Sir Arthur Lewis won a Nobel Prize for building an economic formula to help small developing states survive the global marketplace, but somehow, small states are still struggling to survive. Why is it that his Nobel Prize-winning thesis has not turned into prosperity even for his homeland, St Lucia?

“If you look at that model, it has not been practiced,” said Peter Adrien, a lifelong student of Lewisean economics. “The model is asking for economic integration. You need that range of institutions to give leverage, to bring efficiency. Lewis was well aware of that. The equation as math has not been practiced.”

Lewis recognized very early on that neither agriculture nor industry was capable of raising the standard of living in small developing states, because of low productivity and disadvantageous economies of scale.

“Having a competitive product, service, sector or industry is necessary but is not a sufficient condition for achieving sustainable growth in small and vulnerable economies,” said Adrien, an ECCB analyst and financial consultant, at last Thursday’s Sir Arthur Lewis Lecture. “The engine of growth is technological change,” he said, echoing Sir Arthur’s Nobel Prize-winning sentiments.

“Lewis’ prerequisite for sustainable growth includes a tax system that doesn’t cripple production, a level of capital formation commensurate with the desired growth target, labour market reforms that allow wages and productivity to move in the same direction, access to information, an openness to trade, social and political stability and above all prudent fiscal and monetary policy,” Adrien explained. “These together with appropriate institutions, production efficiency, access to foreign capital, enabling technology and distribution channels, could placed small and vulnerable economies on a sustainable path.”

The Lewis model of development proposed a marriage of local raw materials, skills and labour with foreign investment capital. The best balance of these factors was supposed to result in job creation, a higher standard of living and an increasingly robust export sector. But somehow, it never turned out quite the way Sir Arthur intended. At least not in the Caribbean where according to Adrien, nations came into independence in debt and never balanced the books.

One of the major obstacles to the practical success of Lewisean economics in the region was the failure of agriculture.

“A major fetter of the agricultural revolution has been the inability to raise labour productivity in both domestic and export sectors,” Adrien said. “From the perspective of the Lewis model, development policies which perpetuate a dichotomy between agriculture and industry have led to the destruction of agriculture and the recreation of the new plantation—the mass tourism industry. It is evidenced in the collapse of the rural economy, increasing rural poverty, persistent urban drift and the growth of urban slums with the attendant social pathologies. The reversal of the trend seems to be very remote as the combined effects of trade liberalization and developments in distribution and transport are producing a new thinking that suggests that efficient distribution systems and not efficient production is the sustainable basis for food security in high cost producing countries like the OECS.”

According to Adrien, there is an absence of market led development strategy in the region.

“From colonialism we have always prosecuted development from the standpoint of the nation state—that’s what I learnt at grad school. But yet they are prosecuting development within a development strategy that uses the endowment of resources—which is not enough because is narrow.”

The question again is about economies of scale. The region’s nations have crawled toward integration despite market forces which dictate that they might survive, but cannot prosper as separate operating units.

“How much of that so-called sovereignty, which in most cases is a bad sovereignty, do you let go? You know what I’m talking about.” The answer is so old and well-known that everyone knew. “It will be very different for King or Kenny or anybody to correct this thing. If you see government as a company, it is, by scale, of operating inefficiently.”

For those who remember the days of green gold, when the islands were flush with foreign exchange earned by farmers, it seems like the Lewis model was on its way to working before being derailed by the fall of the Berlin Wall, the unification of Europe and the formation of the World Trade Organization.

“What we saw in agriculture in the 1980s,” Adrien replied to that, “it was a farce. It was a farce that we had been inserted into global capitalism and that was evidenced by protected markets and large budgetary supports. We came from colonialism in deficit. We began at a disadvantage. Our budgets never balanced.

So, is it back to square one for Lewis’ orphaned economies of the region? On the journey from monocultural agricultural economies to diversified service economies, Adrien says Caribbean nations must rethink their agricultural sectors.

“How much of the available agriculture can we export given the prevailing conditions?” he asked, touching on the salient questions. “Or is it that we can only allow a certain class of farmers to export? Or should we concentrate on feeding infra-region like Dominica? Or building linkages with tourism? If we decide agriculture is a food security measure, you have to find the kind of capital, the kind of window to finance that. You cannot take the banks to task for that because if I were a banker I would have no money in agriculture. What is the role of agriculture in your development strategy and how is it reflected in the government’s development approach, the fiscal incentive regime.”

The fiscal incentive regime, like the agricultural sector, is another failing component in the Lewisean model.

“The incentive regime doesn’t necessarily follow a rational approach in that the package that is given to foreign investors who use your capital and my capital, the same regime is not given to you and me,” Adrien said, provoking applause from his audience. “There is something not well defined with respect to the development of the indigenous society. It seem that somewhere in the development profile there is not a level playing field that is given for indigenous people and foreign people. Could it be that there is a certain amount of in-built self doubt?”

Yet another failing component is the education system, more specifically, the curriculum.

“Here’s is a contradiction,” he pointed out. “Those countries that do very well spend at least three percent or more of GDP on R&D (research and development). If you look at the OECS expenditure on education, it is very high. But the point is, it is the return. We don’t have a problem of inputs, its is a problem of outputs. The curricula is irrelevant. The curricula is not influenced by market conditions.”

The result, of course, is brain drain. The brightest and best are head hunted and shipped off to earn higher wages in metropolitan countries while the islands struggle on. It is one of the biggest factors in the perpetuation of under-development.

“One of the things we can do is free up labour,” Adrien said. “But it is difficult for policy makers to get that done. Unless you can free up labour, you have a problem.

“Lewis spoke of little fiefdoms,” Adrien concluded. “This guy, he was a revolutionary. He talks about those tensions. He’s saying what that supports is the growth of little elites. The scarce resources are not well distributed. If the market has changed and the demand is moving toward services, you would expect the developers to put the microscope on themselves. Whether or not we have a shared vision, we can’t make a difference unless we do it as a single financial space.”