DEPENDENCE AND ECONOMI C DEVELOPMENT I N ARUBA

DEPENDENCE AND ECONOMIC DEXEMPMENT I N ARUM

George Cve janovich

University of Texas a t Austin

Department of Government

In t roduc t ion

This essay w i l l analyze t h e r o l e of expor t s in Aruba's dependence

and development. Aluba i s onc o f s i x i s l a n d s comprising the' Netherlands

A n t i l l e s , whic Q s a f ede ra t ion , is indepcndcnt with reeard t o i n t e r n a l ?I

a f f a i r s ht is sti l l t i e d t o t he former co lon ia l power with regard t o

defense and e x t e r n a l r e l a t i o n s . Current p o l i t i c a l debate n o t only fo-

cuses on the p o s s i b i l i t y of complete indepcndcnce, but a l s o on thc

p o l i t i c a l r e l a t i o n s h i p &tween Arub arid Cura$ao. Since t h e e a r l y lg@s,

Amba has demanded more autonomy, i f n o t independence, fro:: Currizao and

the central government. 1

Aruba's cconomic development ha s pr imar i ly been t h e ~ ~ s u l t of t he

r e f i n i n g o f o i l imported from Vcnemela and o f tourism. An a n a l y s i s of

t hese two s e c t o r s c o n s t i t u t e s t h e major p a r t o f t h i s essay . The f i n a l

p a r t d i scusses the r o l e of economic i n t e g r a t i o n in export I n d u s t r l a l i z a - ....

-\ t i o n , s i n c e some form of i n t e g r a t i o n seems incyStable f o r t h c f u r t h c r

, . - --- development of an i s l a n d with a populat ion of . & , O D ~ .

Overview

The s t m c t u r e of t h e A r u h economy has k e n condit ioned by the

small s i z e of the i n t e r n a l market cmd poor resourcc endowment. The con-

t r i t u t i o n of t h e primary s e c t o r to income and employment has never &en

above 3 percent in r e c e n t years (scc Tablc I ) . P r i o r t o the establ ishment

of the o i l r e f i n i n g indus t ry , Amha's economy was h s e d on commerce, sub-

s i s t e n c e agriculture, and a i d f m m t he Dutch ~:overnmcnt. Af t e r 1930,

~ ~ b a ' s economy kcamo i n e x t r i c a b l y l i nked t o the o i l s e c t o r , which f o r

t h i r t y years was the most i n p o r t a n t source o f employment, t h e i s l a n d ' s

foremost fore ign exchange earner, and t h e p r i n c i p a l taxpayer. In t h e l a t e

1950s, ~rubs's per c a p i t a n a t i o n a l income was o v e r 1,000 d o l l a r s , while

Holland 's was 700 d o l l a r s . Unemployment was low and t h e d i s t r i h t i o n of

income was acceptable. 2

However, the apparont high l e v e l o f development was i l l u s o r y and

dependent o e x t e r n a l f a c t o r s . Changes i n t h e i n t e r n a t i o n a l petroleum -- economy forced the automation of Aruba' s o i l Indus t ry , r e s u l t i n g i n the

L-- - - - massive displacement of l abo r . By t h e mid-l960s, p e r c a p i t a income had

dec l ined t o 890 d o l l a r s ( s ee Tablo 2 ) , and unemployment reached 25 per-

cen t . Between 1957 and 1965, n e t n a t i o n a l savings a t cu r r en t p r i c e s f e l l

from 17 percent o f t h e CNP t o 4 percent , and gross c a p i t a l formation f e l l

f r o m 22 percent of tho CNP t o 13 percent . Tht: s t n ( q a t i o n of the oconony

i n r e l a t i v e and abso lu t e tclms was n d i r c c t r c c u l t of ch;ingcs j.n the

i n t e r n a t i o n a l petroleum economy.

Cognieant o f t h e vu l r . e r ab i l i t y and asyrrnetry of the i s l a n d ' s

economic s t r u c t u r e , t h c i s l a n d eovenune~lt prepared a ten-ycar development

plan.4 The plan requi red a t o t a l investment o f I20 mi l l i on d o l l a r s i n

AN^ while t hc t o t a l requi red f o r h t h Amba arid Cura$ao was projec ted

t o bo 370 mi l l i on d o l l a r s . O f t h i s , 45 percent was f o r indus t r ia l lz -a t lon

and tourism, 35 percent f o r i n f r a s t r u c t u n ? devclopmcnt, and t h e remaining

20 parcen t f o r s o c i a l development (i .e. housing, h e a l t h , and education) . The goa l s o f t h e plan Here t o reduce the I s l a n d ' s dcpendencc on the o i l

Indus t ry by d i v e r s i f y i n g t h e economy and t o incrcasc employment. tlowever,

implementation o f tho plan dcpcndcd on forul(;n sources of f Lnancc . 5

The development p lans were never implemented ak The Hague d i d no t

approve 6 &;he h ieh c a p i t a l demand. Instear l , the Dutch implemented a

'\

mult i -year plan i n f ive-year phasen of emcrgcncy p r o j e c t s pr imar i ly aimed

a t t h e development of the I n f r a s t r u c t u r e anti tourism. Aid from Holland

and t h e Eumpean Economic Community (EEC) was s u b s t a n t i a l l y lestp.and i n \

d i f f e r e n t sectors:than what the o r i g i n a l plan envisioned. "She 152 .-- .

m i l l i o n d o l l a r s providcd t o Amh and Lbra$no d u r i n g t h e f i r s t two phases

of t h e m u l t i - y e a r p l a n , t h a t is 1962-1966 and 1967-1971, f e l l far s h o r t

of t h o 370 m i l l i o n d o l l a r s projected i n t h e o r i ~ : i n a l t e n - y e a r p lan . A

t h i r d f ive .year phase brought t h e t o t a l t o 220 m i l l i o n d o l l a r s . F u r t h e r -

more, an i n s u f f i c i e n t amount of t h i s a i d (13 p e r c e n t ) went to i n d u s t r i a l i -

z a t i o n p r o j e c t s . Most of t h c aid (54 y e r c e n t ) wc:nt f o r i n f r a o t r u c t u r c

development o r i e n tod t o n a r d tour i sm. 7

consequent ly , t h e Arub-11 6.0vernm-t ". . . c o n c e r ~ t r a t e d on crcatblng

a fiscal atmosphere as f a v o r a b l e as p o s s i b l e t o new [fore is] e s t a b l i s h -

8 merits, granting e x c e p t i o n a l l y p r o f i t a b l e s i t u a t i o n s . , . ." The i n c e n t i v e

p l p f p m , however, has met wi th l i t t l e s u c c e s s cxccp t i n t h o arts o f

t o u r i s m where i n c e n t i v e s were riot as n e c e s s a r y ,and which, i n the lonf; r u n ,

may prove c o s t l y . I n d u s t r i a l development i n A n l h has been l i m i t e d f o r

s t r u c t u r a l r easons . The s i z e of t h e domest ic market is such t i ~ a t industry

must be e x p o r t - o r i e n t e d . Iiouevcr, c x p o r t i n d u s t r i a l i z a t i o n f a c e s t f ~ r e c

o b s t a c l e s ~ a r e l a t i v e l y h i ~ h nago l e v e l Fn i iruh, h i ~ h tran:;portcltion

c o s t s , and h igh t a r i f f s i n f o ~ i i - ; n m a r k c t . ~ . Consequently, d ivc : r s i f i ca t ion

o f t h e economy h a s k e n l i m i t e d . The economy remains dependent on t h e o i l

i n d u s t r y , t o u r i s m , and e x t e r n a l a i d f o r fon.1~71 exchange Table 1).

The O i l I n d u s t q

The e s t a b l i s h m e n t o f t h e k g 0 011 ~.efint:ry in 1930 (by S t a n d a d

Oil of New J e r s e y , now ~ x x o n ) had a profourid e f f e c t on Aruhz's p o l i t i c a l

economy. By 1945, 80 m i l l i o n d o l l a r s had h e n i n v e s t e d i n t h c r e f i n e r y ,

and o v e r h a l f o f t h e i s l a n d ' s w o r k h a popula t ion was employed a t Lago.

The i m p o r t a t i o n of f o r e i q labor c o n t r i b u t e d t o t h e r a p i d i n c r c a s s o f

Aruh3's p o p u l a t i o n (fmm 13,500 in 1930 to 46,000 i n 1945) anti ch;u?::cd

the is land's r e l a t i v e l y classless soc ia l s t ~ x c t u r n . ~ h(.o was a l s o

responsible f o r important i n f r a s t r u c t u r e developments. Aside from t he

necessary harbor and communications dcvelopmcnts, Lago was a c t i v e in the

amas of housing and educat ion. Aruba's rirst h n k , which was l o c a l l y

owned, H a s developed t o meet Lago's pay ro l l needs. Ligo 's importat ion of

w a t e r - t a n k e r s going t o Amba used f r e s h water a s h l l a s t - - h e l p e d t o com-

ba t the i s l a n d ' s perpe tua l water shortago (averace a n n m l r a i n f a l l is

inches ) . The establ lshmcnt o f the d e s a l i n i z a t i o n p l a n t in tho l a t c 1Y50s,

which ended Azuba's water problem, might no t have occurred had Lago n o t

e x i s t e d . The d i r e c t con t r ibu t ion o f Lago t o t he government w a s a l s o sig-

n i f i c a n t . The amount o f t axes paid by t h e r e f i n e r y and its cmployccs was

equ iva l en t t o Amba 's f i r s t h d g e t of 5.3 mil l lon ciol lars in 1952.

Uhile Lago had a s i g n i f i c a n t impact on Aruba's development, the

refinery and its employees also c o n t r i b t c d t o Exxon's development. By

1933, Lago was Exxon's l a r g e s t r c f l n e r y and remained so u n t i l t ho l a t o

1960s. Jbrthennore, u n t i l the l a t c 1950s. Lago reprcsentcd 25 parcent

10 of Exxon's t o t a l refinery crude o i l M s . Lat;o a l s o had a c r i t i c a l

role Fn t h e developmen t o f o t h e r Exxon subsidirrr ios . I n 1935, thc company

en te red I n t o a c o n t r a c t with Exxon ' s crude-p~-otiucine affiliates in

Venezuela t o p m c e t h e i r crude i n A n b a at a low f i x c d rate o f return. 11

mis system of t r a n s f e r p r i c i n g , known as "crude-no t h i c k , " was l n o t i tu ted

t o s h i f t p r o f i t s from t h e consuming country t o t h e producing country.

The value of Lago's cmdo imports was n o t calculated u n t i l the end of the

accounting period and was then s e t t o &ve W,o a f i x e d p r o f i t . The

marginal tax r a t e on t h e t r a n s f e r r e d p r o f i t s was zero. l2 Thus, Gxxon' s

t a x payments t o the United S t a t o s were g m a t l y rcduccd. Tax payments t o

AN& and Venezuela were n o t d l m c t l y a f f ec t ed , a s t axes i n Amba were

based on tho quantity of o i l refined, u h i l e those in Venezuela were based

on the maxket p r i c e o f crude produced.

Changes i n t h o i n t e r n a t i o n a l prttrnlcum ecanony f o r c e d t h e r e f l ~ l e r y

In A ~ b a t o automate its produc t ion pmcc:;n in 1950. Tiefining c a p a c i t y

had increased s u b s t a n t i a l l y th roughout tlx, wol-ld, p a r t i c u l a r l y in t h e

U n i t e d S t a e s , hkmpe, and Venezuela , t h u s i n c l ~ a s i n g compet i t ion . The

impact of automat ion on Amba was s e v e r e . Appmximately 25 p e r c e n t o f

Lago ' s employees ue1-e dismis:;ed h s t n c ~ 1950 ~ l t l 1955 (see 'Sable 4 ) .

While t h e n e g a t i v e conscquerices o f t h e f o r c e r e d u c t i o n on A n t b were

m i t i g a t e d by t h e f a c t +bat much o f t h i s labor was f o r e i g n and w a s re-

p a t r i a t e d , wi th in a fcw y e a r s Xruhuls were a l s o nf f ' cc tcd . The i:,l,uld

government then r e q u i r e d t h a t Arubul:; bc tr~thlc:d t o n?pl;rcc t h c ~.c.rnahhg

f o r e i g n e r s .

The Arubu l izd t ion o f t n e i n d u s t r y was a l e n ~ t h y p m c e a s , but by

1972, 75 p e r c o n t o f Lago ' s enp loyces wcrc Aluhxn, m d h a l f o f t h e

m i n i n g 25 p e r c e n t were A n t l l l e m s . A r u h i : , ~ L ~ S O c o n o t i t u t c d mom t izm

h a l f of Lago's ~ a n a & e m e n t p e r s o n n e l . l3 Fur thennore , Lago c o n t r a c t e d

s e r v i c e s f r o m fo rmer employees w h o had e s t a b l i s h e d h s i n c s s e s a f t e r being

d i s m i s s e d f r o m La(;o. Consequently , h g o ' s to tn l wne;cc and c o n t z a c t e d

s e r v i c e s in the 1970s n e r e equ lva le r l t t o t h e company's wage b i l l in t h e

l a t e 1 9 9 s . Although automat ion H a s p i r r t i a l l y o f f s e t by some d i v e r ~ i f i ~ a -

t i o n of t h e economy, i t n e v e r t h e l e s s reduccd t h e i s l a n d ' s per c a p i t a 11;-

come and i n c r e a s e d ununploymcnt . 'The cwricornltnn t outorr.,ztion a t S h e l l in

Curatao, and t h e subsequen t memployment , Ma:; l a r g e l y re: ;ponsible f o r t h e

Nay 1969 r i o t s .

The mduc t io r i of cmploymcnt ; ~ t 1.1~0 lS;tVc i m l ~ t u r , t.o n l a b r rr,ove-

ment. R e l a t i o n s bctueen mruisgerncrit a d lahr u n t i l 1961 wcr-e conducted

through the h g o Employees Counci l ( M c ) , and a l a b r union with tf-le r i g h t

t o s t r i k e did n o t e x i s t . At tempts throu6:hout t h e 1950s to c h w g e t h e

sys tem f a i l e d . P a r a d o x i c a l l y , West I n d i a n l a b r a t la@, which o f t e n

became a c t i v e in l a b o r movements in t h e i r home i s l a n d s a f t e r leav ing

A r u b a , worked wi th in the U C and opposed unioni7a t ion while in ~ m h a .

One reason f o r t h i s was t h a t forc ign a g i t a t o r s r i sked depor ta t ion . m o

of t h e more notab le o f t hese l e a d e r s were E r i c Gairy, now Grenada's prime

min i s t e r , and George Weekes, now p res iden t o f T r in idad ' s O i l f i e l d s

Wo*ers Trade Union. Consequently, a l t h o u ~ h n Caribbrmn h i s t o r i a n has

cha rac t e r i zed Lago a s " the nursery o f West Indian a{;itatiorlal l eadersh ip ,"

a union (t~..? Independent O i l Uorkers union) was n o t e:; tablished u n t i l 1961

when t h e number o f non-Anti l leans was small enough anti automation had

a f f ec t ed enough Ambans t h a t a union was now :;upporter! by l a b r . 14

Lago's con t r ibu t ion t o Aruba's economy is d i f f i c u l t t o a s c e r t a i n

i n any d e t a i l . Nat ional accounts s t a t i s t i c s , which are a v a i l a b l e only

f r o m 1957 t o 19&, do n o t d i s t i n g u i s h between t h e two o i l r e f i n e r i e s

(I.ago and s h e l l ) - o r between the i s l a n d s . Thus, d a t a is eiven f o r tile - '- . t o t a l o i l i ndus t ry and t h e Ant i l lean economy.

The annual p r o f i t t a x paid by L?(p was approximately 5.3 rnill ion

d o l l a r s u n t i l 1974. The 6oveznment ca l cu la t ed t h o corn~~uly 'o p r o f i t s based

on t h e assumption t h a t each met r ic ton o f cnldc processed ( r c f i n e d and/or

t r - .hipped) r e s u l t e d in a p r v f i t o f 0.64 t i o l l a r s . 14'orty percent of t h e

1: ,it, t h e normal t a x a t i o n r n t o f o r co rpo ra t ions in t he A n t i l l e s , was

then c o l l e c t e d by tho governmmt. I n 1974, the indcx f o r c n l c u l a t i n c

p r o f i t s was increased t o 3.36 d o l l a r s p e r mct r ic t on , and Lat;o now paid

24 mi l l i on d o l l a r s in taxes . Af t e r Lago opened i ts books to t h e govern-

ment, t he company's p r o f i t for 1975 was found t o be 4'4 mil l ion d o l l a r s ,

and t h e index was reducod t o 2.23 d o l l a r s pc:r met r ic ton . Thus, Lago

paid 18 m i l l i o n d o l l a r s i n t axes that yenr. 15

The c o n t r i h r t i o n of t he o i l indus t ry t o t h e Antl l le im economy as

o u t l i n e d in Table 5 does n o t include s e v e r a l i n d i ~ c t bcnofitr;. nz ta on

investments is no t given. Betweon 1970 and 1973, Lago invested approxi-

mately 200 mil l ion d o l l a r s in desulphurization p ro jec t s t o meet United

S t a t e s pol lu t ion requirements l6 Also, o i l industry wages c o n t r i b t e d

more in tha way o f taxes to the government than d id o t h e r wages. This is

because u n t i l recent ly , only the o i l indus t ry withheld taxes on wages.

Since a l a r g e port ion o f taxes went uncollected because of the government's

lack of information, r e f i n e r y employees, by paying t h e i r l e g a l share of

taxes, c a r r i e d much of t h e country 's income tax burden .I7 Final ly , t h e

following data does no t include the linkago o r m u l t i p l i e r e f f e c t s of the

Industry, nor does i t include the indus t ry ' s role a s a foreign exchange

earner (see Tahle 3). The da ta i n Table 5 i n d i c a t e s t h a t while the o i l

i ndus t ry ' s cont r ibut ion t o the Ant i l lean economy as a percent o f GNP

decreased s u b s t a n t i a l l y between 1957 and 1964, it has remained s t a b l e

s ince. However, had the taxes n o t been increased, the indust ry would have

repmsented 20 percent of the GNP i n 1975. with regard to Lago and Aruba,

approximately ha l f o f the o i l i ndus t ry ' s contr ibution to the Anti l lean

economy can be a t t r i k u t e d to Lago, and Lago's percent contrAtution to

Aruba's GNP is roughly equivalent t o the indus t ry ' s percent c o n t r i h t i o n

t o t h e Ant i l lean GNP.

A x u b a ' s dependence on Lago, an important subsidiary of one o f the

world's l a r g e s t mul t ina t ional corporat ions, d i d no t r e s u l t in underdevelop-

ment.* This conclusion, however, should no t be i n t e rp re ted a s a repudia-

t i o n o f t h e dependency theory, f o r t h i s case i s unique. A s a m s u l t of

unique h i s t o r i c a l and geographical circumstances, Aruba received many of

the b e n e f i t s o f t h i s industry tut few of the cos ts . That is, much of the

labor, c a p i t a l , and n a t u r a l resources which were exploi ted t o pmvide

Lago with p r o f i t s and Amba with taxes, in f ras t ruc tu re development,

foreign exchange, a rap id r i s e i n pe r cap i t a GNP, and d i v e r s i f i c a t i o n

were imported. While t he economy was deeply a f f ec t ed by Lago's automation,

West Indian l a b o r cndumd the most hardships. An a n a l y s i s of Ambats

dependence on Exxon should n o t only include the impact on Aruba ht a l s o

t h e impac, on Exxon's developnent as a mul t ina t iona l corpora t ion . The

e x p l o i t a t i o n of Amlu's s t r a t e g i c p o s i t i o n , Wcst Indian l abo r , and

Venezuelan crude o i l , c l e a r l y promoted Exxon's development. Thus, while

a h o l i s t i c a n a l y s i s o f Exxon's behavior In t h e region ( t h e r,?rl.bbean and

~ e n e z u e l a ) s u p p r t s t he dependerlcy theory , an a n a l y s i s of t h e o i l i ndus t ry

in mba only provides rninhal support f o r the theory.

Tourism

In response t o t h e automation o f t hc o i l i ndus t ry , t h e Anti1lea.n

government in 1953 l e g i s l a t e d t a x incen t i v c s t o promote i n d u s t r l a l l * a t i o n

and tourism. Sinco the oxpoctod benuf i t s of touriom included the c r e a t i o n

of foreign exchange, employment, and linka(:cs t o o t h e r s e c t o r s of t he

ecanomy, t h e i s l a n d government s t r o n g l y supported t h i s i ndus t ry ( s e e Table

6 ) . me p o s i t i v e r e s u l t s o f tourism, howover, were l e s s thnn a n t i c i p a t e d

Tho generous incen t ive p o l i c i e s o f f e r e d by t h e government, which

included t a x - f m e ope ra t ions f o r ten yea r s , du ty- f ree imports of equipment,

freedom to r e p a t r i a t e p r o f i t s , permission t o import s k i l l e d l a b o r and

technicians, and (government financing o f i n f r a s t r u c t u r e , nas n o t s u f f i c i e n t

tc -.:tract foreign c a p i t a l . Thus, A m b ' s f i r s t two h o t e l s o f more than

100 moms were b u i l t by t he island govcrnmcnt u t i l i z i n g Dutch and EEC

g r a n t s and loans. Invcs tnent in t o u r i s t - s p c c i f i c i n f r a s t r u c t u r e was a l s o

f inanced by the i s l a n d . Howevcr, management o f tho h o t e l s was e n t r u s t e d

t o ..'foreign corpora t ions These management f inns took advantage of t h e

tax incentives w i t h o u t c o n t r i h t i n g much in thc nay o f capital to t h o

economy o r assuming <w.y of t h c r i s k involved in t h e investment. T h s ,

n h i l e t h e i s l a n d gove~nemnt absorbed the c a p i t a l c o s t s and r i s k s , the

p r o f i t s on t h i s investment wem r e p a t r i a t e d to thc e x t e r n a l cen te r .

F o ~ e i g n exchange r e c e i p t s and t h e m u l t i p l i e r e f f e c t o f tourism

are bw low becausc of t he high import content of t h e i ndus t ry , A study

of tourism in the Zastern Caribbean (Barbados, Trlnidad and Tobngo,

S t . Vincent, St. Kitts, and S t . ~ u c i a ) found t h a t f0r.evex-y d o l l a r spent

by t o u r i s t s , 77 percent r-etuun:; Lo thc uxtcr-~inl c c n t c r ; f T h i ~ r a t i o is

probably even h igher In Amba t:iven the ishrlt l ' : ; l ack of I.esourccs and

a g r i c u l t u r a l product ion.

The A n t i l l e s are a country with poss ib ly the h i ~ h e s t propensi ty to import in t he world. Not o n l y px.actic:rlly a l l nanuf'acturcd a r t i c l e s n u s t bG imported, l x t a l s o the 6:rcatest plrt o f t he l l n t i i l l a n food s u p p l i e s must cone from abroad. Undel- thr:so circum:;t~mceo tho mult i - p l i e r e f f e c t in the A n t i l l c s nu:;t br, cxc:c.cdinl;ly srn;L11.2*

The t o u r i s t m u l t i p l i e r in the Caribkeum, b c a u s e o f the i n d u s t r y ' s high

import c o e f f i c i e n t , i s between 40 and 1 .0 , no t 2 .0 o r h igher as it is Fn

2 1 dovelopod coun t r i e s . Thus, f ' o l ~ i @ exchm(:c r e c c i p t s have h e n low duo

t o t h e high import conten t of tourism, and foreign ownership combined

wi th l i kd t a x incen t ives r e s u l t s in lar(;e p r o f i t remissions abroad.

Tourism ", . . ~ r o d u c e s dcpundcnt cconomio:; clue t o tho lnr'8e import corn-

,oni?nt necessary t o support tourism, and maintains m e t l ~ p l 1 t a . n economic

g r o l ~ t h by providing a market f o r these expor ts . ,, 2%

In the process the hos t na t ion tourism adminis t ra t ion Lecor:t:s :m extens ion of t h e overseas i n d u s t r i a l tourism appara tus . Althou{:h i t is t h e ch ie f p o l i t i c a l ambition of these r ece iv ing s o c i e t i e s t o over- come t h e primacy of the metropolitan world, a ma,jor h ~ s t i t u t i on of t h e i r n a t i o n a l ~ d m i n i s t r n t i o n a c t s p x ~ c i s o l y o t h c m l ~ e .23

- 'tourism a l s o produces a number of disc:conomieu Land s o c i a l c o s t s .

The consumption ideology o f t ou r i sn pcno t r a t c s t he l o c a l p o p l a t i o n and

o f t en r e s u l t s in resentment arld See l lngs o f incmacetl dopr iva t ion , utiich

a r e compounded by h i s t o r i c a l i n c q u a l i t l e s ~ Them is a l s o a demonstration

e f f e c t in which ghe l o c a l populat ion a s p i r c s t o tho consumption p a c t e m s

of t h e t o u r i s t and thus consumes more imported goods (and fawer domestic

goods. F ina l ly , t he impact o f tourism on Caribbean c u l t u r e i s one of tho

mom d e s t r u c t i v e s o c i a l c o s t s of t h e i n d u s t r y , as a t o u r i s t c u l t u r e r e -

p l a c e s t h e l o c a l c u l t u r e .

In t h i s sense , culture no longer i 'unctions i n the Caribbean In its his tor ica l r o l e as an agent of n a t i o n a l u n i t y p r e c i s e l y bccause of its i n a b i l i t y to assume and main taln v i a b l c n a t i o n a l proport ions,24 - . For u h ~ n tourism-dependent n a t i o n s seek t o achieve t h e i r advance by indulging i n d u s t r i a l e s c a p i s t s , they become Inex t r i cab ly engaged in m e perpe tua t ion of t h c i r o m s ~ b o r d i n a t i o n . ~ 5 - .. . .-

The major p o s i t i v e ~ 0 n t r i b u t l 0 n of tourism t o developing coun t r i e s

is t h a t it is h b r i n t e n s i v e . In Amh, an Investment o f ~ , 0 0 0 d o l l a m

in the t o u r i s t s e c t o r w i l l provide pxmancnt employmcnt f o r ono p r s o n .

Th i s is in c o n t r a s t t o the o i l i ndus t ry , where investment per person

pemanen t ly employed i n Lago's desulphur i~za t ion p r o j e c t was over 500,000

d o l l a r s . However, most o f the tourism-= l a t e d employment oppor tuni t ies

are f o r u n s k i l l e d and semi-sk i l led so rv i cc I n t o r , with t h e few profess iona l

j o b b i n g f i l l e d by fo re igne r s . In 1975, t he t o u r i s t i ndus t ry in Amba

,hi \c La/)" paid 7 mi l l i on d o l l a r s in wages ( 3,410 d o l l a r o pcr average employee) w

Fh ' i z ..I i l l o r t \ c l l * n % \ h w k ) ~ ) C1Y,b70 ~ ( C ~ ~ A I I I P M A Y c ~ Y P QC P l r y t e ) . 26 A r e c e n t report commissioned by t h e AmLm i s l a n d government s t a t e s

that in 1973 the t o u r i s t Indus t ry c o n t r i t u t e d 60 mil l ion d o l l a r s t o the

economy. However, t h i s ca l cu ln t ion was hlscd on tho astjumption . that 40

pe rcen t of t h ou ,ist cxpendltulr! rcn~alncd i n ~ n ~ t a . ~ ' An noted e a r l i e r , 2 /A -- JJErCLic4-A

20 pe r&nt o f t h i s cxpondlturc w i l l

l o c a l economy. Fu r themore , the r e p o r t argued

industry was 2.5, thus adding 5,500 per~sons t o t he 2,200 d i r e c t l y employed

by h o t e l s . Aside from previous1.y noted evidcncc which maintains t tmt the

m u l t i p l i e r in a high import economy is l e s s t han one, the inaccuracy of

t h e r e p o r t ' s d a t a can be shown by Arubn's employment da t a . Di rec t

employment by government, the o i l industry, and hotels is 13,000 persons,

and the s ize of the remaining labor force is 5,500. Thus, i f t h i s bloc

of labor is assumed to be indirect ly employed in the tou r i s t industry,

then the other sectors of the economy have a aero multiplier effect . A

more accurate estinrate of the number indirect ly employed by tourism is

2,200 f o r a t o t a l of 4,400.

While the industry does provide Aruba with employment and some ,

foreign ex+ange and w i l l eventually pay taxes, a t l eas t 80 percent of the

income generated by t h i s industry is remitted t o the external centers.

Given the f ac t t ha t a subetanth1 portion of the investment in the industry

was financed by the island government, the appropriation of the p m f i t s

from t h i s investment by foreign internst8 will exacerbate Aruba's depen-

dence and simultaneously contribute to the development of the e x b e d

center.

Economic Integration

While the Netherlands Anti l les have had an active ro le in early

economic integration e f f o r t s in the Caribbean (e.g. the Caribbean Com-

mission and the Caribbean organisstion) and continue t o par t ic ipate i n

regional organizations l i k e the Caribbean Travel Association and the

Association of Caribbean Universities, participation i n more s ignif icant

fonns of mibbean integration, such as CARIFTAP was not possible because

. of the Antilles* t i e s with the etherl lands 28 Consequently, extra-regional

relationships have dominated economic integration e f fo r t s involving the

Antil les

I n 1964, the Netherlands Antil les became an associate member of

the European Economic CommmSty (EEC) under Part IV of the Treaty of Rome. 29

The te rns of the agreement allowed Antillean goodsp with the exception,of

o i l , to e n t e r the EEC t a r i f f - f r e e . I n r e t u r n , the A n t i l l e s were to apply

the same non-discrimbatory treatlnent t o EEC oxports t o the i s lands .

Tar i f f s wr sidered e s s e n t i a l f o r Anti l lean i n d u s t r i a l i z a t i o n and develop-

ment needs w e r e no t t o be a f fec ted . Thus, t h e a s soc ia te membership

t h e o r e t i c a l l y crea ted the p o s s i b i l i t y o f a t t r a c t i n g foreign c a p i t a l t o

the A n t i l l e s t o i n v e s t i n export i n d u s t r i a l i z a t i o n d i rec ted toward t h e

l a rge developed Zuropean market. In e f f e c t , i n t eg ra t ion g r e a t l y expanded

the s i z e of the Ant i l l e s ' domestic market. However, seve ra l s t r u c t u r a l

obs tac les in the Anti l lean economy combined with c e r t a i n qua l i f i ca t ions

t o which the agreement was sub jec t have made the associa t ion of marginal

value to the Ant i l l e s .

In order t o prevent the A n t i l l e s from becoming an ent repot f o r

ta r i f f - f ree e n t r y i n t o the EEC of wads which were produced elsewhere,

t h e first q u a l i f i c a t i o n s required t h a t Anti l lean expor ts be produced i n

t h e A n t i l l e s and t h a t imported mater ia ls employed i n production be sub-

s t a n t i a l l y transformed. Given t h e i s l ands ' lack o f resources, however,

the pmduction o f "Antillean" goods has been d i f f i c u l t . Second, any

export Indust ry d i rec ted toward the EEC must obtain the majori ty of its

c a p i t a l f m m EEC member s t a t e s . 30

The establishment o f export i n d u s t r i a l i z a t i o n was also impeded by

severa l s t r u c t u r a l f ea tu res o f the Anti l lean economy. Concomitant with

the l ack o f resources, high t ranspor ta t ion c o s t s and wages nea r t h e EEC

l e v e l have mduced the a t t r a c t i v e n e s s o f inves t ing in t h i s area. Although

generous fiscal incent ives e x i s t , the A n t i l l e s have been unable t o a t t r a c t

investment f o r i n d u s t r i a l i z a t i o n . Thc few i n d u s t r i e s t h a t have been

es tab l i shed must employ c a p i t a l in tens ive technology to overcome the

s t r u c t u r a l b a r r i e r s , and t hus they c o n t r i h t e l i t t l e t o the economy.

F'urWermore, t h e incorporation into t he EEC of o t h e r developing countr ies ,

whose s t r u c t u r a l o b s t a c l e s a m no t a+ r i g i d as tho A n t i l l e s , w i l l i nc rease

competi t ion and force An t i l l can indu t r y t o be even more c a p i t a l i n t ens ive . I

Development g r a n t s from the :~'umpoan Kkvclopmcnt Fund have h e n t I

r e s t r i c t e d to I n f r a s t r u c t u m pro jecqs d e s p i t e t h e obvious need i n t h e

h t i l l e s for l n d u s t r ~ a l i z a t i o n c a p i t a l . Furthermore, t hcsc g r a n t s have

&en t i e d t o E C purchases.31 Yhila t h e r:1-;mts have allowed t h e Ant i l lean

government to reduce c a p i t a l exyond i tums on nonl)roductive i n f r a s t r u c t u r e

products , t h e \rrrden of i n d u s t r i a l l k a t i o ~ ~ and c a p i t a l fonnntion f a l l s on

32 I t h e i s l a n d s . I

I

AS a consequence o f t he l i d t e d rc?turnr, f m n rncntcr;hip i n t he I

EEC, t h e A n t i l l e s have again becone l n t c r c s t c d In j o h l n g a C ~ r i b k e a n

r e g i o n a l i n t e g r a t i o n system. However, in i t ia l f c e d k c k f m m t hc Caribbean

Comon Market and Cornunity i n d i c a t e s t h a t Ant i l lcan h d c p a d c n c e is a I

p r e r e q u i s i t e t o j o in ing t h e organ1 w t i o n . 3 3

Conclusion 0 a..AQ-2 t .

Aniba's economic development has bccn condit ioned by i t s dependence 1 i', 8 I

on a subs id i a ry of a l u g e n ~ u l t i n a t i o n n l corlmc-ation. The r e l a t i o n s h i p I

betwoen Lam and Aruba's asymmetrical economic s t r u c t u r e I:; similar to

t h a t o f a g r i c u l turn i n any monocult~iral cconony . Ncvortht:lens , the

d i s t r i b u t i o n of b e n e f i t s from t h i s indust.1-y, (:iven Aru't~?'s l ack of msourccs ,

were equ i t ab l e . In m t u r n f o r t he use of the i s l ~ ~ d ' s strategic l o c a t i o n ,

Lago provided Aruba with i n f r a s t x u c t u ~ v dcvelopncnt, t axes , f o m i ( p ex -

change, high per c a p i t a GNP, and high wage cmployment. Iiowcvcr, t hc

nega t ive consequences of this dependerice ~ L - L V ~ txcomc Inc reas ing ly a p a m n t .

Lago's importat ion of f o r e i m l a b o r conpl icn tcd e x i s t i n g m c i a l and p o l i t i -

c a l I n s t i t u t i o n s and dramat ica l ly lncrcascd Amb's populat ion. The high

level of unemployment f o l l o n l n ~ the ilutomtlon of t h f t o i l i n t i u s t r y has

become s t r u c t u r a l despi te the repa t r i a t ion of f o r e i p labor and t h e

development o f tourism. % While them were cos t s t o Amte's dependence

on Iago, the bencf i t s were subs tan t i a l . Dependcncc did not r e s u l t i n

underdevel~pmen t . In contras t t o the o i l industry, t h e consequences of tourism have

been similar to t h a t predicted by dependentistas. While Aruba contributed

m c h of t h e land, labor, and c a p i t a l needed t o develop tourism, most of

t h e re tu rns were appropriated by the ex te rna l centers . Increased depen-

dence on tourism w i l l increase underdevelopment un less the income generated

by the industry remains in t h e economy and the negative c u l t u r a l impact

of tourism is reduced-

Although Aruba's per cap i t a income w a s 1,700 d o l l a r s i n 1975, in-

d ica t ing that the economy has recovered f r o m t h e automation of t h e o i l

indust ry , the i s l a n d remains dependent on t h e re f ine ry and external a i d

f o r foreign exchange. Even though important changes have occurred in the

composition of t h e CNP, ind ica t ing t h a t some d ive rs i f i ca t ion of the

economy has occurred, m r t h e r d ive r s i f i ca t ion in t h e d i rec t ion of export

indus t r i a l i ea t ion i s e s s e n t i a l f o r f u r t h e r development. There are,

however, s t r u c t u r a l l i m i t s to t h e extent t o which a dependent economy of

62,000 people can d ive rs i fy and develop. Bancing the discovery and pmduc-

t i o n of offshore oil (some probabi l i ty of which seems t o regional

economic in tegra t ion is perhaps the only a l t e r n a t i v e t o the dependence and

s t r u c t u r a l l i m i t s confronting the Amban economy.

TABLE 1

SECTORAL COMPOSITION OF CROSS NATIONAL PIIOCUCT: NETHERLANDG A N T I U E S (percent)

1957 1968

Agriculture and mining 3 3

O i l industry 40 25

Other industry 9 12

Construction and serv ices 31 29

Tourism 4 11

Public sector 12 19

Other

Total 100 100

Source r Nederlandse An tillen, Departemont van Economische Zaken, Bureau voor de S t a t i s t i e k .

TABLE 2

PER CAPITA NET NATIONAL INCOME8 NETHERLANDS ANTILLES (U .S . $ a t 1 9 9 pr ices)

Am ba Cura~ao Netherlands a

Ant i l l es

1700 (estimate)

Sources: 1917-1954 in Documented Paper on the Netherlands Ant i l l es f o r Conference on Demographic Problems , Caribbean Commission (willemstad, Curaqao, 1957), Table 1.2.1; 1959-1968 in Nederlandse A n t i l l e n , Departement van Economlsche Zaken , Bureau voor de S t a t i s t i ek , S b t i ~ t i s c h Jaarboek, 1965 illem em st ad, Cura ao), p. 77; S t a t i s t i s c h Jaarboek, 1968, i! p. 97; S t a t i s t i s c Jaarboek, 1974, p. 113; 1975 in United S ta tes Department of State, "Netherlands Ant i l les , " - Back- ground Notes (~eptember 1976), p. 1.

FOREIGN M W C G RECEIPTS BY SZCMR1 NETIEFLUDS ANTILLES (percent)

1969 197 3

Oil Industry 60 50

External Aid

Tourism

Other 17 13

Source r N e d e r h d s e Ant i l l en , Departenent van Economische Zaken, Bureau voor de S t a t i s t i e k .

TABLE 4

OIL ININSTRY EMPLOYEES: AFtlJBA

Y e a number employed

1978 1,300

Source t Lago Oil and Transport Company, A I U ~

TABLE 5

COIJTRIBUTION OF THE OIL INaTSTRY TO THE CROSS NATIONAL PROIJJCT: N M ? I E W D S ANTlLLGS (in mi l l ions o f U . S. $)

wages l o c a l taxes total CNP percent purchases of GNP

Sources: 1937-1963 i n Nederlandse Ant i l l en , &partenen t van Economische Zaken, 5urea.u voor de S t a t i s t i e k , S t a t i s t i s c h Jaarboek, 1965 illem em st ad, Curacao), pp. 76-77; S t a t i s t i s c h J a a r b e k , 19B, pp. 94-95; S t a t i s t i s c h Jar- b e k , 1974, pp. 112-113; 1975 o i l industry da t a in "Tax Reduction f o r Lago and S h e l l , " Local, 13 February 1975, p. 3.1 1975 CNP data in United States Department o f S t a t e , "Netherlands k n t i l l e s , " BacJrqound Notes (September 1976), p. 1.

DEVELL)PEIENT OF TOURISM: AilUBA

number o f v i s i t o r s

1959 7,200

1973 95,200

197.5 125,000

1977 151,000

Source I Eilandgebied A r u b a , Diens t voor Economische Ontwildteling .

NOTES

%'or a b r i e f review of recent p o l i t i c a l developments, see George Cvejanovich, " A r u b a Faces Di f f i cu l t i e s On Road t o Independence," Times of the Americls - 21 ( ~ c t o b e r 26, 1977); 6.

'nost of the economic da ta in t h i s study w a s o r i g i n a l l y in Anti l lean gui lders . The exchange r a t e p r i o r t o 1972 was 0.53 d o l l a r s t o the gu i lde r , t h e r e a f t e r a t 0.55 d o l l a r s t o the gui lder . In 1965, t h e lowest 60 percent of the Anti l lean p o w l a t i o n received 30 percent o f the income. I n comparison, the lowest 60 percent In t he Unitod S t a t e s (1969) received 35 percent and the lones t 60 percent i n the Netherlands (1962) received 30 percent. See Nederlandse Ant i l len , Departement van Economische Zaken, Bureau voor de S t a t i s t i e k , S t a t i s t i s c h Jaarboek, 1969 ( \ i i l lemstad, curacao), p. 107; see a l s o F e l i x Paukert, "Income Dis t r ibut ion a t Different ~ e v e f s o f Development," In te rna t iona l Labor Review 108 (~ugus t -~ep te rnber 1973), Table 6r 114-115.

'calculated f r o m na t iona l accounts da ta found Fn t he S t a t i s t i s c h Jaarboek s ince 1956.

' ~ i l a n d ~ e ~ e d Amk, On t ~ i k k e l i n g s p l a n Aruba illem em st ad, 1962), [~ruba; Ten-Year Economic Development Plan, "Summary o f t h e P an unpublished translat ion].

curaE" : %. M. A ~ d l c and S. Andic, "The Economy o f the Netherlands Ant i l l e s , "

in P o l i t i c s and Economics in t he Caribbean, eds. T. G , Mathews and F. M. Andic, 2nd ed. (Rio Piedras, Puerto Rico; I n s t i t u t e of Caribbean Studies , Universi ty of Puerto Rico, 1971), pp. 135-136.

7 ~ a l c u l a t e d fmrn da ta found in Nederlandse Ant i l len , Bank van de Nederlandse Ant i l len , Quarterly Bul le t in 5 ( 1 9 n ) , Table 8.5; 60.

'Andic and Andic, p. 135.

'vera Green, Mi-ts in Amba ( ~ s s e n , Netherlands! Van Gorcum, 1973), PP. 29-46.

'O~enr ie t t a Larson , Evelyn Knowlton, and Charles Popple, New

''~lenn Jenkins and Brian Wright, "Taxation of Income of Multinational Corporations: The Case of the United S t a t e s Petroleum Industry," Review - o f Economics and S t a t i s t i c s 57 (F'ebxuary 1975) ; 9.

13~ohan Hartog, Amba, Short History (oranjes tad , Aruba; van m ~ , 1973), PP* 60-61.

ordo don K. Lewis, Tho C m ~ t h of the Modern Ycst Indios ( ~ e w Yorkt Modern Reader, 1963 ) , p. 157.

15*0il Re fhe r i e s H i t by New P lp f i t s Tax," - local , 4 April 1974, p. 1; see also "Tax Reduction f o r Lago and Shell ," Local 13 February 1975, p. 1; Fuat M. A idic and Suphan Andic give the following p ro f i t indexes--0.48 do l l a r s per metric ton p r io r to 1962, 0.66 do l l a r s between 1962 and 1967, and 0 .fj8-dollars a f t e r 1967-- i n t h e i r Government Finance and Planned Development: Fiscal Surveys of Surinam and the Netherlands Ant i l les ( ~ i o P l e b s . Puerto Ricot I n s t i t u t e of Caribbean Studies, University of Puerto ~ i c o , 1968), pp. 191, 184.

16The return on t h i s investment was i n i t i a l l y calculated at 20 per- cent a year (40 million do l la r s ) . However, Laeo (~xxon) received an unex- pected addit ional seven million do l la r s a year i n p ro f i t from the sa le of the extracted sulphur.

''/Data f o r Curafao indicates t h a t 60 percent of the is land 's possible t ax revenue, to ta l ing 200 million do l la r s , was not collected between 1971 and 19'751 see l'1975 Uncollected Taxes Total 119 Million Cullders," Beurs- en-Nieuwsberichten, 4 February 1976 [unpublished t ransla t ion by Apalonio ~er leman J .

h his conclusion is pa r t i a l l y based on the assumption tha t the government's estimate of Lago's p m f i t s is reasonably accurate.

19~. Zinder and Associates, Inc., The F'uture of Tourism in the Eastern Caribbean ( ~ e w York, 1969), c i t ed in Frank McDonald, "The Commonwealth Caribbean," in The United S ta tes and the Caribbean, ed. Tad Szulc (~nglewood Cliffs , N.J.; Pz'entice-Hall, 1971), p. 140.

2 0 ~ a l t h e r b m e r , The Financial Mechanism of the Netherlands Ant i l les (hsterdam: DNWterij en Uitgeverij Werto, 1961), p. 86.

"~ohn N O Bryden, Tourism and development^ A Case Study of the Commonwealth Caribbean ond don t Cambridge University Pmos, 19'/3), P . 75.

22Louia Perez, "Aspects of Underdevelopment, Tourism In the West Indies, " Science and Societx 37 (winter 1973-1974) r 475.

2 3 ~ e r b e r t La Hil le r , "Escapism, Penetration, and Response: Indus t r ia l Tourism in the Cdbbean," Caribbean Studies 16 ( ju ly 1976) 1 109.

24hu i s Peraz, "Forms of Cultuxal Dependency1 Tourism i n the Uest Indies," Journal of Communication 25 (spring 1975) : 141.

"**Proceeds fmm Amban Tourism In 1975: 100 t o 120 Million Guilders," 2-:urs-en-Nieuwsberichten, 30 July 1976 [unpublished t ransla t ion by Apalonio -- Werleman J .

*?I bid

2 8 ~ o r a mview of t h e var ious r sg iona l organiza t ions i n which t h e A n t i l l e s have p a r t i c i p a t e d , see Herbert Corkran, Pa t t e rns of I n t e r n a t i o n a l Cooperat ion in the Caribbean 8 1942-1969 ( Dallas: Sou t h e m Methodist Univers i ty Press, 1970).

2 9 ~ ropy of t h e t r e a t y and o t h e r r e l evan t documents can be found i n Roy ~ r e s i w e r k , ed. , Documents on I n t e r n a t i o n a l Relat ions in t h e Caribbean ( ~ i o Piedras , Puerto Ricor I n s t i t u t e of Caribbean Studies , Univers i ty of k e r b Rico , 1970), pp. 152-1840

y~OAKon Segaal, The P o l i t i c s o f Caribbean Economic In t eg ra t ion ( ~ i o Piedras , Puerto Rico ; I n s t i t u t e of Caribbean Studies , Univers i ty o f P u e e o Rico, 1968), pp. 81-86; see a l s o Aaron Segal , "Economic In t eg ra t ion and P r e f e r e n t i a l Tradet The Caribbean Experience " in Mathews and Andic, eds., P o l i t i c s and Economics in t h e Caribbean, pp. 171-284.

3 h a t M. Andic, "The Development Impact o f t he EEC on t h e E'rench and Dutch Caribbean," Jou rna l o f Common Plarket S tudies 8 ( ~ e ~ t e m b e r 1969): 42-Ma

~ % E C g ran t s t o Amba have been used f o r mads, schools , low c o s t housing, an a i r p o r t terminal , and a hosp i t a l .

33q'Premier Manleyt Adnrission-of t h e A n t i l l e s t o CARIMM Very Dif f i cu l t , " Amigoe, 13 August 1976 Lunpublished t r a n s l a t i o n by Apalonio ~ e r l e m a n ]

%nemploynent fmm the mid-1950s t o the mid-1960s was between 25 and 20 percent . I n 1972, 17 percent o f t he profess ional population was unemployed ( ~ t a t i s t i s c h Jaarboek, 1974, Table 458 67-71). By 1977, Aruba's unemployment was j u s t under 10 percent ( ~ u a r t e r l y Bu l l e t in , 1977s 3).

j5c. He Keplinger, "Venezuela's Prospectsl Big and Bright," The 011 and Gas Journal , 10 January 1972, pp. 102-103.