THE recent Review of the Budget catapulted to the fore that the driver of our economy, the petroleum/petrochemical industry, is collapsing, which has attracted various comments on how we should diversify the economy.
These range among, simply increasing the productivity of labour, using migrant labour from Venezuela to do the jobs that our local labour refuses to do, say, in agriculture, encouraging our education system to produce entrepreneurs, providing government scholarships in areas that can produce innovative companies.
Though the Government’s main thrust appears to focus on rescuing the petroleum/petrochemical sector, it has also embarked on the traditional—building a dry dock for ship maintenance, an industrial park with a promise from the Chinese to put some companies there, import of aluminium ingots to produce wire and flat plate, even the hope of building roads to our interior to facilitate economic development. Some are even talking of going downstream of the petrochemical sector, i.e. launch ourselves into head on competition in mature industries especially now that there is much cheaper shale gas on the market and we are short of gas. Further, is it our low risk private sector that is supposed to invest therein?
The underpinning of these suggestions and even attempts, is that with the capital (however obtained) and the requisite labour, the globally competitive enterprises will emerge and the foreign exchange will flow into the country, particularly so if the education system can provide the entrepreneurs and the required skills.
We have two problems with the above approach to diversification. The first is that we are at the start of a disruptive digital technological revolution, yet we are looking at the diversification of our economy using business activities of the fading industrial paradigm. Secondly we are assuming that simply assembling the economic factors of production, the new businesses will swing into being. For example, it is believed that the private sector with its capital and the available labour engendered the powerful economy that the US became. Economic development depends on the existence of a system that uses the economic factors of production to build and sustain the business entities. Such a system does not exist in T&T, while it flourishes in the US, Singapore, Japan etc. and now in China.
Man as a hunter and gatherer depended on his labour to survive economically. With the agrarian revolution the dominant economic factor became land and those who had it made the highest rewards; the labour of the peasants became dependent on land and the landowners, and their (peasants) rewards were low. The industrial revolution moved capital into dominance and we saw the day of the so-called “robber barons” that held the capital and made huge profits. However, even as that particular revolution proceeded, labour was able through, for example, banding together in trade unions or developing special skills to earn more, developing into a middle class.
The transition to another business revolution was driven throughout history by technological invention/innovation. Today we are again transiting, driven by the disruptive digital technologies that have made data the new dominant economic factor of production. Those who control data are the new “robber barons” of the day — Google, Facebook, Amazon.
Take, for example, in T&T agriculture as we know it depends on cheap labour which does not attract local labour and it is almost feudal as regards land tenure. Some are hoping that the Venezuelan migrants will move into that industry. However, the Netherlands, a high wage society with limited land space, has become the second largest exporter of food in the world behind the US simply because they use the new digital technologies on the farms to increase labour productivity and improve the use of resources; like water, whose use has been reduced by 90% of traditional farms. Indeed these technologies and the underlying data available are changing if not replacing conventional businesses and making many, both blue and white collar jobs obsolete. Hence it is a poor judgement call to base our future, our economic diversification on the economic activities of the fading industrial paradigm. Hence re-education of our labour force and that of our children have to prepare them to use the new technologies; necessary but not sufficient.
Still, better trained people without opportunities of well-paying jobs will emigrate. Hence our economy has to put in place a system that has been described by Etzkowitz and Leydesdorff as the Triple Helix; a set of integrated actions by and institutions of the private sector, academia and the government. This is an innovation system, the likes of which underpins the US grand economic performance and now that of China.
In our case an innovation system does not exist. The history of the development of Singapore from a swamp and GDP/capita of US$500 to, today a metropolis of a manufacturing and a trading hub, with a GDP/capita of USS$50,000, should teach us that such an innovation system, planned and implemented by a visionary government is what is needed locally, particularly at the start of this industrial era.
In this transition the People’s Partnership government dropped the ball after its first year in office. The successor Government is yet to retrieve the ball.