Sunday 18th February, 2007


Is the sum same as the whole?

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During the period March 2005 to March 2006, Trinidad and Tobago saw an increase in productivity by 15.3 per cent. For the same period, wages rose by a mere 0.7 per cent, according to The Economic Bulletin of the Central Bank of Trinidad and Tobago last September pp 11.

Production is normally defined by economists as “the process that transforms scarce resources into useful goods and services.” And for the sake of completeness, wages refer to the pay we get for our labour hours.

It may not mean that we are working more and getting paid less.

The better assumption is that more people are working. In fact, the increased productivity was aligned with increased exploration and supply of oil and gas reserves. But does that make us more competitive?

To establish those kinds of data, economists tend to look at what they call “comparative advantage.”

Generally, comparative advantage is the advantage in the production of goods that one country has over another because it can produce the same goods cheaper. But does that make us more competitive?

In the same report, we are told that our competitiveness declined. This is in terms of the trade weighted real effective exchange rate commonly called the TWREER. This indicated that locally produced goods were not being generated as efficiently, as the same type of products in foreign markets.

Lost competitiveness

The reason put forward for that falling competitiveness was that prices on the domestic market were rising at a higher rate than in the foreign markets. This was reflected in the inflation rate rising to nine per cent in August 2006, as compared with the August 2005 statistic where the inflation rate was 7.3 per cent.

The report continued that in general T&T was experiencing an inflation rate that was at least 3.2 per cent higher than in the countries with which we traded goods and services. Hence we lost competitiveness.

So with the average wage remaining the same for most of us, and with higher prices for goods and services, we effectively saved less in our individual purses. This too is reflected in the report which to use a single example, showed that for certain types of accounts deposits in commercial banks fell from US$1,591 million to US$1,514 million.

At the same time the return we could get for the little that we could save fell. The rate we could have got from finance companies and merchant banks in year 2000-2001 for a two-year term deposit hovered around 10.5 per cent per annum.

The rate we could get for the same quantum of savings invested in 2006 was a mere 6.5 per cent per annum.

So we looked to other sources for better returns, but the stock market was not a good place last year, for most investors.

The end of the story is that we saved less, generated less returns on our savings, but produced more. We sold more on the world market. We sold more of our scarce resources. In fact, our real domestic output expanded by 8.5 per cent.

So the economists tell us that we experienced “a strong growth performance” in the economy. And therefore things are looking up for the country as a whole.

The question remains is the sum of the parts really the same as the whole?

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Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell