The Caracol Industrial Park: A Misguided Approach To Economic Development

The big Haiti news last week was all about the Invest in Haiti forum. Predictably, chatter about the event has segmented into two camps. On one side are business enthusiasts who see the forum – and the headline-grabbing business park being built in Caracol – as a sure source of jobs and growth. On the other are those concerned with social justice, who point out that textile manufacturing in Haiti has historically been plagued by wage and union suppression.

Construction begins on a new industrial park in Caracol, Haiti.

For the most part, these groups aren’t in dialogue with one another because they focus on different factors. The pro-investment group – Bill Clinton, President Martelly, and Foreign Minister Laurent Lamothe – don’t discuss worker’s rights and distributive justice issues.

Rather, they assume that “growing the economic pie” is sufficient for now: if problems exist with how the pie is divided, those can be addressed later. Meanwhile, those who do focus on justice issues continue to point out (rightly) the historical pattern of industry and investment only benefiting a few is clear.

In this piece, we take a different approach to critiquing the industrial development vision represented by the Invest in Haiti forum. The stated goal of those supporting the industrial park in Caracol, as reflected by Bill Clinton’s quote (see below), is to create jobs that will lead to economic growth and development.

“We are here to build a modern economy… and in the process, give Haitians the means to build a modern state.” – Bill Clinton, Nov 30, 2011

The question behind this post is: even if the distributional and justice-related concerns are ignored for the time being, does the vision they’ve outlined stand up to macro-economic scrutiny? The answer is, unfortunately, a resounding “no.” The remainder of this post explores the macro-economic reasons why this is the case.

 

Building a Modern Economy?

Backward and Forward Linkages

This unwieldy macro-economic term actually describes a simple concept, best illustrated by example. The ultimate case study of successful backward and forward linkages is the tire industry in Brazil (PDF). The production of tires in Brazil was a huge boon to rubber plantations (backward linkage). Eventually, Brazil’s status as a tire manufacturer attracted auto manufacturers (forward linkage), and the three industries grew together – resulting in huge growth rates in Brazil.

So what are the prospects for linkages in Haiti?  Again, Bill Clinton’s speech is instructive on this point:

 

I want to say a special word of thanks to Sae-A and to Chairman Kim for… not only bringing 20,000 jobs to Haiti. But… there were once 100,000 people assembling clothes in Haiti, but they never even had their own textile mill. They’ll have their own textile mill for the first time now. – Bill Clinton, Nov 30, 2011

 

The fact that Haiti will now have a textile mill differentiates this round of investment from past textile manufacturing efforts. That’s because previously, Haiti had to rely on imported textile materials for assembly and immediate re-export. In other words, the mill opens up the possibility for a backward linkage with cotton growers. However, this would first require revitalizing Haiti’s cotton production, which peaked before the reign of the Duvaliers and has fallen steadily since.

As for forward linkages, there’s not much on the horizon. A 2008 Overseas Development Institute paper entitled, “The Role of Textile and Clothing Industries in Growth and Development Strategies” (PDF) only discusses backward linkages, with one exception. They vaguely suggest that “business support systems” that develop around the garment industry “may facilitate the transition into higher value added activities.” In other words, unlike with tires, clothing doesn’t lead to anything of higher value – which is traditionally how emerging industries spark growth – except for by fostering business culture.

Integration into Global Value Chains

The global value chain is, quite simply, the chain of economic relationships that constitute a production process. On one end of the value chain is a cotton grower; on the other, a person wearing a finished clothing product.

It’s important to consider “integration” into these chains because there’s lots of research suggesting global value chains are “sticky.” That is, once buyers and sellers at different links in the chain develop relationships, they’re not prone to go shopping around for new relationships to replace them. This phenomenon is described by a recent World Bank paper entitled, “Clothing and Export Diversification: Still a Route to Growth for Low Income Countries?” (PDF):

These chains initially emerged in the clothing sector in the 1950s and 1960s as buyers in developed countries contracted out production to low-wage developing countries. Over the past 4 decades these chains have matured and the sourcing networks have spread over a large number of countries… The mature global chains of today restrict the opportunities that the clothing sector offers developing countries for diversification and growth.

In other words, prospects are at best uncertain that Haiti can capture a larger share of textile value chains than it currently commands. While favorable trade preference arrangements may assist Haiti in the short-term gain access to US markets, even that isn’t a sure bet. In the past, duty-free and other tax-exempt statuses haven’t been adequate to lure many manufacturers to Haiti.

 

Realistic Expectations for the Industrial Park

This is not going to modernize Haiti’s economy. Without forward linkages, there’s no real prospect for diversifying into higher-value sectors. But even if it’s unlikely for Haiti to break into established global value chains, it already has a place in several in the textile industry. Therefore, enhancing the sector could have a positive welfare effect – if the benefits are distributed in an equitable fashion. And this, of course, brings us back to the political factors discussed earlier.

 

A Better Economic Model?

There are, however, other models. Costa Rica, for instance, is one case of a small island nation that achieved a foothold in a higher-value industry despite its low-income status. That transition is described in the paper, “Costa Rica’s Development Strategy Based on Human Capital and Technology: How It Got There, the Impact of Intel, and Lessons for Other Countries” (PDF).

The point isn’t to suggest that this is the right model for Haiti. Rather, the point is that there are models besides from the low-wage, textile-driven development envisioned by Martelly and Clinton, which has a proven track record of failure.

Photo Credit: Flickr/USAID_Images