Economic transformation through trade

Nothing has contributed more to the world's economic development than trade. With the first exchange of the surplus produce on his side of the hill for that of his neighbour on the other, primitive man began a journey towards a quality of life that could not be created by his resources alone.

The entire concept of empire and colonial expansion was driven by the rewards of trade. It was through trade with its colonies that Europe's industrial expansion was fed, and the global economic dominance it has enjoyed for the better part of a millennium developed.

That dominance is only now being challenged. A resurgent China, as well as former colonies like Brazil, India, South Africa and many other fast-growing developing economies along the Pacific Rim, has been harnessing the benefits of international trade. Instead of being exploited by trade, as had been the pattern for centuries, these emerging economies are fast becoming its major beneficiaries. Today, these countries are able to multiply the value of their people's productive output by linking it to the great consumer affluence of the developed economies built up during their long period of economic dominance.

Although hard work and productivity are substantially to be credited for this reversal of fortune, the recent success of these emerging economic powerhouses has been made possible by technological and logistical revolutions developed during the last 50 years, which have changed the dynamics and economics of trade. The terms of international trade have been changed in ways never envisioned by the great campaigners for the New International Economic Order (NIEO), which sought fairer trade between the affluent countries of the industrial North and the economically disadvantaged producers of primary goods of the South.

limited economic potential

Promoters of the NIEO like Michael Manley and Julius Nyerere conceived of changing the terms of international trade mainly by the 'Trade Union of the Poor' bargaining for better prices for their primary commodity exports to the developed world. But the potential for making economic gain by this approach was always limited. There was hardly any prospect of commodity prices being increased for the benefit of developing countries when these prices are determined by the commodity markets of London, New York and Chicago. Nor was it ever likely that the governments of developed countries, dependent on their domestic constituencies for their political positions, would impose higher prices on their electorates for the benefit of commodity-exporting countries.

Manley and Nyerere were not wrong. Colonialism had institutionalised and perpetuated an exploitative pattern of trade. The exporters of primary products earned progressively less; the exporters of industrial products earned increasingly more. But the real obstacle to eliminating the disadvantage suffered by developing countries was the high cost and logistical inadequacy of shipping.

The economic dominance of the industrial powers was virtually assured by the fact that the high cost and logistical complexity of shipping finished products from the far-flung developing world made such products uncompetitive in those developed markets; and freight between countries of the South was virtually non-existent as the maritime infrastructure was not designed for this.

In the 1950s, freight could add as much as 25 per cent to the cost of products shipped between the developing world and the developed countries of North America and Europe. The movement of cargo from factory to ship, and from ship to the final destination, was a major contributor to cost and could also more than treble the time spent in transit. With these inefficiencies, there was little hope of developing countries competing in the rich developed markets with goods produced within those developed economies.

The advances in technology and logistics in the last 50 years have changed all that. The development of intermodal containerised shipping and sophisticated logistics management systems shook up the lazy, inefficient and expensive basis on which international trade was conducted. Freight costs were cut by as much as 85 per cent and transit time by as much as two thirds. Trade in finished goods could now be easily conducted between countries of the South. Through the wonders of modern supply chain and shipping logistics and intermodal containerised shipping, finished products from the South could be on the shelves of Harrods and Macy's, Safeway and Selfridges, just in time, in the same way that goods produced within their own markets could. These advances created the means by which trade has become an instrument for the economic development of the previously exploited and marginalised countries of the world.

The cost-cutting innovation of container shipping and logistics management did far more to bring about a new international economic order than Manley and Nyerere ever thought possible. And the balance of international trade has changed to reflect this. China's trade surplus with the old industrialised world is so large that it is now the main banker to the US government. India and Brazil are not far behind. The improved efficiency and lower cost of shipping have allowed developing countries to capitalise on their lower production costs, giving them a competitive advantage in the markets of the developed world that was not possible under the old maritime system.

ja lagging behind

The emerging economies of South and East Asia, Latin America and southern Africa have capitalised on these advantages and have prospered. But not all developing countries have. Jamaica, virtually 50 years after attaining Independence, almost exactly coinciding with the revolution in shipping and logistics, has still not realised the full trade and economic potential of these advances.

Although great foresight was shown by the Government of the 1970s in building the Kingston trans-shipment port, it has so far been exploited only for its primary value: the fees for trans-shipping cargo between third countries. We have failed to exploit the potentially far greater advantage of building industry by utilising the more frequent, direct and cheaper costs of shipping to attractive export markets that a container trans-shipment port provides its host country.

The opportunity to advantageously link Jamaican industry to lucrative export markets has so far been lost. Jamaica has had a better opportunity to benefit from the efficiency, speed, convenience and cost competitiveness of the shipping revolution than the great majority of our CARICOM and Central American competitors, but has failed to fully capitalise on it. Whereas other developing economies, even without such a significant asset, have seized the opportunity of the shipping revolution and directed their economic planning towards building industrial exports, Jamaica, with the great strategic asset of the trans-shipment port of Kingston, has, in the main, still not advanced beyond primary production.

Instead of building 'roads to nowhere', in an industrial sense, it is time for us to develop a rational strategic plan to create a road and rail infrastructure network revolving around this extraordinarily valuable economic asset of the port. We are currently virtually bankrupting ourselves building a highway that is economically unviable without the commercial and industrial traffic that would support it. Our rail service, which like the highway should have been directly linked to the Kingston port, has been left to rust and its resuscitation hamstrung by contractual obligations to benefit the highway. The Kingston Free Zone, a significant centre of manufacturing, export and employment, no longer serves that economic purpose. The hope for the expansion of the concept of special economic zones to attract foreign investments, and create increased manufacturing, exports and employment using the advantage of the trans-shipment port, has so far died.

Now in the 50th year of our Independence, when our prosperity should have been secured by the linking of the industrial output of our people to the highly lucrative markets of North America, Europe and Latin America, we languish as one of the world's worst-performing economies while we sit on the gift of one of the world's 15 busiest trans-shipment ports, in the world's seventh-largest natural harbour, strategically placed between the world's richest markets and proximate to the Panama Canal, the world's busiest inter-ocean channel.

reliance on external trade

As their domestic markets are inadequate, small countries must rely on external trade, whether in goods or services, to achieve prosperity. Also, because of its propensity for creating forward, backward and lateral linkages, it is always necessary for countries above the category of micro states to pursue industrial development, even where they are also involved in services. Without an industrial infrastructure, this is not possible.

Independent Jamaica was fortunate to have had the start in industrialisation that it got in the 1960s and by the establishment of a modern trans-shipment port in the 1970s. But to truly benefit, we must build an industrial infrastructure integrated with the port so as to open the entire country to the economic benefit of international trade. It is late, but it still remains feasible for Government to develop the type of internationally linked multimodal transport infrastructure linking land, sea and air, which has been ignored to our detriment for almost 50 years.

I can only hope that with a new, youthful prime minister, with a modern outlook, we will finally take up the challenge of modernising Jamaica's economic infrastructure, particularly with the declared commitment of his minister of transport, Mike Henry, to the concept. Building on the key infrastructural advantage of one of the world's best container trans-shipment ports will enable us to at last participate in the (not so) new international economic order that the technological revolution of containerisation and shipping logistics have created and from which so many developing countries are reaping handsome profits today.

Claude Clarke is a businessman and former minister of trade. Email feedback to columns@gleanerjm.com.