THE POST-WAR POLITICAL ECONOMY OF TRINIDAD AND TOBAGO- I

PERIOD III: MINISTERIAL GOVERNMENT

CONSTITUTIONAL ADVANCE

The period prior to 1950 was characterised by a constitutional uneasiness, a permanently opposing Legislative Council and elected members who were nominated to the Executive Committee. The need for elective control over policy was badly felt and towards this end a Legislative Council, none of whose members were colonial official, was appointed to make proposals. Its members were not unanimous about the report produced. The majority recommended an Executive Council in which there would be an elected majority chosen by and responsible to the legislature. This Executive Council was to be the principal instrument of policy making. This would change it from an advisory and policy executing into an executive body. The minority report of Dr. P. V. Solomon called for completely responsible government and the removal of ex-officio members from the legislature – a much more advanced constitutional status.

In the end the majority report was accepted. The new legislature was to be composed of 18 elected members, 4 ex-officio members and 5 nominated members, presided over by a speaker. For the first time the elected would out-number the non-elected members: in the previous legislature, although there were only three official members there were six nominated ones, so that the nine non-elected could stalemate the nine elected leaving it for the Governor to decide.

With 18 seats being contested, some 141 candidates, approximately 8 per seat, faced the electorate. Only about 51 claimed any party affiliations. The latter tag meant nothing, but was a way of getting some support; and at least one candidate, the Tobago contestant, claimed simultaneous allegiance to two parties – the Caribbean Socialist Party formed in 1947 of which Dr. P. V. Solomon was President, and the British Empire Workers and Citizens Home-Rule Party whose leader was T. U. B. Butler. The Butler Group gained six of the seats, none – including Butler – was among the five members of the legislature elected to the executive; the ministerial posts went to Gomes, Bryan, Joseph, Tang and Adjhodasingh. Butler and his followers thus developed into a bitter opposition bloc. Though these ministers had responsibility for the policy of their departments and held seats in the legislature, they were in the difficult situation of having to defend Executive Council policies in the legislature, even when these were not fully acceptable to them. Also, in the minds of the population, it was Victor Bryan who either was or wasn’t doing anything for agriculture and not the Governor in Executive Council. The set-up was thus, at best, an interim arrangement and was to last only the life of that legislature.

THE PATTERN OF THE ECONOMY 1951

With the advance in constitutional status came important measures designed to increase the efficiency and scale of operations of public administration. One of these improvements was the establishment of a Central Statistical Office in 1950, which published the first set of macro-economic data on Trinidad and Tobago. These showed that the market value of goods and services produced in the territory in 1951 (the Gross Domestic Product) was just over $330 million or approximately $506 per head of population. As we had deduced in our earlier analysis oil was shown to dominate the economy. In 1951 it accounted for some 30% of the value of all goods and services. Oil was followed by agriculture, including sugar which contributed 17%, while the manufacturing sector – which is considered crucial – contributed 13%. The government sector represented 9% and wholesale and retail distribution the same. Thus, oil, agriculture, manufacturing, government and distribution activity accounted for over 80% of the value of economic activity undertaken in the country in that year.

The territory’s dependence· on foreign markets, both for supplies of manufactured goods and raw materials and for sale of the produce of the economy was shown to be frightfully high. The value of imports was approximately 71 % of the value of all goods and services produced in the territory, or 41 % of the total supply of all goods and services available from all domestic and imported sources. Exports, on the other hand, represented 73% of the goods and services which the economy produced that year.

Another important feature which the new data revealed was that although the market value of all goods and services produced in 1951 was about $330 million, the value of goods and services available for the ‘nationals’ of the territory was considerably less. In fact, the national product was $280 million – some $50 million less than the value of all goods and services produced. The difference ” was essentially income paid out to foreigners for investments which they had made in the territory. This gap will be shown to have increased both absolutely and relatively over the later years as the industrialisation policy already described was accelerated.

In the crucial area of investment, about $85 million was invested i.e. about 25% of the GDP. As much as $28 million, or 33 per cent, came from foreign private sources. Added to which government borrowed overseas some $10 million so that $38 million or about 45% came from foreign sources.

The external trading situation showed in 1951 an unfavourable balance of visible trade (as it had done so many times since 1946) and a deficit on current account.

THE PATTERN OF THE ECONOMY 1956

We must now investigate what changes appeared in the economic features of the territory by the end of the period i.e. by 1956 and see if we can account for these.

By 1956 the population had spurted to just over three quarters of a million, an increase of 17% during a period of six years. Put another way, for every 3 persons there were in 1946, there was one more in 1956.

Alongside this rapid growth in population, the GDP and the National Income increased by 76% and 62% respectively. The reason for the GDP growing faster than the National Product (both measured at current prices) is the fact to which mention was already made i.e. the relative growth in factor income payments abroad, due to increasing reliance on foreign capital. Thus in 1951 the value of factor incomes paid abroad was $33.2 million or 10% of GDP or 12.1% of NI. By 1956 this had more than doubled to $76.9 million representing 13% of GDP and 16.5% of NI. The trend will be shown to continue. It is a natural corollary of the current strategy of development, with its inordinate dependence on foreign capital.

It must be pointed out however, that the fact that an increasing share of the GDP goes to service factor income payments abroad does not mean that the national economy is gaining nothing from the presence of foreign capital. A smaller fraction of a larger cake can leave and has left the economy better off, in relation to income. Per capita income rose by 15% from $586 in 1951 to $675 at constant 1960 prices. This increasing dependence can also be observed in the fact that, in 1951, 65% of net domestic investment was financed by national savings. This was to drop to 63% in 1956 and 47% in 1962.

In the composition of the GDP, oil (30%), agriculture (15%), manufacturing (12%), distribution (13.5%), government (10. 7%) and services (5.5%) made up about 86% of the value of economic activity in 1956.

Compared with 1951 there was at least one significant change in the structure of the economy. The Distribution sector increased its share in the GDP from 9% to over 13.5%, no doubt owing to the price effects of the 1949 devaluation. Agriculture lost a bit of ground and actually stagnated at a value of $81 million between 1955 and 1956. Oil maintained its dominance and manufacturing failed to improve its relative standing. The government sector improved its share slightly.

However, despite the fact that the structure of the economy remained essentially unchanged, certain sectors of relatively small size if not importance showed significant changes. The construction industry showed the third fastest growth over the period, almost doubling its output. But the fastest growth-rate was that of the banking sector, which increased by 150% as compared with construction’s 97%. It was because of the relative smallness of these two sectors in the overall GDP that their rapid growth rates failed to cause any significant change in the composition of the GDP.

Our trading patterns began to show some important changes during this period. Exports fell to 62% of’ GDP from 72% in 1951, while imports fell from 71 % to 56%. Indeed, by these indicators, 1956 was to be the year of least dependence on foreign markets so far in the post-war period. In the composition of exports, oil increased its contribution slightly to about 80% while traditional goods excluding oil (e.g. sugar and other agricultural exports) failed to maintain their share and fell from 18% to 14%. New goods (chemicals and manufactured products) faltered to 2.7% from the 3% they constituted in 1951. What was becoming frighteningly clear here is that oil must earn the foreign exchange to help in the transformation of the economy. As we have noticed, the manufacturing sector, which was to become the key to this process of structural transformation, not only lost ground in its share in the exports of the territory, but also reduced its share in the total value of goods and services produced in the territory.

It should be pointed out that the industrialisation policy of the government in 1950/6 cannot be said to have assigned a leading role to the manufacturing sector. The later emphasis on manufacturing as a key to industrialisation and structural transformation was not present here. We shall have the opportunity to see to what extent the increased emphasis which later policies were to place on this sector, actually effected change in the structural pattern of the economy.

As it was up to then, oil continued its overriding domination of exports, production and increasingly also of government revenues. Between 1946 and 1956 oil revenues increased seven-fold, while total Government revenues doubled. In 1946 oil contributed 10 per cent ($4.5 million out of $48 million); in 1956 it contributed 35 per cent ($34 million out of $97 million). Oil became an important source of wage payments which increased 50 per cent from $13.9 million in 1946, to $20.9 million in 1951, and to $37.6 million by 1957.

The period 1951 to 1957 was to prove the ‘golden age’ of oil operations in Trinidad. Whereas, between 1946 and 1950 crude-oil production fluctuated around 60,000 barrels a day, by 1956 it averaged about 79,000 barrels a day – a 6.8 per cent per annum increase. For the export trade, the corresponding values of refined petroleum were 62,000 barrels and 95,000 barrels (excess of exports over production was due to imports of crude oil for local refining). Not only did quantity rise but prices were buoyant before the post Suez retardation. The index of export prices rose from 100 in 1951 to 119 in 1957. With oil weight in the index being nearly 80% the story is quite clear. In the crucial field of investment, oil continued to dominate with 40% of Gross Domestic Fixed Capital Formation. An important feature in the financing of Gross Domestic Capital Formation is that the absolute contribution of local savings i.e. savings of local government, households and corporations (excluding depreciation provision) actually decreased between 1953 and 1957.

A decisive change in ownership in the oil industry took place in 1956 when Texaco acquired assets of a number of Trinidad oil producers, thereby introducing yet another foreign interest – American interests – in the territory’s most important economic activity. But alas, oil’s share in providing employment did not match its dominance in all the other areas. This became one of the most pressing reasons for diversifying the economy, as the unemployment rate continued to remain high.

Completing the trading picture, the economy ran its usual current-account deficit although both the balance of visible trade and the balance of trade were favourable for most of this period. Private-capital inflows increased over 70% (much of this being reinvestment of profits made in the economy by foreign owned enterprise) while government’s overseas borrowing increased owing to a $20 million loan it obtained in 1954. In composition public debt was now overwhelmingly foreign held, over 80% of it. Per capita public debt in 1956 was just short of $100, compared with $46 in 1946. At the same time the external public debt charges as a percentage of export earnings increased: 1.1 % in 1956 as against 0.9% in 1953 and 0.5% in 1946.

In the field of money and banking, the note circulation of the territory was taken over by the Eastern Caribbean Currency Board in August 1951 and a common currency issued for Trinidad and Tobago, Barbados, British Guiana, Windwards and Leewards. The total money supply in 1956 was $73.7 million and the territory’s holdings of official and semi-official overseas assets (including currency backing) was of the order of $96.6 million. In 1954, the Currency Board was authorised to issue a small fiduciary note issue. This meant that local securities could be issued to back a minor part of the total currency, thus freeing some foreign reserves for more productive use.

The commercial banks found it necessary to invest over 60% of their assets abroad. Of the local loans and advances, agriculture received 6.3%, personal and professional loans 16%, and distribution 27%. In effect this meant that foreign banks continued to collect local savings and to lend them primarily to foreigners (60%). Further, of the loans made to residents, a sizeable part of it went to finance the importation of foreign goods, while local production – e.g. agriculture – scarcely gained mention. This has for quite some time been how the Island’s foreign-owned resource-mobilisation institutions such as banks and insurance companies have functioned.

Sources of government revenue in 1956 were not much changed from 1951: oil with its 35% contribution, and customs duties with about 33% together contributed the lion’s share. The share of government revenue in GDP was stable at between 15% and 16%. This degree of resource mobilisation by the public sector appears far too low for a country which needs to fight a mounting unemployment problem, and at the same time, transform its economy.

There may have been factors inherent in the development “strategy” which tended to restrict the economy to this relatively low degree of public resource-mobilisation. Also, this was the ‘golden age’ of the oil industry, and one of these times when speeding up the structural transformation of the economy would be least painful yet, the need for it appeared least urgent. For after all wasn’t the economy moving along nicely?

Added to all this, economic policy during this period was essentially Colonial Office policy operated by the Governor and the Executive Council. Thus, any fundamental changes in social and economic policy such as land reform, could not be instituted without Colonial Office approval, if not promotion. But of course, such fundamental changes would involve tricky political issues, and it was much easier to give preferred markets to sugar, or citrus, plus Colonial Development and Welfare grants and other “symptom stiflers and scent removers”, than to attempt the fundamental task of curing the economy of the overwhelming structural imbalance which ailed it. We may not yet have seen the end of this approach.

In 1950, the Legislative Council approved a five-year economic programme which was a list of the major public-investment projects which the government intended to undertake. Nothing was said about the instruments which were to be used to transform plans into reality, nor was the private sector given the slightest mention.

The plan envisaged spending $36 million over the five-year period. The funds were to come from Colonial Development and Welfare (13%), surplus balances (15%), and loans (72%). The functional classification of the expenditure was 16.1 % to economic development, 19% to social services, 5.4% to “other industries” and 59.5% to a heading called Self Balancing. This comprised water, railways, and electricity. Though the planners admitted that the “Self-Balancing” expenditures could have been classified under “economic development” they decided otherwise on the basis of certain “fundamental tenets.” These were (a) “that the programme should be a paying proposition on both long and short view” and (b) “that in the present circumstances, those projects which yield an early return are to be preferred unless the return on alternative projects is particularly high”.

The objective here seems to have been that public utilities were to pay their way. This objective unfortunately is very easy to state but very difficult to realize. Indeed, the failure to realize this objective has been – and continues to be – a disease of the last decade.

“The category of “economic development” included agriculture, roads, harbours, rice production and commerce, while “Social Services” included health, buildings, schools, housing and drainage. The objectives of this programme were stated to be the following: (a) “the restoration and improvement of the capital equipment of the Colony so as to provide a firm basis for future progress”; (b) “the promotion of those types of economic activity whether primary or industrial production – in which the Colony was best fitted to engage”; and (c) “raising the living standards of the inhabitants of the Colony as rapidly as the level of their productivity permits.” These statements are interesting because they provide the background against which later efforts at planning can be compared, in terms of objectives, content and – not least important – achievement.

If the achievement of the plan is measured by scale of expenditure, then this plan was undoubtedly a success, for the planned expenditure of $36 million was exceeded by $31 million. This, it was claimed, was due to “advances in the cost of labour and materials, the introduction of urgent new works and the desire to provide a broader framework for expanded economic development in the future.” Anyone knowing about the Caura Dam Scheme cannot help wondering what factors may have entered into the “advances in costs.”

The last act of the government in area planning was to draw up an- other economic plan for the years 1956-62. Th is one was proposed to cost $90.5 million. It was to be financed 63 13 million by loans, 20 million by revenue and surplus balances, 1.2 million by Colonial Development and Welfare, and 5.8 million by funds brought forward from the 1951-56 programme. The plan was however aborted with the change of government which took place later that year.

And now, Soldado.

In 1955 the Government of Trinidad and Tobago undertook negotiations with the Oil Companies (Trinidad Oil, Shell and British Petroleum) on the question of Depletion Allowances in the Soldado Oilfields situated in the Gulf of Paria.

The government – and here the weight of the responsibility must fall on the Minister of Industry, Commerce and Labour at the time, Mr. Albert Gomes – agreed to allow the three oil companies mentioned a submarine well allowance in the nature of a depletion allowance in respect of their marine operations. The companies were allowed to write off increasing percentages of the ‘gross value of oil production at well head’ against their entire taxable income earned from their combined land and marine operations. The allowances were to run until 1985 and the agreed rates were 10% between 1955 and 1960, 15% between 1961 and 1966 and 20% after 1966. These allowances are now firmly embedded in our Income Tax laws and will no doubt remain there until 1985 or until oil production in Trinidad ceases, whichever is the earlier.

These terms were decidedly over generous and became even more so as the share of marine oil-production in total oil-production increased and the higher rates began taking effect. Local and foreign objections were raised against the agreement but what has been called the Gomesocracy prevailed – but not for long. The agreement had helped furnish the nascent People’s National Movement with unanswerably devastating, political ammunition for the 1956 election, and Gomes and his accomplices were stingingly defeated.

Finally, we turn our attention to regional collaboration. In this field the period is marked by increasing collaboration with the other Caribbean territories under the umbrella of the Colonial Development and Welfare services. Trinidad and Tobago was represented in the Regional Economic Committee and on the many delegations which went to the United Kingdom to discuss, higgle, haggle or beg for sugar quotas, citrus quotas, improved sugar prices, improved citrus prices and whatever else. The behaviour was remarkably consistent; whatever the source of the problem – be it U.K.’s commitment to GATT, or excess supplies of sugar in the world market – the procedure was the same: a trip to London. External mechanisms were solicited for the solution; internal conditions failed to adapt. Cooperation also manifested itself in the increasing prominent role which the territory played in the shaping of the federal organisation which was to fructify two years after this government went out of office.

And so the territory entered 1956 still very much unchanged in the essentials of its economic life since regaining normalcy post-war. But there were rumblings and rumours. Some claimed that the Messiah was at hand, for they had seen His star, while others claimed that He had already come and was even then gathering His disciples. Would He be called E. Manuel and could He save His people?

 

 

 

 

 

 

 

[1] As for as statistical data go, two apologies must be made at this point. Firstly, it is intended to use the minimum necessary. Secondly, the pre-1951 period provides insuperable difficulties as it was not until the establishment of the C.S.O. In 1950 that statistical data of a macro-economic nature became available, the first accounts published being for 1951. Thus, one of the best pictures of the structure of the economy, viz. that given by the industrial origin of the GDP, is not available. There are, however, other indicators and recourse will have to be made to them. It Is sincerely hoped however, that 1951 would soon cease to be the genesis for all macro-economic data concerning the economy of Trinidad and Tobago.