From: rah@shipwright.com (Robert Hettinga)
Date: Sun, 14 Aug 94 12:04:54 PDT
To: cypherpunks@toad.com
Subject: e$: Economic Development of the Caribbean
In-Reply-To: <CuIyqC.MHA@ecf.toronto.edu>
Message-ID: <199408141902.PAA13168@zork.tiac.net>
MIME-Version: 1.0
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In article <CuIyqC.MHA@ecf.toronto.edu>, francis@ecf.toronto.edu (FRANCIS 
ALVIN CYRILLE) wrote:

> What are the major factors hindering economic development in the Caribbean..?

I've been interested in this for a long time.  I've started to form some
ideas about it, and here they are.


1. No effective public health system. (Not really socialized medicine, just 
   sanitation, epidemiology, etc.)
2. No educational infrastructure.
3. Monopolistic control of political structures.
4. Monopolistic control of critical markets.

The above are interrelated, thus the ranking is only superficial. As
island states with few resources, the nations of the caribbean can't
afford to have political and economic monoculture. Small islands with few
resources (Singapore, Hong Kong, Japan and the British Isles) must trade
or die. Uniparty states, with sweetheart deals to extract resources and
ship them away, tend to make their people poorer, unless there's an
extreme premium on the resource (oil, guano, etc).

Brunei, where the sultan owns everything and is the country's the richest
in the world anyway (per capita) is a great example of being able to
"afford" monopolistic political and market control.  They have enormous
oil reserves with which to pay for all the eggregious excesses of the
government/theocracy, and still have lots left over for education, public
health, and universal health access. It's interesting to think that that's
pretty much what Fidel did in Cuba. His "premium resource" was a strategic
position 90 miles off of Florida that was very very valuable to the USSR.

Life gets better someplace only as the life expectancy goes up.  This is
called the Demographic Transition, and it is marked by a sharp decline in
population growth as life expectancy crosses 50 years. People won't have
children as a substitute for retirement pensions when they can see that
they will be healthy enough to take care of themselves for most of their
whole life. Children become a want rather than a need, and population
growth tapers off.  Most of the USA's population growth comes from
immigration. Singapore has state-sponsored latin dance classes to get
their citizens interested in having families earlier. (Go figure) 

The quickest way to drive up life expectancy is through public health. If
people won't die from malaria or typhus or cholera or diptheria, or river
blindness, or whatever, because their water's clean, and their wastes
don't get back into their food chain, then their life expectancy doubles
overnight.  I stayed in the Galleon House in downtown Charlotte Amalie for
a week a few years ago, and the open sewers are still right there out on
the street. I remember seeing a "creek" running through an alluvial plain
of shacks just outside St. John in Antigua, and the water was purple-green
with raw sewage.

The reason that this hasn't changed is because the population hasn't
demanded it, and the reason for that is that they're not given enough
education.  The reason for that is that the governments are filled with
people who want to line their own pockets, and can do so because they hold
generational political dynasties. This is usually because of some
sweetheart deal with an extractive monopoly/oligopoly, which can
"contribute" large piles of cash to whoever does them a favor.

If there was more of a trading tradition in the caribbean it would help
drive growth. There are a few places where that has happened before and
can happen again. St. Thomas, unencumbered by US government subsidy and
regulation might be one, if those if monoparty cronyism didn't kill it. 
It had been a huge shipping and trading port for centuries.  Now its
primary function seems to be shaking down tourists. Trade of a sort, I
suppose.

Which leads me directly to another reason I'm interested in the small
island nations of the caribbean. The idea of internet commerce.

There are people in some circles in the net who think that the internet
provides a perfect opportunity for people to buy and sell software and
information securely and even anonymously.  To do this properly one would
need to reduce restrictions on cash transactions, the transfer of capital,
and the use of strong cryptography.  Cryptography is the enabling
technology for the transfer of assets and money in a secure fashion over
unsecure networks.  

The first result is that people can work anywhere they want.  Personally,
I think Boston is nice, but I'd rather hang in Cruz Bay for most of the
year if I could get away with it. We just had a discussion in
soc.culture.caribbean about the lack of full-blown USVI internet access
which talked about that.  

You could have a whole class of "lifestyle refugees" coming from the
developed world to the caribbean because they can work anywhere they want.
This literally foriegn trade, only now a nation is re-exporting
intellectual property. Sort of like a fair-weather maquilladora with
imported gold-collar workers.

Think about the development of america in the 19th century. The railroads
brought immigrants from europe, who then homesteaded land and sold the
agricultural products they grew to people who processed them into goods
which generated foriegn exchange, which paid for interest on bonds that
J.P. Morgan & Co. sold to the european money centers. Some of those bonds
were then used to build more railroads, which brought in more settlers,
etc. 

The other neat thing about this process is that it automatically brings in
foriegn exchange and development capital which is independent of
monopolistic controls. These "refugees" have to buy things, but they buy
them from local, distributed sources: shops, builders, tradesmen, etc.
Those people automatically have an independent entrepreneurial outlook,
which is reflected eventually in the political and economic structure of
the nation. You get a quasi-Jeffesonian nation of shopkeepers, tradesmen,
and as their children are educated, technical/information professionals
who work on the net for a living.  This is how a nation can build a
trading tradition from the ground up.

Finally, the electronic money (e$ for short) which enables this commerce
has to be denominated in something, probably dollars.  The entities (call
them banks, for the time being) have to live somewhere.  These entities
are responsible for moving assets and money on and off the internet and
make their money by either taking a small fee (called a spread) when
converting money from one form to another, or from collecting the interest
(called the float) on the dollars that were converted into e$, but haven't
been converted back to other dollars yet.

The cool thing is that some caribbean nations have figured out offshore
banking already.  The reason this kind of banking is valuable is the
concept of regulatory arbitrage.  Regulations impede the flow of money. 
The Netherlands Antilles have made a reasonable living domiciling
corporations whose sole purpose is to keep money out of the american
banking system and thus its tax mechanism.  Money made offshore which
stays offshore doesn't get taxed as easily by the IRS.  

Regulatory Arbitrage is also exemplified by the banking and insurance
industries of the Bahamas, the Caymans, Bermuda, and to a lesser extent,
Antigua and the EC (Eastern Caribbean) nations.  In those cases, those
nations have modeled bank secrecy laws like those of the swiss.

In order for a nation to become an e$-center, they would have to allow the
creation of e$, particular dollar-denominated e-cash on their shores. 
There are enourmous regulatory hurdles in the US, but with a sufficiently
arbitrary and capricious political infrastructure, it could happen pretty
soon in the caribbean, if it was worth someone's while...  Ah, the ironies
of economics...

Cheers,
Bob Hettinga

-- 
Robert Hettinga (rah@shipwright.com)  "There is no difference between  
Shipwright Development Corporation     someone who eats too little
44 Farquhar Street                     and sees Heaven and someone
Boston, MA 02331 USA                   who drinks too much and sees 
(617) 323-7923                         snakes."   -- Bertrand Russell