-alleck, but, these things are of vital importance- and more baffling, we signed onto the agreement, with little or no true power and input in the negotiations' process- let alone have we set aside any defined standard, to when these standards are to be met!?!?

Is that the way to do business, Rick and Larry? Would you sign onto an agreement, where the terms of what standards are to be met, are left up to the interpertation of a your competitor? This is just ONE issue.

So, I understand why Laing had reservations in the onset. But, we should not have signed THIS one. They did it to themselves- governments have- because they did not share all of the the information with their public, in the time it was needed and in a way, that provided at least better public input into making it better "for the domestic free market"...Rick, how can you leave the signage of a trade and commerce deal, up to a government, when governments do NOT, as you know full well Rick Lowe, have true sound economic information in and on the private market...this is REALLY huge. They do not know what they got us into....they should have brought it to the open or not sign it.

You see how these "free trade agreements" are full of flap doodle?

We need a firm and sound trade policy. Not twist and turn in the wind, to suit the phrase of the day- certainly not to be like litte Johny Echo in the back of the class, and say "me too", just for the sake of agreement.

Best,

Bill.

[Bill]

Rick,

The great moderniser, does not equate to the great fool...

Thatcher opened up the British economy, what is NOT added onto her list sucesses and follies is; the rampant and out of control inflation, the loss of jobs and real income for persons who were once the British middle class, the increase of ghetto's in the UK, the rise of poverty, the decrease in scores in math and science's....on the good side is that the marketization of coal and telecommunications, gave average investors, who wanted a break away from financial services, a chance to buy stock in those industries- the true development effect of such marketization, cannot be truly seen over their high tax rate and their socialist tendency to spend highly on social programs.

So, your article, Rick, does not speak directly to the free trade argument for the Bahamas and development. They are two totally seperate, if not conflicting.

Bill.

[Hank]

Hi Bill

Thanks for your post – You raise some very relevant and important points. I will ignore your personal views as they are not relevant to this discussion. I have never claimed to be the absolute authority on this particular issue but I do have a few views and experiences relevant to this particular topic.

I agree fully with you for the need for a plan – ‘development plan’ and therein lies the greatest criticism of The Bahamas signing onto the EPA or any other agreement for that matter. The reality is that this Government like the ones before it has not answered that most basic question – WHY ARE WE JOINING and what interests we are seeking to protect and gain from membership.

In an ideal world it is a necessary first step. What we do know however is the risk we run by continuing to exist as a paria in an increasingly global, rules based world economy. Things will not continue as they have been for the past thirty years and if you have already determined possible net economic gains to this economy by not engaging I would love to see your analysis.

Your correct about me being biased- as The Bahamas I live in – is one where we still await the distribution of potable water and for me to respond to your post requires a 9 mile drive to access internet. My point is I am acutely aware of the disparity in the levels of development in this Country and recognize the need for investment in the provision of basic amenities. I believe in our fundamental right to determine the pace and nature of our development – But from my experience I am not satisfied with our Governments efforts and hopeful that agreements such as the EPA will assist in creating an environment that is beneficial to Bahamians. (I can tell you how when its costs less than 50 cents a minute)

The EPA will not solve many of the issues that we face in the Bahamas – its will not create development – but it can facilitate it via new sources of FDI etc – New business opportunities for Bahamians with guaranteed rights, privileges and market access.Also remember the basis of this agreement and the maintenance of the prinicple of Special and Differential treatment. Long and short is - It will not heal the sick and make the lame walk – But we can find advantages and opportunities in it –And Sir Bill if you differ I would love to hear your views as to how we further our development and maintain the status quo without any of these agreements.

There is more to be said but we will catch up when I am back in your jungle -

As with most things – the truth lies somewhere in the middle

Blessed love

H

PS Drink a Sands a Truly Bahamian Beer - ie.Both create jobs but Sands is the only one that is 100% Bahamian owned - last i check Tiger et al had a very small percentage.

[Hank]

Bill

Last thing the point I made about the continuation of Cotonou - was relevant in so far as when we signed Cotonou in 2000 we knew this was the next step.

The more important point is that the benefits under Cotonou extend until 2020 - including the Euro 16 million this Government holds as balances from the 7,8,9th EDF - Not to mention funds currently being programmed under the 10th EDF National Indicative Programme as we ll as the Euro 145 million being programmed for the regional programme - BTW this is grant money and doesnt include the hundreds of millions that we have previously and will continue to be able to access from the EIB and other agencies - I gone for tru this time

[Bill]

Hi Hank,

Thank you for responding. Take my vituperation as a sign of love and in the idea of me wanting you to do better...:-)

As for development, trade is a vital step to development- but is has to be done right.

Force fed trade, simply pry's open our market for nothing really.

We should be working bi-latterally and, we should be "leary eye'd" to say the very least with the EU.

As for the Contonou agreement- have you seen any impact that can be traced back to it, in regards to true development?

It was an agreement to push the trade agenda- this is why many people saw it as bullying- the EPA in particular- in getting Caribbean and African countries to sign onto it. The "Everything Except Arms" clause, was smug and insulting within itself.

We can and should develop ourselves. Not because someone forces us to- in fact, if we don't do it ourselves, we run the risk of greater divide in the class system we have now.

Larry said education- I totally agree. There is no committment on education, simply, we need one- sad indeed. This trade agreement does not ensure that we get this done.

Hence, why it was a waste of time, and, why the Contonou agreement was a flimsy excuse to pander to the Human Right's nutters in the UN.

JMO!

Glad to have you respond. Feel free to take a personal twinge- it makes the debate more lively!
;-)

Best,

Bill.

[Rick]

As noted, there will be winners and losers but in the end will most of us be better off?

By the way, I do not necessarily agree with all these agreements, I think we should just unilaterally drop our barriers to trade.

Do we really need a 390 plus page EPA document to trade? We've been trading all these years.

[Rick]

Maybe you would all like to listen to the recent Nassau Institute/Dr. Boudreaux presentation about Globalization?

If so please visit this link:

http://www.weblogbahamas.com/blog_bahamas/2008/03/globalization-a.html

I hope this is okay Larry?

[Bill]

Hi Rick,

Dropping your barriers dramatically, is a main why these trade pacts, have introduced phasing in to their rate cuts- even the term phasing in sounds bullish. Because, if you don't have an advantage to trade, and, you need a country to phase in it's tariff rates at the border to faccilitate it, then, there really is no true economic good- just forcing your weaker partner to give you an advantage you don't have already. With this, inflation and the reduction in domestic companies, are sure to follow and with the latter, surely to die.

Now, maybe governments, like us, make money off of customs duties- ok. But, if it is a cheaper good from over the border, then, governments don't have to get involved if their is gross domestic demand for the good- here is one of the only reasons why forced trade pacts, can be advantagous for the consumer. But, why import inflation and the death of your domnestic companies, to shave money off of your customs duties revenue?

In addition, very little of the time, like in our negotiations, these trade agreements are never done in the open town square- at least for public informations' sake. Look, governments involved in this deal, have been very tight lipped with the information they have on this agreement. That raises a red flag. They have messed it up. They know it. So, they are afraid to share with their public how much and where they have messed up- hoping it works out.

I do agree that we need to be unilateral and work the scene, before we move into these agreements- for the mere fact that we have been doing "ok" without the instability these agreements bred. But, dropping drmatically is not even an answer we should entertain.

As for Dr. Boudreaux; I'm sure he's a really smart guy. Have read snipits of his speech and his remarks on more94fm.com. I would have loved to sit and discuss the issues over coffee with him (you see Hank, I like coffee too). However, I have spoken to and have been in relation with WTO officials, OECD Trade Officials, EU trade Officials, American negotiators and negotiatiors, who have been deeply involved in both Uruguay Round and Doha Round, on behalf of their respective countries. While we always ever don't agree on what's best in the long term- on any one side. I would much rather trust my understandings from what I gleaned from the trusted sources I know. And, mimick what they have done for themselves in regards to their respective country's trade policy- and then- adapt that to my dialouge on behalf of my country.

Best,

Bill

[Rick]

Just for the record, Bahamians are said to visit Florida on average 3 times per year.

I suppose they are just going sight seeing?

Of course not. They go to shop with a bit of holiday and they import their purchases directly. Some say they pay Customs and not Duty, and Bahamian businesses still survive.

Many Bahamians buy over the Internet and Bahamian businesses survive.

WalMart exists in cities all over the US and local businesses survive.

I am updating the look of my blog using a person someone in the blogsphere and Bahamian businesses survive.

It seems all so simple to me. Why complicate it with documents hundreds of pages long to get the politicians tied up into the trading mechanisms.

And you're right, none of them tell us what they are negotiating, in the past they actually made the negotiators that represent us sign confidentiality agreements - now there's transparency for you.

Let's just trade. If we do what we know is right, like avoid protectionism or mercantilism, the trading bodies will not have any bones to pick.

Where am I wrong?

[Bill]

Hi Rick,

Like I said, it can be advantageous for the consumer- but, when you wrap in trade and ivestments and services, you have a whole new ball game. This is why I said, I hope we do NOT agree with the services and investment. In this case, the services and ivestment issue is their main synch pin.

As said before, and as you realize, there are winners and losers- but, what we are willing to give up, is something we gave up for nothing. And, may even put us on the losing end for a long time.

With that, customs revenue is a major issue. Unless we want higher taxes- let's see which government plugs this little bit of policy making. We must work slowly in reducing tariff rates.

But, as we are an import country, primarily as you stated, the only industry to be TRULY threatened is agriculture and maybe Morton Salt. Have said before, with this, kiss our work in agriculture good bye. At least tell the Bahamian farmes to not even try anymore. Share with them and us what to expect and why.

Best,

Bill

[Bill]

To all:

Just a few minor corrections on post dated: March 15, 2008 at 10:28 AM.

1.Now, maybe governments, like us, make money off of customs duties- ok. But, if it is a cheaper good from over the border, then, governments don't have to get involved if THERE ALREADY is a gross domestic demand for the good- here is one of the only reasons why forced trade pacts, can be advantagous for the consumer- IT ENSURES THAT A GOOD CAN ENTER DUTY FREE.

"However, it does not ensure equally fair domestic rates, ensure taste preferences meet that taste and that the inflationary threshold, meets tariff rate cuts for maximum benefit for consumers. This is also why it leads to further domestic intrusionism- hence, allot of the rhetoric on competition policy and transpareny, is left vague on purpose and why we really don't know the type of legal, political and economic headache we bought our way into with these dodgy trade agreements."

2. In addition, very little of the time, like in our negotiations, these trade agreements are EVER done in the open town square- at least for public informations' sake.

Hope that clears up some of my positions...

Best,

Bill

p.s.
Rick, maybe we should meet?

[Rick]

Banking and tourism are our main industries - all dominated by those 'dastardly foreigners' so what's the big deal?

I see these pacts as a way for politicians to make the rules they want and blame it on a foreign regime.

But, can anyone state what will be lost with the EPA for example?