A Tale of Four CARICOM Countries
Griffith, Winston H., Journal of Economic Issues
Less developed countries depend to a great extent on the more developed countries for growth and development. They depend on the more developed countries to purchase most of the output of their principal products and services--sugar and bananas, for example, the two principal CARICOM (Caribbean Community) (1) agricultural commodity exports, are produced primarily for sale in preferential markets of the more developed countries--and also for inflows of foreign direct investment. This dependence is due not only to structural characteristics, such as the smallness of their economies, but also to the path dependence of colonial institutions that ensured colonies produced goods the colonizing countries could not produce at home.
But products and services demanded by the more developed countries today may not be demanded by them tomorrow, the global trading environment may change, and the conditions that make a country attractive to the foreign investor today may make the same country unattractive tomorrow. As the environment changes, less developed countries must adjust their production structures and supportive institutions to ensure continued growth and development. Thorstein Veblen (1899, 133) said, "Institutions are products of the past process, are adapted to past circumstances, and are therefore never in full accord with the requirements of the present." He was implying that, unless they change to suit the new environment, institutions will slow the process of economic growth and development. John Dunning (2000, 27) said that "determinants such as the quality and cost of natural resources and semi-skilled labor are being replaced by factors such as the availability of a supportive and sophisticated physical and human infrastru cture." Hence, less developed countries that created institutions for an earlier period to attract foreign direct investment when natural resources and unskilled labor played an important role in production processes will have great difficulty attracting foreign manufacturing firms in the new global environment if those institutions created in an earlier period do not change to suit the new environment.
Institutions may be defined as "prescribed patterns of correlated behavior" and, as Walter Neale (1987, 1195) noted, they are not independent of one another. As one changes, others must also change. Dunning's observation thus suggests that less developed countries that depend on foreign manufacturing firms to help promote growth and development must, in addition to other things, create a pool of highly skilled labor to attract such foreign manufacturing firms. They will also need highly skilled labor to ensure that their indigenous manufacturing industries are competitive now that other less developed countries are liberalizing their trade regimes. To create a pool of highly skilled labor, governments in less developed countries will have to restructure their educational systems and place a greater emphasis on mathematics, engineering, the natural sciences, and computer science. Furthermore, given the ease with which capital in the new global economy can move to locations where skilled and unskilled labor ar e available at competitive prices, trade unions in less developed countries will be forced to adopt a less confrontational approach in their dealings with foreign firms whose workers they have organized.
If institutions adjust quickly to a changing environment, growth and development will occur more rapidly than if institutions adjust slowly. However, C. E. Ayres (1962) reminded us that the speed at which institutions adjust depends on the strength of ceremonialism. Ceremonialism is present in all societies, but it is more strongly rooted in less developed countries than in more developed countries. In any society some activities carry more status than others, although they possess no technological competence, and by their very character they are unable to promote structural transformation. …