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February 3, 2010

A new Haiti?

Dr. Yasmine Shamsie

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It's been two weeks since an earthquake mercilessly shook Haiti, leaving devastation on an unprecedented scale. Since then, ordinary people, NGOs, governments, and international agencies have been rushing to help.

Canada has organized a meeting of foreign ministers – an opportunity, to re-group, coordinate, and begin to think ahead.  

In the words of our Foreign Minister, everyone is in agreement to “help Prime Minister Bellerive in his quest to build a new Haiti”.  It sounds straightforward, but it’s not.  

The shock to the economy has been huge.  Economic reconstruction had barely begun prior to the quake. How to rebuild? What to rebuild?  The “re” in rebuilding has often meant repeating what was there before the event.

Everyone wants to avoid that. Everyone also agrees on some basics. All agree that economic development must combat poverty and inequality in the long term and make tangible improvements in peoples’ livelihoods in the short term.  There is also widespread agreement regarding the importance of rapidly creating jobs.  What does that mean in term of actual economic development strategies though?

The Haitian government has singled out: tourism, export processing zones, and agriculture as sectors that hold promise and should be supported.  But donors seem to be placing the bulk of their faith in Export Processing Zones (EPZ), or expanding the textile industry.

Prior to the earthquake, UN Secretary General, Ban Ki-Moon, argued that Haiti’s best hope of success lies with HOPE II, a ten year piece of US trade legislation passed in 2008 that offers Haiti duty-free, quota-free access for its products, including those made from fabric originating outside the US.

The donor community likes the EPZ sector because it exploits Haiti’s two comparative advantages: (1) the lowest cost labour in the hemisphere, and (2) proximity and preferential access to the US market.  They also like it because it creates jobs rather quickly. There is some good sense here. But let’s be clear, the development of EPZs is a tactical option aimed at achieving a strategic goal: job creation.  It should be supported for that reason. 

It isn’t a development plan for Haiti.  It’s one small piece of the economic recover and development puzzle.

I don’t believe I’m being particularly provocative or contentious when I categorize EPZs as a tactical job creation strategy – rather than a development strategy. 

Export assembly manufacturing has deep roots in the Caribbean, so we already know a lot about its potential.  It hasn’t generated much in the way of spinoffs in the local economies where it has been employed. Nor has it yielded long term reliable employment for the region.

In fact, across Haiti’s border in the Dominican Republic, garment exports have fallen by more than half since 2005 leading 73,000 workers to lose their jobs – ironically, some of those jobs have moved to Haiti.  

What this tells us is that the lowest wages in the hemisphere, combined with US trade legislation, are attracting jobs to Haiti.  It also confirms that these jobs will be, by their very nature, transitory.

The point I want to make here is that in order for EPZs to be more than a strategic job creation program, the model would have to be modified significantly.

It would need to contribute to broader goals like: making the country less vulnerable to external shocks and helping to address the long-standing uneven social, economic, and political relationships among Haitians.  

If we look around Haiti’s neighbourhood, that hasn’t been the case.

The strategy has not diminished vulnerability to outside economic shocks or trends; in fact, it offers a high degree of dependence on one category of manufactures – apparel – for both jobs and export earnings.

Some have likened it to ‘industrial mono-cropping.’  Also, it has created jobs, but been unable to significantly affect long-term poverty rates in the majority of the region’s countries, let alone Haiti.  I can make that judgment regarding its effects on Haiti because the country adopted the model decades ago.

EPZs were well established in Haiti during the 1970s and 1980s.  The first generation of US firms arrived during the dictatorship of François “Papa Doc” Duvalier (1957–71), but failed to spark development in great part because of a lack of infrastructure, local capital, and basic services.

Undaunted by these obstacles and encouraged by US President Ronald Reagan’s 1982 Caribbean Basin Initiative, which promised duty free access for specified items from Haiti and other Caribbean Basin countries, the regime of Jean-Claude “Baby Doc” Duvalier (1971-1986) expanded export manufacturing further, with particular emphasis on the assembly industry.

By the early 1980s, Haiti was second only to Mexico among the US subcontracting territories in the western hemisphere, home to 240 multinational corporations employing around 60,000 workers. 

In fact, in 1985, one year before Jean-Claude Duvalier’s forced exile, Haiti was ninth in the world in the assembly of goods for US consumption, with this sub-sector generating more than half the country's industrial exports and earning one-quarter of its foreign exchange. 

What’s worth noting here is that, while EPZs became the most dynamic sector of the economy, their effects on the country’s poverty rates were disappointing.

There were some other detrimental side effects as well. Food prices increased as rural workers from both agricultural production and food distribution were lured to Port-au-Prince’s manufacturing sector by the promise of better wages. 

Inequality also increased because the model favoured the economic development of Port-au-Prince (the urban sector) over the rest of the country (the rural sector). 

For instance, the gap between rich and poor widened as urbanization increased.  We can see how the rapid spread of these urban-based industries served to reinforce economic polarization in the country by looking at what happened in the electricity sector.

While the production of electricity increased greatly, only certain sectors of Haitian society benefited.

Port-au-Prince and its surrounding boroughs consumed 93 percent of the electricity produced in the country in 1979.  The increased polarization was so obvious that by the early 1980s even the World Bank, a strong supporter of the assembly industry, suggested the model needed to be modified. 

Of course, corruption also played an important role in the failure of this strategy.  But even if we set aside the impact of corruption, assembly manufacturing enterprises never became sufficiently integrated into the economy to have an impact on Haitian society. 

Wages were simply too low, making the trickle down effect from those precious jobs minimal. Still, the biggest reason why the EPZ strategy failed to reduce Haiti’s poverty rates, why it failed to economically transform the country in any significant way, was that it didn’t impact rural Haiti. 

Of course, ignoring the lives of those attached to the land has long been the norm in Haiti.  The rural population has traditionally been cut off from the national government and national development policy formulation in general. 

In fact, it’s not an exaggeration to say that national politics have been conducted almost without reference to the aspirations of the rural majority.

For instance, if we go back to 1994, when the military was finally ousted and the international community re-engaged with the country, the first economic recovery plan developed by donors directed very little aid to agriculture.

Direct investments in small-holder agriculture accounted for less than one percent of the US$550 million in donor aid and loans distributed in FY 94/95. 

In a nation where between 55 to 60 percent of the population is engaged in some form of agricultural production, one can see why this constitutes a major gap in development plans.

Not much has changed by the way. In 2007, donor allocations to agriculture amounted to US$12 million, or 2 percent of the US624 million of donor support.

So what can we take from past experience, as we set out to help a country that has barely survived our previous attempts at assistance?

Three things, in my view. First, export processing zones can create jobs, but they will only generate positive spillovers in local communities if workers earn a wage that takes them beyond survival mode.  

People need to be able to spend their wages on more than the absolute basics. Support for unions and state and private sector support for programs that help workers and their families will be necessary. 

Second, we need to rethink where these factories are located. The Taiwanese experience is worth noting here. By 1976 the country had located 76% of its labor-intensive industries such as food processing, textiles, and light agricultural machinery production in rural areas.

Establishing EPZs in the hinterland and supporting them with the necessary public works (infrastructure, electricity, etc.) led to jobs, a decrease in inequality between urban and rural populations, as well as a stimulation of domestic demand.

That’s also why Taiwan never experienced massive migration from rural to urban areas, and the growth of shantytowns.

The final lesson is broader in scope.

So far, donors have tried to sidestep the rural world, either by ignoring it completely, or by expressly discouraging small-holder agriculture.

In the 1980s, USAID employed a number of strategies to try to encourage a shift away from subsistence agriculture toward agriculture for export production. 

For instance, the agency dumped massive amounts of rice on the Haitian market to undercut peasant producers and provide cheap food for urban populations.  

In the end, the strategy served to further impoverish rural people and to diminish the country’s ability to feed itself, as local food production plummeted.

There were also terrible consequences for the environment, as desperate rural folk deforested the landscape in depressed rural areas.  Finally, this anti-agriculture mindset and policy-set encouraged migration from the countryside to the city, intensifying urban problems in Port-au-Prince.

The message is pretty clear. Governmental and donor neglect of more than half the population is no longer a realistic option. Restoring agricultural production and improving food security for rural households should be a priority for international donors.

Apparel manufacturing in EPZs, a darling of international donors, needs to be viewed for what it is, a job boosting strategy. 

If we want it to do more than that, the bulk of these factories will need to be located away from Port-au-Prince, in as close proximity and association with the rural world as possible.

Dr. Yasmine Shamsie is Associate Professor of Political Science at Wilfrid Laurier University.

(Published by the Ottawa Citizen January 26, 2010)

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