The effects of neo-colonialism on economic development : case study of Guadeloupe, Puerto Rico, and Curaçao

(1)

Master’s Thesis

The Effects of Neo-colonialism on Economic Development

Case study of Guadeloupe, Puerto Rico, and Curaçao

Patricia E. Cepeda Crespo ID# 12254908

Research Project: The Changing Global Economic Order MSc. Political Science (Political Economy)

Faculty of Social and Behavioral Sciences, University of Amsterdam Supervisor: Jasper Blom

Second Reader: Farid Boussaid Date: June 21st_{, 2019}

(2)

(3)

Acknowledgements

Esta tesis va dedicada a dos cosas esenciales en mi vida. Se la dedico a mi isla. Pues la vida como ciudadana de segunda clase me ha enseñado que las desigualdades que forjan nuestro mundo deben ser siempre señaladas y denunciadas. También se la dedico a mis abuelos, pues simplemente todo lo que he hecho en mi vida se lo debo a ellos.

This thesis is dedicated to two essential things in my life. I dedicate this to my island. Because the life as a second-class citizen has taught me that the inequalities that shape our world must be identified and denounced. I also dedicate this to my grandparents, simply because everything I have done in life, I owe it to them.

(6)

(7)

I.

Introduction

Clear skies, turquoise waters and colorful houses are usually the first images that appear in people’s minds when the word “Caribbean” is mentioned; in addition to casual appearances in media outlets when a hurricane or an earthquake strikes the islands. Due to this simplistic and incomplete view, individuals fail to perceive the lack of equality and the economic and social underdevelopment in most islands. Various reasons are accountable for the underdevelopment; Geographic location issues such as insularity and natural disasters, social and political movements for independence and the legacy of colonialism are important factors that have influenced the weak and slow development of economic and political institutions in the Caribbean. After centuries of slavery, exploitation and asymmetrical economic and political relations, some independent Caribbean countries are still struggling with the legacy of colonialism. Meanwhile, other Caribbean islands are still entangled in ambiguous and complicated colonial relations. Colonialism was officially abolished between the 1940s and 1960s as a consequence of the decolonization movement led by the United Nations. Over 80 former colonies around the globe earned their independence (United Nations, 2019). However, certain Caribbean islands have a more complex story. The Caribbean is replete with islands that have an abstruse political status. These are semi-sovereign entities that, after the decolonization movement, are still to a certain extent dependent on their metropolitan powers.

Colonialism is officially abolished, but the political status of certain semi-sovereign islands prove that it is still present and palpable, only disguised as what is currently known as “neo-colonialism”. This term encompasses the main political and economic relations technically eradicated during the decolonization movement. The essence of neo-colonialism is that, while the State appears to have some level of sovereignty, it is in fact controlled by their former colonizers or metropolitan powers’ economic and political institutions (Nkrumah, 1965). The former colonizers or metropoles are, for the most part, great powers with “high-quality institutional systems” and stable economic performances. Metropoles’ “high-quality institutions” have jurisdiction over neo-colonies in the Caribbean, but the functioning and the outcome differ drastically. When the economic performance of neo-colonies in the Caribbean is examined, there are several stark economic differences and inequalities between the metropoles and neo-colonies. This is the case of the three islands of the Caribbean that will be studied in this research project:

(8)

Guadeloupe, Puerto Rico, and Curaçao. These are politically and economically annexed to France, The United States, and The Netherlands respectively. Under constitutional law, Guadeloupe is an Overseas Department of France, Puerto Rico is a Commonwealth of the United States and Curaçao is an independent country within the Kingdom of the Netherlands. However, these three islands are usually referred to as “neo-colonies” since, to a certain extent, they are ruled and monitored by the same institutions of their metropolitan powers, but with institutional mechanisms that still resemble an asymmetrical colonial relation. Representation of the metropolitan powers’ institutions is often deficient in their territories, which further undermines these territories’ political autonomy (Veenendaal & Oostindie, 2018) and creates visible disparities between their economies. For instance, while Guadeloupe’s GDP per capita is 11,288 euros, the poorest department of Metropolitan France, Centre-Val de Loire, has a GDP per capita almost seven times higher (88,019 euros) (French National Institute of Economic Studies, 2018). Puerto Rico’s median household income is $19,343, less than half of the household income in mainland United States ($60,336) (Data USA, 2017). In Curaçao, unemployment ascends up to 13%, while in the Netherlands unemployment has not surpassed 3.9% in the last decades (Central Bank Curaçao, 2017). Thus, if neo-colonies are administrated by the same institutions as the metropoles, but the economic performances vary, one must question what factors are influencing these disparities. This research project sheds light over the relevance of neo-colonialism on economic performance and discusses how the “high-quality institutions” of the metropoles deliver different economic outcomes in their neo-colonies by establishing a coherent connection between institutions, economic development, and neo-colonialism.

In order to solve this puzzle, the research project aims to answer the following question: (1) How does neo-colonialism affect economic development? The main purpose of this research is to investigate the direct and indirect effects of neo-colonialism in semi-sovereign states. The research project’s main argument claims that the neo-colonial status affects heterogeneously the economic development of countries creating both negative and positive economic outcomes. However, there exist certain institutional mechanisms within the neo-colonial relations that affect negatively the economic performance of these territories. The systematic comparison of the three case studies reveals that the economic effects of neo-colonialism vary depending on the presence or absence of the specific neo-colonial institutional mechanisms in the territories’ economic sectors. Moreover, the neo-colonial institutional mechanisms alter the performance of

(9)

“high-quality institutions” and deliver negative economic consequences to the neo-colonies. To be more specific and elaborate on the issue of discussion, two sub-questions have been added. (2) What

institutional mechanisms within the neo-colonial relationship affect the economic development of neo-colonies? The neo-colonial institutional mechanisms are specific laws that

are only established in the neo-colonies and portray the asymmetrical power relation between the metropoles and the neo-colonies. To be able to investigate the economic effects of the neo-colonial institutional mechanisms, this research paper explores two economic sectors in the neo-colonies’ economic system; these are the market structure and the fiscal policy of Guadeloupe, Puerto Rico and Curaçao. The analysis consists on a comparison of the economic effects of neo-colonialism in the three selected cases. Therefore, the final research sub-question is: (3) How does the

neo-colonial status affect the market structure and the fiscal policy (separately) of Guadeloupe, Puerto Rico and Curaçao? This research project aims to consolidate the questions posed above

and investigate how their neo-colonial status affects their economic development.

Albeit colonialism ranks as one of the most influential processes in human history, western scholars have not managed to get a grip on its new version, neo-colonialism. Since colonialism formally disappeared and former colonies changed their official status, individuals find it difficult to grasp this new term of neo-colonialism. This creates a conservative attitude towards the word and its meanings as well as the neglection of its existence. Therefore, it endures a lack of theoretical perspective. A sizable portion of the literature on neo-colonialism targets the cultural consequences but not the economic. The fact that there is scarce literature available that analyzes neo-colonies in terms of the relationship between economic growth and institutions constitutes a gap in the literature and therefore, a relevant topic to study. This research project is intended to extend the available knowledge on the relation between institutions, development, and neo-colonialism to primarily, fill the gap of insufficient literature available on neo-colonialism, a phenomenon that is neglected by governments and international organizations and that is barely studied in social sciences. Additionally, this research project aims to draw academics’ attention to these deviant cases in order to alleviate the insufficient cross-culture perspective on neo-colonialism. Most academic research on this topic focuses on the African continent. However, to stereotype the legacy of colonialism on the basis of one or two particular cases or to assume that colonialism and neo-colonialism are characteristic of a particular civilization is simply to ignore the full range of reality to which human history testifies (Girvan, 2012). Therefore, this research attempts to draw

(10)

attention to neo-colonialism in the Caribbean and to highlight the institutional mechanisms of this neo-colonial relations. It is essential to note that this research project is not intended to answer whether the neo-colonies would perform economically better or worse without their metropolitan powers, nor to send a political message of “de-neo-colonization”. Instead, this research project aims to explain the causes of underdevelopment in neo-colonies in the Caribbean by analyzing the institutional mechanisms of the neo-colonial relations and comparing its economic effects between the three selected cases. This is achieved by analyzing the market structure and the fiscal policy of Guadeloupe, Puerto Rico, and Curaçao. After the comparison of the economic effects of neo-colonial institutional mechanisms, the evidence leads to conclude that the neo-neo-colonial status affects heterogeneously the economic development of these territories. However, the comparison also reveals that the establishment or the perpetuation of certain institutional mechanisms characteristic of the neo-colonial relation cause severe negative effects to the economic development of the islands.

This research project is structured as follows: first, there is an extensive literature review that establishes a connection between the different theoretical approaches of institutions, economic growth, and neo-colonialism. This will provide the reader with an understanding of the main characteristics of “high-quality institutions”, as well as a comprehensive view of the academic debate about the factors that affect economic development. Up next, the methodology explains the main characteristics of this type of research, the long process of selecting the case studies, the research limitations and how the data analysis was performed. The following chapter is a context

chapter to provide the reader with background information about the origins of neo-colonialism,

colonialism in the Caribbean and a description of the metropolitan powers’ main institutional jurisdiction over Guadeloupe, Puerto Rico, and Curaçao. The research project continues with the

analysis. This will be divided into the discussion of institutional mechanisms and economic effects

of neo-colonialism in the market structure and the fiscal policy (separately) of Guadeloupe, Puerto Rico, and Curaçao. Finally, the conclusion remarks will follow, in which the main findings and main arguments of this research project will be explained and coherently connected.

(11)

II. Literature Review

a. Introduction

During the last decades, a consensus emerged among social scientists that political and economic institutions are crucial for the economic development of a country (Faust, 2006). Consequently, there is a wide variety of literature that links the role of institutions with economic growth. Social scientists have devoted to studying the functions of institutions in order to explain not only the effects of such institutions, but also the type of institutions that assure a successful economic performance. This literature review establishes a logical connection of the literature available between institutions, economic growth, and neo-colonialism so as to build a logical theoretical approach to the topic of research. The literature review will be divided into two sections. First, there is a discussion based on available literature on the meaning and main functions of institutions. Academia has developed a vast variety of studies dedicated to the main characteristics of “high-quality institutions”. Most of the literature available reaches a similar conclusion: “high-quality institutions” are the main incentive to create and maintain economic development in a country. In order to be considered “high-quality institutions”, these have to gather certain characteristics. The second section of this literature review will introduce the ongoing debate on the types of factors that affect the development or underdevelopment of nations. A plethora of authors claims that the possession or the lack of “high-quality institutions” is the key determinant of the “success or failure of nations”. Factors such as geographic location, culture or ignorance are usually considered not the main influencers on development or underdevelopment. However, there is a factor that is pondered as an important influencer: colonialism. Recent evidence attests that colonialism has indeed created heterogeneous effects on economic development because it has altered the formation and performance of countries’ institutional system. Nowadays, colonialism does not officially exist, but its main characteristics are gathered in a relatively new term called “neo-colonialism”. Finally, the literature review presents the gap on literature available and establishes a link among neo-colonialism and economic growth.

b. Institutions Matter

Economic growth in the last few decades has been accompanied by significant improvements in social indicators such as literacy, infant mortality, life expectancy, etc. Yet, since

(12)

the rich countries themselves grew at a very rapid clip of 2.7 percent during the period 1960-2000, few developing countries still struggle to close the economic gap between them and the richest nations (Rodrik, 2005). The positive economic stand is due to the satisfactory performance of well-structured institutions, often referred to as “high-quality institutions” (North, 1991; Rodrik, 1999, 2005; Acemoglu, Daron & Robinson, 2002, 2008, 2012; North, Douglass & Weingast, 2009). The importance of the role of institutions for development began to be highly discussed once Douglas C. North (1991) defined them as the “prevailing rules of the game in society” and the “humanly devised constraints that structure political, economic and social interaction. Institutions consist of both informal constraints (sanction, taboos, customs, traditions, codes of conduct) and formal rules (constitutions, laws, property rights). For the purpose of this research, only formal rules will be addressed. As North (1991) clarifies, “together with the standard constraints of economics, institutions define the choice set and therefore determine transaction and production costs and hence the profitability and feasibility of engaging in economic activity”. Both political and economic institutions provide the incentive structure of an economy. It is expected that while the structure evolves, it shapes the direction of economic change towards growth, stagnation or decline. While economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has (Acemoglu & Robinson, 2008). Consequently, political institutions and decisions, including the political status of a country, are essential to regulate the performance of its economy.

Institutions are “the rules of the game” (Rodrik, 1999). However, there are some characteristics that both economic and political institutions must possess in order to become “high-quality institutions”, the genuine deliverers of economic development. In order to reach satisfactory economic outcomes, both economic and political institutions must be inclusive and centralized. Sufficiently centralized and pluralistic political institutions are in charge of vesting power broadly, which tends to uproot economic institutions that expropriate the resources of the many, erect entry barriers, and suppress the functioning of markets so that only a few can benefit (Rodrik, 1999). Such political institutions also hinder others to usurp power and undermine the foundations of inclusive institutions. The lack of inclusiveness results in the development of extractive institutions. These concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power (Acemoglu & Robinson, 2012). Only inclusive

(13)

society. It is not a coincidence that countries with a higher GDP and a satisfactory growth performance are the ones that possess inclusive and centralized institutions. Examples of countries that have successfully developed their institutions are France, the United States, and the Netherlands. These countries allow and encourage participation by the great mass of people in economic activates that make the best use of their talents and skills and that enable individuals to make the choices they wish (Acemoglu & Robinson, 2012). Furthermore, “high-quality institutions” must be “context-specific” (Rodrik, 2005). Institutions must vary according to the socio-economic situation of the specific country. Therefore, attempts to emulate successful policies from country A often fail in country B.

Centralized, inclusive and context-oriented institutions are considered to be the main characteristics of “high-quality institutions”. As a result, these deliver several positive economic outcomes to the country in which they perform. First, they foster economic activity, productivity growth, and economic prosperity (North, Wallis, & Weingast, 2009). Second, they are able to supply rule of law and property rights, since only those with such rights will be willing to invest and increase productivity and not only for the elite but for a broad cross-section of society (Acemoglu & Robinson, 2012). This leads to sustained economic growth that is almost always accompanied by technological improvements that enable people, land, and existing capital to become more productive. Third, “high-quality institutions” are also able to control violence. When wealth is not concentrated only on elites, everyone in the society is somehow economically integrated and, when integration is sufficiently high, violence gets too costly (North, Wallis, & Weingast, 2009). Fourth, “high-quality institutions” are the key to longer-term prosperity. Institutions that promote growth in the short to medium term do not necessarily guarantee success in the long-term. Once growth is launched, is it the task of the country’s government to develop institutions that maintain productive dynamism and generate resilience to external shocks (Rodrik, 2005).

A growing body of literature has evaluated the importance of political and economic “high-quality institutions” for the proper economic development of a country. France, The United States and The Netherlands have accomplished the formation of “high-quality institutions” that deliver positive outcomes to its economies. Nevertheless, “high-quality institutions” are sometimes shaped by the influence of certain external factors. These factors can alter the positive performance of institutions. As in the case of the semi-sovereign states under the jurisdiction of France, the

(14)

United States and the Netherlands, there are stark inequalities both within the territories and between the territories and their respective sovereign countries (Chauvin, Clegg, & Cousin, 2018) In such semi-sovereign states, economic development is not fully fostered; short-term growth rather than long-term growth has been achieved and institutions mostly encourage extractive economic performances rather than inclusive. Hence, one must evaluate the factors that mainly influence the performance of political and economic institutions and consequently, economic development.

c. Factors That Influence Development

The second section of the literature review explores the academic discussion about the factors that influence the success or failure of nations based on the book “Why Nations Fail” (2012) by Acemoglu & Robinson. The book discards the external factors of culture, ignorance and geography as main influencers on economic development. These have been recognized to suppose an influence for development, but not to be the main factor that directly affects economic development. On the contrary, there is a consensus that the lack of “high-quality institutions” is the main cause of underdevelopment. For the purpose of this research project, the most relevant discussion is the dilemma between geographic location or institutions as the main factors that affect economic development. Due to the particularities of the selected region of study, the Caribbean is often considered underdeveloped as a cause of its geographic location. The “geography theory” is sustained not only by social scientists but also by academics specialized in natural sciences. This theory claims that the great divide between rich and poor countries is created by geographic differences (Sachs, 2003; Diamond, 2012). While several poor countries in the regions of Africa, Central America or South Asia are located in the tropics, rich and prosperous countries tend to be in temperate latitudes. According to this theory, geography is a key determinant of climate, endowment of natural resources, disease burden, transport costs, and diffusion of knowledge and technology for more advanced areas. This theory also argues that tropics are poor because tropical agriculture is unproductive. These statements are not far from the reality of the Caribbean. The region shares a number of problems common to small island entities: remoteness, strong reliance on natural resources and environmental fragility (PAHO, 2007). Due to the islands’ lack of competitiveness and their tendency to specialize in service exports,

(15)

more and transportation requires more time. Also, the Caribbean geographic location is subject to environmental fragilities. Several atmospheric disasters have passed through the islands. Recently, both the islands of Guadeloupe and Puerto Rico suffered the devastating consequences of Hurricane Maria and Hurricane Irma, both in September 2017.

While geographic location is a valid factor that influences development, especially in the Caribbean, it fails to explain world inequalities. History illustrates that there is no simple or enduring connection between climate or geography and economic success (Acemoglu & Robinson, 2012). For example, the Aztec and Incas empires, rich and successful civilizations that were built in tropical places. Moreover, geography is unlikely to explain the poverty of the Middle East, a region that does not have tropical weather. Although geographic location supposes several burdens to the Caribbean, there are certain events that the geography theory fails to explain. For instance, according to a study from the Federal Reserve Bank of New York in 2012, shipping a container from the United States East coast to the island of Puerto Rico cost $3,063, but shipping the same container to nearby Santo Domingo, Dominican Republic cost only $1,504 and to Kingston, Jamaica only $1,607. Additionally, the hurricanes that hit the islands of the Caribbean during 2017 also affected the southeastern part of the United States, the state of Florida. Nonetheless, the state of Florida was able to recover electricity and running water in two weeks while in islands like Guadeloupe took over nine months to completely recover. The geography theory does not succeed to provide a logical explanation for the above-mentioned situations.

It is the lack or the possession of “high-quality institutions” that really determines the economic development of a country (Acemoglu & Robinson, 2012). The lack of “high-quality institutions” generates an absence of specialized intermediaries and regulatory system, low standards of living, low human development index level, poor education system and high illiteracy, high unemployment, lack of adequate health care, low degree of political freedom, moderate to high risk of social rest (Marquis & Raynard, 2015). Nevertheless, the lack of “high-quality institutions” theory fails to explain a specific situation; while France, the United States, and the Netherlands have “high-quality institutions”, these sometimes fail to deliver the same positive economic outcome to their overseas semi-sovereign territories that are under their institutional jurisdiction. This incongruence calls for the search of external factors that can influence the functioning of institutions and therefore, the economic development. As mentioned at the

(16)

beginning of the literature review, it is politics and political institutions that determine what economic institutions a country has. Hence, one must investigate whether the political relationship between France, the United States and the Netherlands with their semi-sovereign states is considered a factor that affects economic development. Since their political relation gathers several characteristics of neo-colonialism, it is imperative to review the literature available on the effect of colonialism and neo-colonialism in institutional and economic performance.

d. Colonialism and Neo-Colonialism

Virtually every third-world country began its modern history as a colony of one of the former imperial powers of Europe or Asia. Thus, there is a general basis for comparing colonialism and development (Watson, 2010). Officially, colonialism is defined as “the extension of a nation’s sovereignty which infringes on the sovereignty of other nations or people” (Jackson, 2009). However, the term encompasses more than that brief explanation. Colonialism does not exclusively refer to the presence of imperialism or colonial administration, but to a modality of being, as well as to power relations that sustain a fundamental social and geopolitical divide between masters and slaves (Maldonado-Torres, 2008). Colonialism is also defined as a form of domination, the control by individuals or groups over a territory and/or behavior of other individuals or groups, with emphasis on economic variables (Horvarth, 1972). Colonization completely ended in the 1960s, and development began arguably in the 1940s when President Truman used the word underdevelopment for the first time. Therefore, these are historically and chronologically linked processes (Watson, 2010). Nevertheless, the establishment possesses no widely accepted theory of the end of colonialism, nor does any substantial agreement exist upon what colonialism is, and the transformation to its current and unofficial term, neo-colonialism.

Jean Paul Sartre’s Colonialism and Neo-colonialism (1964) contains the first recorded use of the term “neo-colonialism”. This is a term that encompasses the post-colonial relations and perspectives that reproduce the inequalities and unevenness of their colonial predecessors (Mains, 2004). The societies that live in neo-colonies have not been entirely divorced from their metropolitan powers (Girvan, 2012). Hence, within a neo-colonialism situation, the imperialists usually maintain their influence as in many sectors of the former colony as possible, making it less of an independent state and more of a neo-colony while perpetuating an unequal power relationship (Horvarth, 1972). What distinguishes neo-colonialism is that the metropolitan powers refuse to

(17)

acknowledge the possession of a colony in a post-colonial era. The failure to adequately identify internal forces of neo-colonialism and the denial of its existence reflects the uncertainty and ignorance of the term and the consequences the unofficial status implies as well as the inaction for different alternatives (Nkrumah, 1965). Just as formal colonialism, the core of neo-colonialism involves the oppression of people, the exploitation of their labor and resources, and the acquisition of wealth and power by the colonizer by rendering the colonized impoverished, powerless and dependent upon the colonizing forces (Horvarth, 1972). Thus, neo-colonialism encompasses the main institutional mechanisms that were technically abolished during the decolonization movement. Control by the institutional mechanisms of external powers is exercised in different practices; notable among these are ideological cooptation, financial, trade and security arrangements (Girvan, 2012). France, the United States, and the Netherlands do not officially admit the possession of their neo-colonies. Nonetheless, they current wield their superpower status through neo-colonial institutional mechanisms that shape several aspects of the semi-sovereign economic performance.

e. Colonialism and Development

Various approaches have been put forward to determine the effects of colonialism in different regions of the world. There is a consensus over the fact that the characteristics of both the colonizing and colonized societies shaped colonial institutions and thereby, the ultimate development of the form of colonial institutions (Acemoglu & Robinson, 2001, 2002; Mahoney, 2010). This follows the premise established by Acemoglu & Robinson (2008); politics and political institutions shape economic institutions. Some academics argue that colonialism had a positive effect on countries’ development. There are various opinions on the effects of colonialism in institutional performance. La Porta, Lopez-De-Silanes & Shleifer (2008) emphasize the importance of the colonial origins (the identity of the colonizer) and the legal origin on current institutions. The authors show that the common-law countries and former British colonies have better property rights and more structured financial market. Similarly, David Landes (1998) argue that former British colonies prospered relative to former French, Spanish, and Portuguese colonies because of the good economic and political institutions and culture they inherited from Britain.

At the same time, Acemoglu & Robinson (2001) call into question these past assumptions and draw a new distinction. First, they acknowledge colonial experience as one of the main factors

(18)

affecting institutions and therefore, economic growth. Then, Acemoglu & Robinson (2001) provide evidence that colonialism has shaped modern inequality in several fundamental aspects, but in a heterogeneous manner. They document that in a large number of colonies, especially those in Africa, European powers set up “extractive institutions”. The explicit aim of the European in these colonies was the extraction of resources, in one form or another. This colonization strategy and the associated institutions contrast with the institutions Europeans set up in other colonies, especially in colonies where they settled in large numbers, for example, the United States, Canada, Australia, and New Zealand. In these colonies, the emphasis was on the enforcement of property rights for a broad cross section of the society, especially smallholders, merchants and entrepreneurs. This created heterogeneous institutional legacies in different colonies of the world, with profoundly divergent consequences for economic development. As colonialism caused heterogeneous effects around the globe, there are some regions in the world in which the effect of colonialism was more negative than in others. A different study conducted by Heldring & Robinson (2012) argues that, when the focus of the study on colonialism is on Africa, the types of heterogeneity which characterize colonialism are muted. There is no success story like Australia or the United States from which economically dynamic settlers’ economies emerged. Falling African incomes in conjunction with rising average incomes imply that there was a huge increase in inequality as the consequence of colonialism.

In summary, colonialism did affect the performance of political and economic institutions in former colonies around the world. This influence was heterogeneous, while in former colonies like New Zealand the economic outcomes were positive, most countries in the African region suffered negative consequences. This is useful to understand the background of the term of study, neo-colonialism and to set the ground for the research question: How does neo-colonialism affect economic development?

f. Neo-colonialism and Development

The studies discussed in the previous section were conducted to countries that used to be colonies and now they are independent countries with barely official or unofficial economic ties to their ex-colonizers. Therefore, these studies analyzed the effect of the performance of institutional mechanisms of colonies that no longer exist. However, the literature does not discuss the economic effects of countries or territories that are still under colonial institutional

(19)

mechanisms, the neo-colonies. There exist additional studies that discuss the political, economic and social effects of neo-colonialism in African nations. But, despite the great academic interest in the African region, neo-colonialism is present in different parts around the world, including the Caribbean. After an extensive review of the literature available, this research paper has reached the conclusion that there is not sufficient writing on neo-colonialism in the Caribbean, nor studies that provide an insight into the effects of neo-colonialism in economic performance. Due to the existence of this gap in the available literature, this research project focuses on establishing a coherent correlation on the effect of neo-colonialism in economic development.

This literature review has provided the following information: Institutions are incentives to economic agents. Institutions that are inclusive, centralized and context-oriented are considered “high-quality institutions”. These types of institutions are able to promote economic growth and deliver economic prosperity in the long-term. Furthermore, “high-quality institutions” are able to control violence in societies and deliver rule of law and property rights. Great powers like France, the United States, and the Netherlands gather the characteristics of “high-quality institutions” and have been able to deliver positive outcomes to their economies. Still, the “high-quality institutions” do not always deliver the same economic outcomes to their overseas semi-sovereign territories. Therefore, it is imperative to question what factors truly affect economic development. Several authors have found that the main factor that cause development or underdevelopment is the possession or lack of “high-quality institutions” rather than other factors such as ignorance, culture or geography. Geography, as previously discussed, is an important factor in the Caribbean, but it is not sufficient to explain development or underdevelopment. However, the institutions’ theory does not fully explain the lack of development in neo-colonies either. The literature review has discussed that political institutions are the ones that influence economic institutions, therefore, the political status of a country matters in the influence of its economic institutions. Colonialism, which was a political status of several countries for centuries, has been considered a factor that directly affected the establishment of political and economic institutions and therefore, its performance. Nonetheless, colonies have currently transformed into the unofficial political status of neo-colonialism. Several territories around the world are under this ambiguous and unofficial status. While there is plenty of literature on the effects of colonialism, there is scarce literature of the effects on its evolution, neo-colonialism.

(20)

Based on the presented theory, this research project parts from the assumption that neo-colonialism, as well as neo-colonialism, affects the economic development of countries. However, this research project’s main task is to find out how does neo-colonialism affects it. By conducting a comparative analysis between three neo-colonies in the Caribbean (Guadeloupe, Puerto Rico and Curaçao), this research projects argues that neo-colonialism has heterogeneous effects on the economic development of semi-sovereign territories. Neo-colonialism creates several positive and negative outcomes in economic performance. However, there exist certain institutional mechanisms within the neo-colonial relation that create negative effects on the economic performance of these territories. The neo-colonial institutional mechanisms are represented in the form of laws. The economic effects of neo-colonialism vary depending on the presence or absence and the level of intensity of these specific neo-colonial institutional mechanisms in the territories’ economic sectors. These neo-colonial institutional mechanisms alter the performance of the metropoles’ “high-quality institutions” negatively.

(21)

III. Methodology

a. Research Design

This section describes in detail the methods that were used to conduct this research. This research is intended to understand the relative terms of institutions, development, and neo-colonialism and elaborate a qualitative analysis that measures the effect of neo-neo-colonialism on institutions, and economic development. Therefore, this research is not intended to generate numerical data, but to gain an understanding of the underlying realities behind the effects of neo-colonialism by evaluating and discussing the data already available in primary and secondary sources. This research aims to add a new dimension to the study of institutions, economic growth and its links to neo-colonialism that cannot be obtained through the measurement of one variable alone. Consequently, the study is conducted by analyzing three case studies that will be reviewed in the Case Selection section.

This is an explanatory and comparative research. This research is explanatory because it is intended to go further the description of concepts or phenomena and create an explanation of the above-mentioned concepts (Hernandez Sampieri, Fernandez Collado, & Baptista Lucio, 2010). This research describes and establishes relations between the concepts to generate an explanation about the effects of neo-colonialism on economic development. Also, this is a comparative research, in which each case is considered as a complex entity that needs to be studied in a case-sensitive way (Hernandez Sampieri, Fernandez Collado, & Baptista Lucio, 2010). It is comparative because it analyzes the similitudes or differences in the effects of neo-colonialism between the three case studies (Guadeloupe, Puerto Rico and Curaçao).

b. Case Selection

This section is devoted to explaining and justifying the selected cases that were tested to conduct this research project. Since this research discusses the effects of neo-colonialism, it was crucial to choose a case or a region that possesses nations under this unofficial political status. The region of Africa was discarded because, as previously mentioned, it is a region that has been severally studied in terms of colonialism and neo-colonialism. In addition, Africa is not the only region in the world that currently possesses a great number of neo-colonies. The Caribbean was selected as the main region of study for this research due to various motives. First, because of the elevated number of neo-colonial entities in comparison with other parts of the world. Second, the

(22)

Caribbean has several entities that suffer economic stagnation. Since this research paper tests economic development, the selected cases must be entities with economic development issues. And third, because of the lack of available literature on neo-colonialism in the Caribbean. After having decided the region of study, it was necessary to identify what territories are considered neo-colonies in the Caribbean. To determine so, a list with the main characteristics of a neo-colony was developed. It was imperative to find cases that gathered the following characteristics:

1. Countries or territories in the Caribbean that used to be colonies before the decolonization movement. The majority of current countries or territories in the Caribbean used to be colonies before the 1940-60s.

2. Countries or territories in the Caribbean that after the decolonization movement did not obtain full independence. Instead, these countries or territories obtained an ambiguous semi-sovereign political status.

3. Countries or territories that are currently not in the list of Non-Sovereign States established by the United Nations. Most of the United Kingdom territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Falkland Islands, Montserrat, Saint Helena, Turks and Caicos Islands) and the United States Virgin Islands are the current eight (8) Caribbean entities that are under the United Nations list of Non-Sovereign States. Consequently, these entities officially do not have self-determination and they are not relevant for this research project. This research is intended to investigate countries that according to the law (mostly national constitutional law) enjoy certain political and economic self-determination.

4. Semi-sovereign states that currently maintain economic and political ties with their prior colonizers or their metropolitan power. Their autonomy to create policy is often restricted as a result of their shared governance relationship.

(23)

Table 1 – List of neo-colonies in the Caribbean

Territory

Metropolitan

Power

French Guiana France

Guadeloupe France

Martinique France

Les Saintes France

Marie-Galante France

Le Désirade France

Saint Barthélemy France

Saint Martin France

Curaçao The Netherlands

Aruba The Netherlands

St. Maarten The Netherlands Bonaire The Netherlands

Saba The Netherlands

Saint Eustatius The Netherlands Puerto Rico United States Navassa Island United States

After conducting a process of elimination based on the four main points presented above, this list (Table 1) shows the results of the sixteen (16) entities that gather the characteristics of a neo-colony. For a holistic study, it would be ideal to analyze and compare the economic effect of neo-colonialism in all the sixteen entities. But based on the limitations on time and format of this research project, the case studies will be reduced to three (3). In order to still obtain holistic results with a reduced amount of cases, this research project opted to use a diverse-case method. This case-selection strategy has as its primary objective the achievement of maximum deviance along relevant dimensions (Gerring, 2008). Since diversity can mean various things, its employment in a large-N setting is necessarily dependent upon how this key term is defined (Gerring, 2008). The large-N in this research project is neo-colonialism. Based on this method, this research project

(24)

evaluates three (3) Caribbean territories that gather neo-colonial characteristics but have different official political statuses. The three selected cases are the islands of Guadeloupe, Puerto Rico, and Curaçao. The order in which the cases are named here is the same order in which they will be described and analyzed during the entire research. This order represents the level of legal dependency of the territories to their metropoles based on their official political status. The first case is the island of Guadeloupe, this is an Overseas Department of France. The second case is the island of Puerto Rico. Its official name the Commonwealth of the United States. Finally, the island of Curaçao used to be part of the Netherlands Antilles but, it is officially an independent country since 2010. Its current official name is the country of Curaçao within the Kingdom of the Netherlands. For the purpose of this research, despite of the official political status, the three cases will be considered “neo-colonies”, since certain economic aspects still operate under the institutional jurisdiction of its metropolitan power. These territories are considered neo-colonies since the time they were decolonized in 1946, 1952 and 1954. Therefore, the economic and political decisions and consequences discussed in the analysis of this research are based on events transcurrent in this specific period of time (1946-present). It is important to note that Curaçao recently changed its official status (2010) and it has become an independent country within the Kingdom of the Netherlands. Nonetheless, Curaçao still possesses several neo-colonial institutional mechanisms in its relationship with the Netherlands. This research will evaluate its economic performance as a neo-colony from 1954 until today, taking into consideration the change of official status and its effects on economic development.

Then, in order to analyze the neo-colonial effects on economic development, it is imperative to investigate the different economic sectors of Guadeloupe, Puerto Rico, and Curaçao. There is an array of economic and political sectors in the three territories that are monitored or overseen by the institutions of the metropoles. Nonetheless, due to the framework of time and the size of this research project, the decision was to select two important economic sectors that are economically and politically monitored by France, the United States, and the Netherlands individually and respectively. In addition, it was important to select economic sectors in which there was enough available data, since certain neo-colonial entities did not have any access to their primary data. Finally, two (2) aspects of the neo-colonies’ economy were selected. There is a notable influence from the metropolitan powers in both of them. The two selected economic sectors are market structure and fiscal policy. For the purpose of this research, market structure

(25)

is defined as the characteristics of the market either organizational or competitive, that describe the nature of competition and the pricing policy followed in the market (Chen, 2018) The fiscal

policy is referred to the decisions in which the government uses its spending and taxing powers to

have an impact on the economy. The direct and indirect effects of fiscal policy can influence personal spending, capital expenditures, exchange rates, deficit levels and even interest rates, which are usually associated with monetary policy (Schmidt, 2018). The analysis will consist on the evaluation and comparison of the prominent institutional mechanisms that have shaped the market structure and fiscal policy on Guadeloupe, Puerto Rico and Curaçao since they became neo-colonies.

c. Data collection

In this qualitative research project, the collection of data is oriented to provide a better understanding of the significance and the correlation between neo-colonialism and economic development. For the purpose of completing this research successfully, an array of different sources has been gathered to build and support the main argument and deliver reliable and objective justification of the main research points. There are two types of sources: primary and secondary sources. The sources are also divided in this order in the bibliography chapter. The process of collecting data was progressive. First, the research project started with the collection of secondary sources to understand the theoretical stand: the relation between neo-colonialism, institutions, and development. Then, when enough secondary sources were gathered, the research question was created, and the main argument was formulated. In order to answer the research question and prove the validity of the argument, several primary sources were assembled.

Secondary sources were mostly used for the literature review and the context chapter. This research project gathers a variety of academic papers that discuss the main definition and characteristics of institutions and neo-colonialism, as well as the strong link between institutions, economic growth, and neo-colonialism. The literature available on economic growth and institutions is extensive, therefore it was narrowed down by opting for the most notable writers in the field of economic development such as Acemoglu & Robinson, Douglas North and Rodrik, among others. The main concept of study, neo-colonialism, is not an official version accepted by governments nor international organizations. Thus, it was essential to gather numerous academic papers that describe and justify the existence of the term “neo-colonialism”. In order to avoid a

(26)

biased selection of literature, this research project has selected academic papers that discuss the positive and negative effects of this unofficial status. To a less extent, the secondary sources were used for the analysis of the economic effects of neo-colonialism, in order to understand how other authors have interpreted the available empirical data extracted from primary sources. Finally, to obtain a better insight into the economic effects of neo-colonialism and its institutional mechanisms, the research paper has collected news reports from local newspapers. These sources were necessary since some of the institutional mechanisms that are discussed have had very recent modifications or consequences that are not yet presented in academic papers. The research project includes recent news coverage from local newspapers (El Nuevo Día in Puerto Rico, Curacao Chronicles in Curacao and Seguin Gazzete in Guadalupe). The research project also uses newspapers from the United States (The Washington Post, Times and New York Times) France (Le Monde) and The Netherlands (NL Times).

Primary sources were used in order to validate with empirical data the main arguments of this research. Hence, the main important points that establish the neo-colonial relationship between the metropoles and their territories were obtained from the Status of the Kingdom of the Netherlands, the Constitution of the United States and the Constitution of France. This information is essential to learn the main context of the territories and to guide the readers who are probably not familiarized with the islands’ economic situation. Other type of primary sources were the laws that represent the institutional mechanisms on market structure and fiscal policy. Different government reports have been evaluated to determine the main characteristics of these laws. Finally, this research project uses primary sources that contain mostly numeric data from official sites such as The World Bank, the International Monetary Fund, the Central Bureau of Statistics in Curaçao, the National Institute of Economic Statistics of France and the New York Federal Reserve. These statistics, graphs and numbers show the percentages of GDP, Growth Rate, Household Income or local prices that will provide the objective data necessary to measure the effects of neo-colonialism in economic development. Unfortunately, some official websites did not provide easy access to reliable data, therefore this posed some difficulties to certain parts of the research. This will be further discussed in the limitations section.

(27)

d. Data analysis

The analysis of this research project consists of pairing up the defined concepts of high-quality institutions, economic growth and neo-colonialism obtained from the secondary sources with the information acquired from the empirical data, which are the economic effects. The analysis consists of a systematic comparison between the effects of neo-colonialism on the economic performance of Guadeloupe, Puerto Rico, and Curaçao in the market structure and the fiscal policy (separately). Figure number 2 represents the conceptual map that was formed to obtain a visual and clear view of the building of the research’s analysis. The analysis explains and examine the neo-colonial institutional mechanisms present in the selected economic sectors. The analysis is divided into two different sections: Market structure and fiscal policy. Each section starts with a description and explanation of the institutional mechanisms of the three territories. These will explain the laws that forge the market structure and the fiscal policy of each sector. This provides the reader with a holistic understanding of the main features of these laws. The comparison of the institutional mechanisms is to be able to determine the ones that are characteristic of a neo-colonial relation. Continuously, there is a comparison of the economic effects of the institutional mechanisms. This section contains mostly empirical data from official reports. Finally, a critical discussion follows. This discussion focuses on how the presence or absence of neo-colonial mechanisms affect the delivery of economic development in these territories. In addition, this section explains how the neo-colonial institutional mechanisms alter the performance of the metropoles’ “high-quality institutions”.

(28)

Figure 2 – Conceptual Map

e. Research Limitations

The limitations of this research are important to be clarified in order to justify the absence of certain data and also, to encourage the continuity of this project as a further enlarged research. Four limitations have been identified in this research, although the existence of other limitations that are not mentioned is not discarded. First, the size of the sample is relatively small to provide a holistic view of the effect of neo-colonialism in the world. An enlarged sample could be useful to enhance the reliability of this research. But, as explained before, the amount of case studies is based on the time frame for this research project. Nonetheless, a clear explanation has been provided to justify the three case studies. A second limitation is the lack of numerical findings. Quantitative findings could provide a more precise approach to the effects of neo-colonialism in development. However, this research is focused on the qualitative aspects of the economic effects. Nonetheless, this is considered to be an incentive to continue this research project with a quantitative approach in the future, in order to expand the available knowledge on the subject. The third limitation addresses the lack of certain empirical data on the analysis. Some primary data was not available on official sources and could not be obtained. Also, both the World Bank or the International Monetary Fund do not provide studies conducted on Guadeloupe or Curaçao. For

Caribbean Neo-colonies

Puerto Rico

Guadeloupe Curaçao

Market

Structure Fiscal Policy

Fiscal Policy Market

Structure Fiscal Policy

Market Structure

Octroi de Mer N/A Cabotage Law Law 936 N/A Tax Exemption

(29)

instance, in the market structure section of the analysis, there is certain data missing with respect to pricing on local products. Additionally, in the fiscal policy section, there exists no data on economic growth in Curaçao (or the Netherlands Antilles) from 1950-1980. Most data are available after the 1980s. This is a limitation for this research but could also be an incentive to expand this research by conducting fieldwork in the three islands in order to search for the unavailable data. The validity and reliability of this research are conditioned by those limitations that have been acknowledged. Nonetheless, the limitations do have long term solutions for further amplification and development of this research.

(30)

IV. Context Chapter

a. The Origins of Neo-Colonialism

It is a commonplace that Third World countries, despite their achievement of political independence in the post-war period have yet to achieve economic independence (Paragg, 1980). Colonialism supposedly died during the mid-twentieth century (Jackson, 2009), but the current world order seems very different from that. To label the present day as the post-colonial era can be misleading, since colonialism just changed its façade, but not its main structure, giving birth to the term neo-colonialism. Outside of the context of formal colonialism, neo-colonialism would be a more appropriate prefix. The first use of the word may have occurred in the 1950s when new independent nations found themselves only partially independent; a new term to be exploited for political purposes was needed. The 1960s were marked by an unparalleled eruption of new states, rising from the ruins of colonialisms, which took place primarily in Africa but reached to other parts of the world (Girvan, 2012). The radical change in the balance of membership pushed the dominant opinion in the United Nations far over into the anti-colonial movement. The United Nations Charter acknowledged the principle of equal rights and self-determination of peoples among its purposes; based on the belief that colonialism was an outrageous practice that must be left in the past (Girvan, 2012). It then established a set of principles and obligations in relation to all non-self-governing territories which gradually opened the door to a demand for international accountability on the part of all the colonial powers. This created a wave of decolonization between the 1940s and 1960s. Colonial nations changed their official name and were separated into three different categories. First, Chapter XI of the United Nations Charter denominated the “Non-Self-Governing Territories”. These are territories “whose people have not yet attained a full measure of self-government”. The Charter states that the interests of the occupants of dependent territories are paramount and requires member states of the United Nations in control of these non-self-governing territories to submit annual information reports concerning its development. The second category was the “Self-Governing” or “Autonomous” countries. These are independent countries full in charge of all their government affairs. And thirdly, the United Nations named the “Integrated Jurisdictions”, political entities that annexed to an existing country. Nonetheless, there is an on-going debate over the content and implications of the different arrangements, especially in the category of “Non-Self-Governing” territories. The United Nations list does not include the French Caribbean Departments, presumably because they are regarded as “Integrated Jurisdictions”; as

(31)

well as the Dutch territories and Puerto Rico, presumably because they were regarded as “Autonomous Countries” (Girvan, 2012). The debate is mainly caused because the political status of the above-mentioned cases does not fully fall into any of the United Nations categories. Those categories do not really encompass the accurate status of these states because a country may be both post-colonial (in the sense of being formally independent) and neo-colonial (in the sense of remaining under the economically and/or culturally dependent) at the same time (Loomba, 1998). These partially independent territories have embarked on a variety of different post-colonial pathways (Bishop & Phillip, 2018) and have increasingly come to be seen as legitimate political jurisdictions by politicians, scholars, and constitutional lawyers alike.

i. Neo-colonialism in the Caribbean

Neo-colonialism is neither a European phenomenon, nor it is restricted to the Scramble for Africa (Heldring, Leander, & Robinson, 2012). As discussed in the literature review, most academic attention on neo-colonialism has been focused on Africa, since the first neo-colonies in the world were technically born in the region. However, the “last colonies” or “confetti of empire” lay scattered across the globe are mainly situated in the Atlantic, the Caribbean, the Pacific and the Indian Ocean (Veenendaal & Oostindie, 2018). The contemporary Caribbean is one of the most politically fragmented regions for its size on earth; and one with the strongest remaining colonial presence (Girvan, 2012). There are thirty-five identifiable political entities in the Caribbean in a population of 43 million (Girvan, 2012). Sixteen of the thirty political entities in the region can be regarded as “colonial Caribbean countries”, in the sense that they are non-independent entities over which extra-regional powers exercise ultimate control under international law. The main characteristic of the Caribbean neo-colonies the fact that they are still under the institutional mechanisms of its colonial relation. Despite the Caribbean has sixteen entities considered neo-colonies, this research will focus on three specific cases in order to evaluate their unofficial political status on their economic development.

The ties to the metropolitan powers have brought mainly positive outcomes to the neo-colonies. Even if sovereign micro-states may prove to be remarkably viable, non-sovereign territories world-wide definitely score better by economic standards. Semi-sovereign islands in the Caribbean are usually compared to former colonies that were able to acquire their independence

(32)

such as Haiti or Cuba. There is an evident positive correlation between non-sovereignty and standards of living and to some degree between non-sovereignty and good governance, including guarantees of human rights and liberties (Chauvin, Clegg, & Cousin, 2018). This is mainly due to the substantial amounts of financial aid from the metropoles that provide the neo-colonies with economic stability. Nevertheless, direct metropolitan monetary transfers are not the only or necessarily the most important factor. There are several advantages of being under the institutional jurisdiction of great powers. By maintaining economic and political ties to their metropoles, its residents enjoy shared nationality. Therefore, residents of neo-colonies have the right to move to the metropoles. Overall, being embedded in a larger and generally stable constitutional entity serves to strengthen the dependent territories’ institutional environment, with ensuing positive effects for local businesses and governments and enhanced credibility for international finance. (Oostindie, 2006).

Nonetheless, semi-sovereignty is generally a mixed economic blessing for micro-states (Oostindie, 2006). Whereas various scholars have praised the non-sovereign status as “combining the best of both worlds” and as “superior” to other arrangements (Veenendaal & Oostindie, 2018) they visibly fall short of metropolitan standards of living. Metropolitan protectionism and the frequently massive accompanying financial transfer may have boosted per capita income, but they have also served to create uncompetitive consumer economies and (Oostindie, 2006) high levels of financial dependency. Inequalities between metropoles and neo-colonies are stark in the different levels of the economy. The three selected cases show the underlying differences with the metropolitan economies. The Dutch, French and American overseas territories are part of a fragmentary and blind-spotted reality. The islands’ economic stands are shaped and defined by an array of external forces, mainly pursued and perpetuated by the metropoles (Chauvin, Clegg, & Cousin, 2018).

In order to understand the ambiguous neo-colonial relation with the metropoles and the stark economic differences between them, the next section will explain the neo-colonial status in the three selected cases (Guadeloupe, Puerto Rico and Curaçao). This section will include a more detailed explanation of the political status of each case, the relationship of dependence with the metropoles and finally, the economic differences between the neo-colonies and the metropoles. This is to set the ground to then explain the institutional mechanisms within the neo-colonial relation, how they work and how they affect the economies of these neo-colonies.

(33)

i. Neo-colonialism in Guadalupe

Guadalupe is a group of islands in the Lesser Antilles located the eastern Caribbean Sea. It is considered one of the Overseas Department and Overseas Region of France, in addition to Martinique, St. Barth and one half of St. Martin, the other half being ruled by the Netherlands. The department is a main territorial unit of France and there is no difference in the administrative status of these islands from any department of metropolitan France. Its colonial history started with the arrival of Christopher Columbus in 1493. France had several economic interests on this archipelago. Guadeloupe was a slaveholding colony. After colonizing the Caribbean islands in the 17th_{century, France established profitable plantation economies for the cultivation of sugar,} tobacco and bananas by capturing and slavering Africans. The dual territories “D’outre Mer” or “Overseas Department” classification was introduced in 1946: Guadeloupe, along with Martinique were granted the administrative status of “Department”. The island became an integral part of France having the president of France as head of the government. Moreover, Guadeloupe is a constituent territory of the European Union and the Eurozone. However, it is not part of the Schengen Area. All territorial institutions, whether municipal, departmental or regional operate like the metropolitan equivalents. In other words, the Overseas Departments are subject to the same rules as other departments in mainland France including infrastructure, economic, social endeavors, financial stability, transportation and social aid. While the region or the local government of Guadeloupe (equivalent to the local government of L’île de France or Province) has power to promote, but not fully manage, economic, social, cultural and scientific development. It also has power in matters of vocational training and domestic transportation.

Albeit both France and Guadeloupe share the same institutions, their economic performance is different. Guadeloupe benefits in different aspects from being part of France. Government services are central to the island’s economy, which is primarily sustained by the salaries of officials and by French aid in the form of allocations and grants. The islanders’ standard of living is among the highest in the eastern Caribbean (Cornevin, 2018). Guadeloupean residents also enjoy French salaries (1,300 a month). In 2016, France created a universal healthcare system for individuals who live within Guadeloupe. The scope of coverage ranges from medicinal prescriptions to death insurances, in attempts to further decrease poverty (Cornevin, 2018). Nonetheless, there exists several inequalities. In comparison with metropolitan France, Guadeloupe faces the difficulties of a rather weak economy (Daniel, 2001). While the salaries are

The effects of neo-colonialism on economic development : case study of Guadeloupe, Puerto Rico, and Curaçao

Master’s Thesis