Economic Transformation of the Caribbean

Important Reminders and Economic Transformation of the Caribbean

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Class Notes

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Economic Transformation of the Caribbean (1960s - Present)

Fundamental Economic Driver: Plantation Economy

• Primarily based on sugar, but also coffee, bananas, and other agricultural exports.
• Recovery of the sugar economy in the 1940s and 1950s compared to the Great Depression (1930s-40s).

Impact of World War II:

• Cuba, Puerto Rico, and the Dominican Republic secured a ready-made market in the United States due to demand and reduced sugar production elsewhere.
• While the US opened up markets for Caribbean sugar, it was at a controlled, low price.
• Post-war, sugar production continued to improve until the mid-1950s, remaining essential for Cuba, Puerto Rico, and the Dominican Republic.

British Caribbean During and After WWII:

• During the war, the British Caribbean economy suffered due to separation from British markets and high prices.
• Post-war, Britain relied on resources from its empire, including the Caribbean, especially for sugar.

Commonwealth Sugar Agreement Act of 1951:

• Britain created a protected market for sugar from its Caribbean colonies.
• Guaranteed market at realistic prices.
• Motivated sugar producers in the British Caribbean to expand production.
• Production increased approximately 10 times between 1940 and 1960.

Decline of Sugar Influence post-1960s:

• Small islands like Barbados, Antigua, and St. Kitts, and larger islands like Trinidad and Tobago, ended official sugar production in the 1960s and 1970s.
• Private ownership of sugar states became unprofitable despite the Commonwealth Sugar Act.
• New governments in the newly independent Caribbean nations nationalized the sugar industry to protect jobs.
• Massive sugar production by Brazil, India, Mexico, and other major producers crashed the global sugar market by the mid-1970s.
• Caribbean sugar production could not compete, leading to shutdowns, such as in Trinidad and Tobago and Antigua.
• The sugar plantation economy came to an end in many places.
• Rump production continues with imported sugar or molasses from Mexico.

Puerto Rico's Shift Away from Sugar:

• Expanded sugar production into the 1950s, but reduced dramatically by the 1970s.
• Competition with Cuban sugar, Dominican sugar, and beet sugar from the United States contributed to crashing prices.
• Government policy shift after 1947: Operation Bootstrap.
  • Attract industries from the US mainland with tax breaks.
  • Create a new industrial economy.
• From 1947 for the next 40 years, this became the dominant economic policy, becoming a model for the rest of the Caribbean to escape the plantation economy.
• Attracting businesses to create industries and employ local people.
• Specialty pharmaceutical companies came in to avoid mainland taxes.

Consequences of Industrial Shift in Puerto Rico:

• Industries did not employ enough Puerto Ricans.
• Post-war period saw a major population increase due to improved health and high birth rates.
• Industrial development did not keep pace with population growth.
• Operation Bootstrap provided hope, but the economy was saved by migration to the US mainland.
• Remittances from the US became a significant part of Puerto Rico's national income, around 15%.
• In the 1980s, the US changed the tax code, ending tax breaks for companies in Puerto Rico.
• The US opened its market to the Caribbean through the Caribbean Basin Initiative in 1981, diminishing Puerto Rico's advantages.

Cuba's Economic Trajectory

• Before the revolution (1958-1959), Cuba had access to the US market and was subsidized by the Soviet Union.
• The US cut off trade with Cuba, leading Cuba to seek a replacement market.
• The Soviet Union became the primary buyer of Cuban sugar, a guaranteed market.
• The Soviet Union paid in goods rather than cash.
• The plantation model continued from the 1960s to 1990 with high global sugar prices in the late 1960s and 1970s.
• Cuba aimed to maximize sugar production, reaching nearly 9 million tons.
• Collapse of the Soviet Union in 1989 caused the market to crash, resulting in a period of readjustment in the 1990s.
• Venezuela provided subsidized oil in exchange for doctors, a successful relationship market price and for a long time.
• Liberalization: Allowing families private enterprises to live.
• The economy was opened up to tourism.
• Tourism was reconstructed after being shut down for over 40 year.
• Mass migration in recent years indicates high unemployment and underemployment.

Jamaica's Economic Situation

• Relatively good economic situation in the 1950s and 1960s due to bauxite and tourism.

Tourism

• Based on "sun, sea, and sand."
• Appeals to people from northern climates wanting warmer destinations.
• Air travel made tourism possible in the 1950s and 1960s.
• Air travel costs decreased by the 1970s.
• The Bahamas and Bermuda rely almost entirely on tourism.

British West Indies Federation

• Britain aimed to orchestrate decolonization through the creation of the British West Indies.
• The federation was published in 1958.
• The federal defense was written ineffectively due to lack of planning.
• The idea wasn't properly sold to the colonies.
• The idea of a collective connection fails.

CARICOM (Caribbean Community)

• In 1973, the British colonies joined together in an economic community.
• Aims to create a Caribbean trade policy in relation to the US.
• Success is limited by unilateral decisions made by the US and EU.
• The US gave agreements to guarantee a market for Caribbean sugar in the 1970s.
• EU policies destroyed the banana industry in some nations.
• There's a reaction to the creation of this community.

Climate Change Impact

• Climate change disproportionately affects poorer countries, including the Caribbean.
• Caribbean economies are sensitive to climate change.