Guest post by Alex Dupuy
Testifying before the United States Senate Foreign Relations Committee on March 10, 2010, former US President Bill Clinton, who is now serving as Special Envoy to Haiti for the United Nations, said that the trade liberalization (aka neoliberal) policies he pushed in the 1990s and that compelled Haiti to remove tariffs on imported rice from the US “may have been good for some of my farmers in Arkansas, but it has not worked. It was a mistake… I had to live everyday with the consequences of the loss of capacity to produce a rice crop in Haiti to feed those people because of what I did.”
Two weeks later, Haitian Prime Minister Jean-Max Bellerive appeared in front of the Haitian Senate to present the government’s post-earthquake recovery plan known as the Action Plan for the Reconstruction and National Development of Haiti. The Action Plan, originally conceived by the US State Department and co-chaired by former President Clinton and Haitian Prime Minister Jean-Max Bellerive, called for the creation of an Interim Haiti Recovery Commission (IHRC) charged with deciding on and implementing the programs and projects for the reconstruction of Haiti for 18 months after the Haitian Parliament ratifies it.
When questioned by members of the Haitian Senate that Haiti in effect surrendered its sovereignty to the IHRC, PM Bellerive responded candidly that “I hope you sense the dependency in this document. If you don’t sense it, you should tear it up. I am optimistic that in 18 months… we will be autonomous in our decisions. But right now I have to assume… that we are not.”
These admissions by high-ranking public officials representing the two sides of the international community-Haiti partnership express succinctly the dilemma that Haiti faces in rebuilding its shattered economy in the wake of the massive destruction caused by the January 12, 2010 earthquake.
As accurate as PM Bellerive’s statement about Haiti’s dependence on and subordination to the international community is, that did not originate with the creation of the IHRC, and it is not as temporary as Bellerive suggests. Rather than recounting the long history of foreign involvement and dominance in Haiti, we can consider the 1970s as having marked a major turning point in understanding the factors that created the conditions that existed on the eve of the earthquake and contributed to its devastating impact.
In return for military and economic aid from the United States and other wealthy countries such as Canada and France, the regime of Jean-Claude Duvalier, which succeeded that of his father François in 1971, turned over the formulation of economic policy for Haiti to the IFIs. These institutions henceforth pursued a twofold strategy that succeeded in turning Haiti into a supplier of the cheapest labor in the Western Hemisphere for the export assembly manufacturing industries established by foreign and domestic investors and into one of the largest importers of US food in the Caribbean Basin. These outcomes were achieved through a series of “structural adjustment” policies that maintained wages low, dismantled all obstacles to free trade, removed tariffs and quantitative restrictions on imports, offered tax incentives to the manufacturing industries on their profits and exports, privatized public enterprises, reduced public-sector employment, and curbed social spending to reduce fiscal deficits.
Foreign investors are attracted to Haiti primarily because of its abundant supply of unskilled, cheap and relatively non-militant labor; its close proximity to the US market; no foreign exchange controls and free circulation of the US dollar; and tax incentives with exemptions on income and profits, imported raw materials, machinery, or other assets used in the operation of the assembly industries, as well as on the export of the assembled products. Even though the gap between the wages of Haitian workers and those in other countries in the region was high enough to offset transportation, tariff, and other costs, the World Bank argued that the low wages in Haiti might not offset the bureaucratic and political risks there and thus should not be raised, as workers were demanding, in order to prevent investors from going elsewhere.
By the late 1980s and early 1990s however, the Bank came to realize that despite all the advantages of the export assembly strategy, did not create conditions for sustainable development of the Haitian economy. Even at the height of its operation in the mid-1980s, the assembly industry never employed more than seven percent of the total labor force and did not contribute significantly to the reduction of unemployment. The assembly industry had at best a neutral effect on income distribution, but a negative effect on the balance of goods and services because it encouraged more imports of consumer goods. It also contributed little to government revenues because of the tax exemptions on profits and other fiscal incentives, which, along with the subsidized costs of public services and utilities, represented a transfer of wealth to the foreign investors and the Haitian entrepreneurs who subcontracted with them for the operation of the assembly industries. Other than construction and services (transportation and catering services), the assembly industry did not contribute to the expansion of other industrial sectors, because it imported its raw materials and other industrial inputs rather than relying on domestic supplies and because the poverty wages of its workers did not stimulate the economy.
Moreover, the products of the assembly industry were not used as inputs by other Haitian industries but were exported to the US. The processing industry is entirely dependent on the US or other developed markets for its products because it relies on contracts from firms in those countries. Thus, when the limits on import quotas are met, or if demand decreases, the industry cannot expand its production. Lastly, the assembly industry drained more foreign exchange than it brought in. It did this in two ways. First, most of the profits of the foreign investors are not reinvested in that sector but expatriated, and the absence of expanded investment opportunities led even Haitian entrepreneurs to invest their savings outside of Haiti, most often in the US. Second, the import of consumer and producers’ goods (intermediate and capital goods) surpassed the total exports of the modern industrial sector, thereby draining foreign exchange from the economy.
The other side of this urban industrial strategy pushed by the US and the IFIs was to dismantle Haiti’s trade barriers and open its economy to food imports, principally from the US. Although the Duvalier dictatorship embraced the assembly industry strategy, it resisted demands to remove the 50 percent tariffs on food, especially rice imports, thereby enabling Haitian farmers to continue to produce all the rice consumed in Haiti and limiting other food imports to about 19 percent. All that changed after Jean-Claude Duvalier was overthrown in February 1986. The US government successfully pressured the succeeding military governments to slash import tariffs, reduce subsidies to domestic agriculture, open the country to commercial activities, close or privatize public industries, and keep wages low.
When Jean-Bertrand Aristide was elected President in 1990, he sought to change these policies to protect domestic food production, especially rice, against cheaper imports, and raise the minimum wage of workers in the assembly industries. These efforts failed because of stiff resistance from the Haitian Chamber of Commerce, the IMF, and the USAID. The Haitian army soon toppled Aristide in September 1991. When President Clinton returned Aristide to Haiti in October 1994, he agreed to lower tariffs on rice and other food imports to 3 percent. They have remained at that level since, including during Aristide’s truncated second term.
These policies had drastic consequences for the agricultural sector and for Haitian farmers. Whereas in the 1970s Haiti imported about 19 percent of its food needs, currently it imports 51 percent. It went from being self-sufficient in the production of rice, sugar, poultry, and pork to becoming the fourth-largest importer of subsidized US rice in the world and the largest importer of foodstuffs from the US in the Caribbean. Eighty percent of all the rice consumed in Haiti is now imported.
Trade liberalization, then, essentially meant transferring wealth from Haitian to US farmers, especially rice farmers in Arkansas, to US agribusiness companies that export rice to Haiti, and to Haitian firms that resell it on the domestic market. Not surprisingly, rice imports topped the list in terms of profitability.
Other than their negative impact on the Haitian economy, locating the assembly industries primarily in Port-au-Prince combined with the trade liberalization policies that exacerbated the decline of agriculture and the dispossession of farmers, propelled migration from the rural areas to the capital city and its spreading squalor. Port-au-Prince grew from a city of 150,000 inhabitants in 1950, to 732,000 in the early 1980s, and to approximately 3 million in 2008, or nearly one-third of Haiti’s population of 9.8 million. Those who could not find employment in the assembly industries—which never employed more than 6-7 percent of the labor force–swelled the ranks of the unemployed or the informal sector. The informal sector became the largest source of employment for the urban population. Since the 1970s migration to the neighboring Dominican Republic, the Caribbean, and North America increased dramatically to the point that Haiti is now heavily dependent on remittances from its emigrants, which in 2008 represented 19 percent of Haiti’s gross domestic product.
All of this brings us back to Clinton’s statement at the beginning of this essay. If he really believes that the policies he forced on Haiti were wrong, then he would be advocating for their repeal and encouraging Haiti to reintroduce its protectionist policies to rebuild its agriculture and return it to self-sufficiency in the production of rice and other crops. Such is not the case, however. To the contrary, Clinton is spearheading the very same failed strategies that have been repackaged in the Post-Disaster Needs Assessment (PDNA) document prepared by the Haitian government with the assistance of the international community. That repackaged strategy had in fact been spelled out well before the earthquake in a report commissioned in 2009 by United Nations Secretary General Ban Ki-moon and written by Paul Collier, a former World Bank economist and now professor of economics at Oxford University. And we now see it repeated in the 2010 RAND Corporation’s report, Building a More Resilient Haitian State.
Ignoring the evidence of the past four decades, both Collier’s report and the RAND report lay out the same dual strategies advocated by the IFIs and the US since the 1970s. The only difference is that Collier calls for expanding the export zones for garment production, beyond the two that currently exist in Port-au-Prince and Ouanaminthe, located near the border with the Dominican Republic in order to create clusters of such industries, and similar zones for the production and export of selected agricultural crops such as mangoes. For Collier the reason for this dual strategy is straightforward. Haiti needs to take advantage of the Haitian-Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II) enacted by the US Congress in 2008 that grants Haiti and the Dominican Republic duty-free access to the US for up to 70 million square meter equivalents (SME) each of knit and woven apparel in addition to other goods such as brassieres, luggage, and sleepwear to the US market. Thus, only by creating sufficiently large clusters of these industries that could potentially employ several hundred thousand workers could Haiti become competitive on the global scale. The key to Haiti’s competitiveness, of course, is its abundant, low-wage, high quality labor force, which rivals that of China.
Establishing these zones of garment production and the jobs they would create is also necessary to reduce the percentage of the population that lives off the land, encourages labor-intensive crops, and decreases agricultural output. Haitian agriculture could then switch to more land intensive production amenable to more inputs and greater output. In addition to increasing food production for the national market, Haiti needs to establish zones for the production of export crops such as mangoes. Mangoes are important not only because they are a valuable export crop, but because the trees are large enough to have a substantial root network that decreases soil erosion and contributes to the process of reforestation.
As already mentioned, former President Clinton fully endorses that strategy, as does the Action Plan of the Préval government and the international community. Yet, responding to questions from reporters after the international donors conference in New York City on March 31, Clinton elaborated on the policies he once championed and admitted that they had
“Failed everywhere [they’ve] been tried… [Y]ou just can’t take the food chain out of production… and go straight into an industrial era. [I]t also undermines a lot of the culture, the fabric of life, the sense of self-determination. And we made this devil’s bargain on rice [but] it wasn’t the right thing to do. We should have continued to… help them be self-sufficient in agriculture. And that’s a lot of what we’re doing now. We’re thinking about how can we get the coffee production up, how we can get… the mango production up,… the avocados, and lots of other things.”
What is noteworthy, however, is that neither Clinton, the Collier report, the Action Plan, nor the RAND report explains how Haiti is to regain self-sufficiency in rice or food production generally when none of them call for repealing the trade liberalization policies Clinton decried, and which neither the administration of President Obama nor the US Congress is contemplating.
Neither is it explained how the expectations of hundreds of thousands of jobs in the garment industry will pan out in Haiti when the combined share of the US market for the garment export industry in the countries of the Dominican Republic-Central America Free Trade Agreement (Costa Rica, El Salvador, Honduras, Nicaragua, and Guatemala) has declined from 13.3 percent in 2004 to 9.8 percent in 2008 and has caused the lay-off of tens of thousand of workers. As David Wilson put it succinctly, the whole plan to expand the garment industry in Haiti is a “race to the bottom. [It] isn’t really about creating jobs; it’s about relocating them… [W]hen the professors and politicians say they will help Haitian workers by giving them jobs, what they really mean is that they plan to take the jobs away from Dominican, Mexican, and Central American workers—and pay the Haitians even less for doing the same work.”
That the IFIs, their paid consultants, and heads of state (current and former) disregard the evidence of their failed strategies and continue to advocate them should not be surprising. Their objectives have never been to promote meaningful and sustainable development in underdeveloped countries like Haiti but to create outlets for the products of the advanced countries and sources of cheap labor for their manufacturers. It comes as no surprise to me, then, that the RAND report should fall in line with that objective.
Sources: This post is based on remarks at the United States Institute of Peace Forum on “Building a Better Haitian State,” Washington, D.C., October 13, 2010. Also present at the Forum were representatives from the US Department of State and from the Rand Corporation who discussed the Rand report, Building a More Resiliant Haitian State. See also, Alex Dupuy Disaster Capitalism to the Rescue: The International Community and Haiti After the Earthquake, NACLA Report on the Americas 43:4 (July/August 2010): 14-19.
Alex Dupuy is professor of sociology at Wesleyan University in Middletown, CT. He has published broadly on social, economic, and political development in Haiti and the Caribbean. His books include Haiti in the World Economy: Class, Race, and Underdevelopment Since 1700 (1989); Haiti in the New World Order: The Limits of the Democratic Revolution (1997); and The Prophet and Power: Jean-Bertrand Aristide, the International Community, and Haiti (2007). He has also published more than 30 articles on Haiti and the Caribbean in refereed journals and anthologies. Professor Dupuy is particularly interested in the Caribbean political economy and social change.