Economic success must be managed as it has the potential to carry with it many risks. The "middle income trap" is a situation where a country can become stuck after achieving a certain level of income.
When a country continues to have wages on a rising trend, due to achieving economic advances, there is the possibility of eventually losing its competitive edge. The theory purports that countries with a large manufacturing sector would eventually not be able to compete with more economically developed countries because of their higher cost of production as a result of increased national income.
The World Bank has held countries like Brazil and South Africa in grip due to their economies being stuck in the "middle income trap." Poor Labour market conditions, slow growth, low investment and limited industrial diversification are consequences of this situation.
According to the Quarterly Americas, Free trade and market access, Winter 2011 issue, "Economic success has left many economies unable to compete with either low wage exporters or high-tech producers." The implementation of neoliberal policies in the 1980s had a short-lived positive effect on trade zones like Latin America but it carried with it the reality of complacency among policy makers. As a result of increased national income, wages continued to rise, the cost of production increase was passed on to the consumer and prices were no longer as competitive.
In our local context, T&T has a very active Labour environment particularly in the public sector and the oil and gas industry. There is also notable activity within the private sector manufacturing and service industries. The catch 22 exist as while we will all agree that workers need salary reviews on a regular basis to keep up with increases in the cost of living, we may not be able to maintain some of these unrealistic commitments over time in an increasingly competitive global market.
China has escaped the middle income trap and dominated the global export market due to its ability to keep at the forefront of advances in technology and also keep labour costs down. China has also attributed a large portion of their success to increased exports to emerging markets such as the Caribbean and Latin America.
We must take note of these challenges as we set out to diversify our economy in a meaningful way. No longer can we afford to let politics hinder our development but it must be mature enough to promote our country's development and progress. Changes in government administrations must pass the baton and not let new administrations take off without continuity.
To avoid this middle income trap we must identity new strategies, seek out new markets and increase the demand and consumption of local products. As a result we must invest in infrastructure but also maintain a focus on quality education as the means to build creativity and innovation allowing new ideas to facilitate breakthroughs in technology.
Ronald Huggins,
St Joseph