By Dr Rolph Balgobin
It is indeed interesting to hear the noises coming from
various quarters regarding the recently announced minimum
Business is making the predictable sounds about higher prices,
while labour argues that the increase is right and just. Petitions
are collected outside supermarkets, while corporate representatives
like the ECA question the way the rise is calculated.
All of this misses the point and in fact takes us far from
the real issue facing T&T, that is, we may be entering
perilous economic and social territory while looking the wrong
The energy distortion
The rebased Central Bank GDP statistics demonstrated the
stark contrast between the energy and non-energy sector in
T&T. The former is growing while the latter is stagnant,
with some aspects in decline.
The energy sector is capital intensive and employs relatively
few. The non-energy sector employs far more. The energy sector
accounts for about 40 per cent of GDP, while the non-energy
sector generates the balance. (See table)
So the fact that the energy sector is growing but still
accounts for the minority of GDP should be of concern because
the majority of the economy is almost at a standstill in relative
This has largely escaped the attention of the public and
of public commentators, perhaps because the sheer volume of
visible money from the energy sector is proving a considerable
distraction. But take energy away and we are left with a mediocre
economy in global terms.
The big challenge
If it is to activate the quiet parts of the economy T&T
needs to be thinking about wealth creation precisely at the
time when it thinks its biggest problem is wealth redistribution.
This is showing up in various government initiatives and
from the utterances of many key leaders in the society.
That government is the worst placed to act as an agent of
redistribution is not in doubt.
All over the world, governments have failed signally in
this regard. So tax and spend is not going to
be an efficient or effective mechanism for redistributing
In any event, tax and spend will merely serve
to reinforce the culture of entitlement which is damaging
to productivity and innovation. Raising the minimum wage is
important, but will ultimately continue to drive an impending
inflationary spiral if we do not increase personal productivity.
This cannot be on the low-value-added end. It must be on
the innovation end if we are going to support the kind of
cost of living which is emerging here.
The Governments responsibility is not only to set
what the minimum wage should bethe far bigger worry
is what we need to do with the economy in order to ensure
that our growth and development is sustainable.
The value added challenge
It has long been recognised that countries blessed with
significant natural resource endowments seem to be at a disadvantage
when it comes to economic development.
Many of the nations considered to be developed
in the world do not have such large endowments and have innovated
themselves into competitive positions.
In part, this may explain why countries like ours stay on
the extractive end of the economic continuum rather than migrating
to the innovation side as quickly as others seem to.
But in a world which depends on knowledge more and more,
our capacity to add value through innovation is becoming crucial.
If we want to build a sustainable economy, we need to get
the non-energy part moving in an innovative direction and
we need to start adding more value in the energy sector also.
This is easier said than done, but a good place to start
is by redefining what innovation means to us.
Innovation should not automatically mean product innovation.
By accepting this Schumpeterian definition, T&T pits
itself against larger, better-resourced economies that have
a 40-year head start.
These economies support clusters of firms which share, explicitly
and implicitly, the costs of innovation and market testing.
T&T does not have this luxury, although we do have some
interesting clusters being developed.
We cannot hope to replicate the product innovation successes
of the biotechnology and computer industries by building technology
We are decades late and lacking serious research institutions,
high calibre research personnel, firms willing and able to
fund relevant research, and an appetite for big risks which
lead to big rewards. The list goes on and on.
There is an alternative. As markets mature, the industries
that serve them tend to fragment horizontally, so that the
value chain becomes unpacked and sector-specific
As this happens, product innovation gives way to process
innovation. It is here that T&T can make its mark.
Unlike product innovation, process innovation depends on
the acceptance of industrial paradigms, rather than its rejection.
Product innovation seeks to redefine and cannibalise industries.
Process innovation seeks to advance existing logic through
evolutionary thought rather than come up with revolutionary,
This is a useful route to consider because T&T is already
a major user of foreign technology without being a significant
producer in its own right.
It is therefore a relatively simpler and less research-intensive
side of the innovation chain from which to enter the play.
Percentage contribution to GDP by industry
Industry 1999 2000 2001 2002 2003
Petroleum 30.9 32.6 32.9 34.7 39.8
Non-petroleum (agriculture based) 73.2 71.9 72.4 70.5 65.2
Manufacturing (1) 7.4 7.3 7.5 7.3 6.7
Services 64.3 63.2 63.5 61.7 57.2
FSIM (2) (4.2) (4.5) (5.4) (5.2) (5.1)
Gross Domestic Product 100.0 100.0 100.0 100.0 100.0
1) Excludes oil refining and petroleum industries.
2) Financial Intermediation Services indirectly measured.
Source: Central Statistical Office, National Income Division.
Dr Rolph Balgobin is the executive director of the UWI-Institute
He can be reached at 662-9894, e-mail address: [email protected]