The Caracol Industrial Park: A Misguided Approach To Economic Development

December 8, 2011

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


Links Round-Up: Minister Forced to Resign, Army Put on Hold, And More

November 23, 2011

Breaking News Alert

The Minister of Justice, Josué Pierre-Louis, resigned yesterday under pressure from Haitian parliament. He was charged with participating in the illegal arrest of an opposition party parliamentarian, Arnel Belizaire. Most believe the arrest was retribution for a public spat between Belizaire and the President.

 

Security

President Michel Martelly delayed the re-establishment of the Haitian army pending a ‘civilian commission’ recommendation, due on Jan. 1. Most likely this change occurred because of insufficient funds, or pressure from international actors.

Pairs Well With: The homicide rate in Haiti is not only lower than implied by the media, but is actually well below the average for Latin America and the Caribbean, according to a new study.

Also Pairs Well With: Our post urging everyone to move past the debate over lawlessness in Haiti, which is one of the main justifications for bringing back the army.

 

Economy and Trade

The Ministry of Trade seeks to attract investors, declaring: Haiti is open for business (h/t @moiracathleen).

Pairs Well With: Two articles showing how wage and union suppression have been used to deny the benefits of foreign investment to Haiti’s poor. In other words, investment is great – but only if the right regulations are in place.

The emergence of a vibrant entrepreneurial class in Haiti is one of the best defenses against predatory foreign investment. That’s why it’s exciting to hear that one of our partner groups, the What If? Foundation, is starting a club focused on developing students’ entrepreneurial skills.

Pairs Well With: Haiti’s first annual Global Entrepreneurship Day just concluded, which serves as another positive model of promoting Haitian-driven business ideas, as imposed to foreign-imposed ones.

 

Aid to Haiti

The Center for Economic and Policy Research again picks up on a story that HJA previously covered: the fact that USAID’s reliance on enormous contracts decreases the quality of its aid to Haiti.

Pairs Well With: HJA’s two pieces that focus on the effect of tied aid contracts and “indefinite quantity contracts” (IQCs), which are used because they’re administratively cheap, even though they produce terrible results.


The Return of Haiti’s Army in Historical Context

October 6, 2011

President Martelly made headlines last week when a copy of his plan to reconstitute the army leaked. The Armed Forces of Haiti (FAdH) have been out of commission since President Jean-Bertrand Aristide responded to popular will by disbanding the military in April of 1995.

Understanding why the current debate over reinstatement is so heated requires historical perspective. In this piece, we touch on two reasons why the revival of the FAdH evokes such strong emotions.

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Human Rights and Government Power: FAdH’s Dark Past

The security apparatus (military, policing, and intelligence) that developed under the rule of Papa and Baby Doc Duvalier was complex and powerful. In the late 1970s, at the height of Baby Doc’s rule, it had become a flexible, multi-faceted tool of state repression.

The 60,000-100,000 citizens killed by the Duvaliers is a testament to the fact that their reign was only as strong as their military might. This military might was organized into five main branches (see figure).


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The clear delineations suggested by the figure, however, mask substantial overlap between the categories listed above.

For instance, the FAdH controlled all police functions. Therefore, of the roughly 33,000 employed as part of the security force, 23,000 (9,000 soldiers and 14,000 police) answered to the military command.

In addition to controlling the Military Police, the FAdH ran the prison system [1]. The pinnacle of this system was called Fort Dimanche – at times referred to as “the Auschwitz of Haiti” – where political prisoners and suspected members of the opposition met horrible fates.

Moreover, the FAdH had a role in training members of the three other security sector branches [2]. Two of these – the Presidential Guard and the Leopard Corps – were primarily tasked with protecting the president. However, the Volunteers for National Security – or, as they were more commonly called, the Tonton Macoutes – are widely considered to have perpetrated the worst of the abuses. The Council on Hemispheric Affairs says the Macoutes became the “central nervous system of [the Duvaliers’] reign of terror” by utilizing “continuous threats… as well as frequent random executions.”

While the relationship between the Macoutes and the FAdH was characterized as much by rivalry as cooperation, they complemented one another as tools for repressing the Haitian people. Thus, until Baby Doc’s ouster in 1986, the FAdH was the lynchpin of a vast apparatus of state terror that propped up two brutal dictators from 1957-1986. For obvious reasons, their reign is prominent in Haiti’s historical memory. The direct concern is, of course, that the FAdH would again be used to repress the people, violate human rights, and support authoritarian leadership.

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Threat to Stability: The FAdH After Duvalier

In the decade after Duvalier’s fall, many facets of the security apparatus resurfaced with demands or power grabs, preventing stable governance and creating social tension.

Unwilling to Let Go of Power

First, a Haitian general named Henri Namphy took power after Duvalier fell. Two years later, when Haiti’s first elections were scheduled, Namphy orchestrated a military-led massacre of civilians, and subsequently blamed the violence on terrorists as a pretext for cancelling the elections altogether [3]. A rapid succession of FAdH and Presidential Guard members wrangled over power from 1987 to 1990; their consistent use of brutal tactics earned this era the title “Duvalierism without Duvalier.”

When free, fair elections were finally held, Jean-Bertrand Aristide won by a large margin and assumed the presidency in 1991. Yet within a year, a joint FAdH-Military Police force deposed him in order to restore military rule under General Raoul Cédras [3]. The military kept up another abusive reign until 1994, when the international community intervened to restore Presidency Aristide for the twilight of his term. Still undeterred, the army demanded cabinet posts and other concessions up until the eve of the civilian government’s restoration.

Thus, in the first five years after Duvalier, the FAdH, the Military Police, and the Presidential Guard all attempted to seize power at one point or another. But it didn’t stop there.

Undermining Democracy

Following reinstatement, President Aristide attempted to change this historical pattern of repression and coups by disbanding the Haitian army – a move supported by the large majority of Haiti’s population. Unsurprisingly, many in the army claimed the move was illegal. They subsequently militated for compensation without conditions for disarmament or demobilization, which they received ($28 million) in 2005.

Nonetheless, many discontented ex-army members joined paramilitary groups like the Front for the Advancement and Progress of Haiti (FRAPH) [3], which was a “death squad” dominated by former Macoutes and led by the CIA-bankrolled thug Emmanuel Constant. Worse still, after US-backed paramilitaries like FRAPH overthrew President Aristide’s democratically elected government for a second time in 2004-05, the US and UN paved the way for the ex-FAdH criminals among them to be integrated into the new Haitian National Police.

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Return to the Past

With President Martelly planning to activate 500 soldiers this month, the army’s return appears imminent. Unfortunately, the collective suffering caused by the army and its remnant forces over decades of human rights atrocities assures that reconstituting the FAdH can only be seen as a return to Haiti’s oppressive past.

[Corrected 10/10/11: An earlier version of this article referred to the police under Duvalier as the Haitian National Police. Only the reconstituted, post-Duvalier police force went by this name.]

[1] Sarah Meharg and Aleisha Arnusch. Security Sector Reform: A Case Study Approach to Transition and Capacity Building. Strategic Studies Institute. 2010.

[2] Amnesty International. You Cannot Kill The Truth: The Case Against Jean-Claude Duvalier. 2011.

[3] Kathleen Marie Whitney. Sin, FRAPH, and the CIA: U.S. Covert Action in Haiti. Southwestern Journal of Law and Trade in the Americas, Vol. 3, Issue 2, pp. 303-32, 1996.