Sample Essay on Arthur Lewis and the Small Caribbean Islands Economies

Industrial development has been an essential element in most developed nations in the attainment of high living standards. However, a few developing countries have been able to copy such experience from the developed countries. Lewis offered criticism to the existing economic convention, which asserted that the West Indies enjoyed a comparative advantage in primary products export, thus, should focus on importing manufactured products. His argument was that the region should implement an industrialization strategy that would export labor-intensive manufactured products. The West Indies’ governments did not embrace fully Lewis’ recommendation of implementing industrial promotion schemes, as they adopted indigenous development with a few specific policy recommendations.

Caribbean nations have encountered tough domestic problems to their self-determined growth that has led to the buildup of foreign deficits. This is because they relied on agricultural sector to sustain their economies while tourism is the only sector to earn essential foreign exchange. In general, agricultural sector is characterized by low productivity, in addition to being uncompetitive. The sector has become increasingly unsustainable due to its unpredictability. Currently, the manufacturing sector in the Caribbean islands cannot provide employment to every citizen in the region.  In the article “Industrialization of the British West Indies,” Lewis developed a framework that the Caribbean islands countries could utilize to achieve industrial development (Downes 3).

Lewis claimed that poor people tend to spend a huge proportion of their income on food and shelter while a small proportion goes to manufactured products. Availability of cheap labor in the region could encourage foreign investors to establish manufacturing firm in the region. Lewis argued that overpopulated countries should endeavor to move the large number of underemployed workers from the subsistence economy to the modern capitalist economy, where output of every worker is relatively higher due to presence of capital (The Lewis Model 72). With such model, Lewis asserted that industrialization could happen in the Caribbean islands through external initiatives. Foreign capitalists had to be invited in the region to establish the modern sector. For Lewis, industrialization was perceived as a “snowball” that once it started to roll, it would gather its own momentum with time.

However, the West Indies’ governments have been reluctant to accept Lewis advice. They argued that the region lacked the necessary raw materials, such as coal and iron, whereas the capital and industrial proficiency to undertake matured industrial operations were also lacking. The manufacturing sector is inhibited by lack of market surplus for export. The link between trade and development, which has been emphasized in Lewis theory, remain unresolved in the Caribbean islands. The Caribbean islands countries have been under British colonial rule, which is economic policy encouraged agriculture, and did not incorporate strategies to enhance industrial development (Downes 2). The colonial rule’s economic policy encouraged the continuance of crop production with a promise to advance the preferential trade with the UK.

It was apparent that what Lewis proposed was not implemented, as the policy of import substitution dominated most of the operations to protect domestic market. Tariff rates maintained a low level compared to the mainland Latin America, and where nominal tariff rates were increased, there was limited stimulus to manufacturing (Bulmer-Thomas 268). Lewis insisted on manufacturing promotion, but this could not happen without regional integration. Although establishment of the custom union occurred later, it took time before these countries could realize the benefits of manufacturing sector. Lewis had also claimed that the model could attain its employment goals if it managed to penetrate the export market, as this could enhance revenue gains.

The establishment of manufacturing industries proved to be costly to the West Indies government while low per capita income could not allow large-scale economic production of manufactured products. The manufacturing industry failed to create impact because the islands could not manage to export their finished products outside the region. Promotion of manufactured goods for export depended largely on direct foreign investment (Bulmer-Thomas 393). Lack of common currency inhibited the bilateral trade, leading to fall in intraregional integration. In addition, early industrial promotion legislation focused on import substitution instead of exports. Some players claimed that insistence by Lewis to encourage foreign investment in the region led to dependency. Conversely, it was the region’s overreliance on agriculture that made development plans to stall.

In conclusion, the Caribbean islands countries have failed to move from agricultural sector to manufacturing sector because they failed to implement Arthur Lewis recommendations in full. Lewis had suggested that the Caribbean islands countries should contemplate on a move from agriculture dependency to industrial sector to enable such countries to advance their economies. He claimed that the subsistence sector was large enough to support the modern sector without experiencing labor constraints. Industrialization in West Indies should begin by addressing issues in domestic market. With regard to comparative advantage, Lewis proposed that countries such as Jamaica should focus on the manufacturing sector and strategize on importing food from countries that possess comparative advantage in agriculture. Such countries should encourage foreign investment, which brings modern technology and creation of more employment for the rising population.

 

Works Cited

“The Lewis Model: A 60-Year Retrospective.” Journal of Economic Perspectives 28.3 (2014): 71-88. Business Source Complete. Web. 26 Mar. 2015.

Bulmer-Thomas, V. The Economic History of the Caribbean Since the Napoleonic Wars. Cambridge: Cambridge University Press, 2012. Print.

Downes, Andrew S. “Arthur Lewis and industrial development in the Caribbean: An assessment.” a conference on The Lewis Model after. Vol. 50, 2004.