In the diversification of the economy as defined in its Medium-Term Policy Framework 2011-2014, the Government has taken the dubious decision that the current private sector, if given the incentives and support to improve the productivity of their businesses, to carry our research and development leading to innovation in new products and services and marketing activities, can, indeed, transform our economy into one that can possibly replace or complement the US$16 billion depleting energy sector economy. As such, the diversification plans of the Government consist of a series of grants, tax incentives, a fair share of government procurement and access to financing support for firms and individuals with ideas for new business or its enhancement.
Also, the Government is willing also to provide industrial parks for new companies, that is, to attract local and foreign investment in the high tech areas. But all of this (we have had for some time many industrial estates) has been tried already, starting way back with the Industrial Development Corporation, the Development Financial Corporation, which later became the Development Financial Company Ltd. This was followed by various tax incentives (eg, tax relief for technology upgrades and research and development), R&D grants, Venture Capital Incentive Programme, Small Business Development Corporation, etc, etc-all of which has not been able to generate the desired diversification-provide on-shore firms that are of the capacity of those of the US$16 billion energy sector. Hence, the Government's new thrust, decorated with the new buzzword innovation appears to be, "doing the same thing and expecting a different result": madness.
Sparse product space
Prof Ricardo Hausmann, an economist who was invited to T&T by the present Government, did a report for the Inter-American Development Bank on the feasibility of economic development, diversification, of the region including T&T. His conclusion was that the skill sets of our people, who are operating in a very sparse product space, was so limited that the possibility of the economy moving to the production of other and higher added-value products and services, was negligible. In particular in T&T, the skill set developed in the energy sector is restricted to that sector and ring-fenced, cannot be transferred to the onshore economy. He suggested that economic development of the region requires some kind of direct government intervention, since we have seen over the years that the well-known monetary and fiscal incentives do not work. An economy is a complex adaptive system made up of economic elements, including its human resources, interconnected among each other (local and foreign) to transfer information and knowledge in the production of goods and services.
Buy, mark-up, sell
Our economists and, in particular, Lloyd Best, Kari Levitt, have studied our regional economies and their model-dubbed the plantation economy-shows us that, for example in T&T, the development of offshore economic elements is driven by foreign investment, foreign technology and innovation; our onshore elements are driven by the local rents derived from the exploitation of the petroleum resources and are engaged in the delivery of goods and services, mainly for the consumption of the local population. Most of the goods and services so delivered are derived from imports: buy, mark-up and sell. Sir Arthur Lewis said to us even then that the onshore businessman is risk-averse and prefers to engage in this kind of commerce instead of taking the riskier route of industrialisation. As long as the rents are adequate, the existing economic elements and their connections are rigid. As Schumpeter says, economic development is impossible unless these elements are destroyed and new ones take their place to produce new and higher order goods and services.
Acquire, create, exploit
What is facing us in diversification is the production of new goods and services for export and to become globally competitive this production has to be based on knowledge that we acquire, create and exploit- innovation. The certificated graduates from our tertiary education system are not equipped to do this kind of R&D: create the novel ideas, products and services. Hence, of fundamental importance and what has never been done before, is government intervention that is directly geared to the production of this knowledge, of R&D skills, and the entrepreneurs that can commercialise the resulting innovations. The current onshore economy, as Hausmann tells us, cannot evolve to this on its own. Hence the Government has to make a fundamental intervention, inject into our business eco-system an embryonic economy that has as its objective the production of knowledge and its commercial exploitation in a few emerging technological areas: via foresighting. My visit to one of the panchayats of Mary King showed me that possibly, she is the only one then from the People's Partnership Government who understands this, hence her Innovation Diamond's centres of excellence.
Victor Darceuil
via e-mail
