SAN JOSÉ STATE UNIVERSITY
ECONOMICS DEPARTMENT
Thayer Watkins

The Economies of the Caribbean

1. This region includes Cuba, Dominican Republic, Haiti, Jamaica, Puerto Rico, the Bahamas, Trinidad, Barbados and numerous smaller islands such as the Virgin Islands and Grenada. The total population amounats to about 30 million. Belize, in Central America, and Guyana, French Guinea, and Surinam, on the north coast of South America, could also be considered part of this economy.
2. For about 150 years, from the middle of the 17th century to the beginning of the 19th century these economies were the largest exporter of sugar in the world.
3. Guyana and the islands of the Caribbean are important producers of bauxite, the ore used in producing aluminum. At one time they produced nearly all the world's output, but now Australia's production is greater than the output of all of this region.
4. Jamaica developed banana production before Central America but was soon surpassed. Trinidad and Grenada produced cocoa but were also soon overshadowed by cocoa production in West Africa. Trinidad has important deposits of petroleum.
5. From the mid-1950's to the mid-1970's there was a move toward greater economic diversity, but since then the trend has been back to increasing specialization.
6. From the earliest days of sugar growing there was some manufacturing such as processing the sugar cane into raw sugar. Now Puerto Rico is the industrial center of the Caribbean. There are some major petroleum refineries in the Caribbean, but they often operate far below capacity.
7. Tourism is a major base of many of the economies of the Caribbean. A significant financial sector has developed to take advantage of the Eurodollar market.
8. At the time of the Cuban Revolution in 1959 the radical left complained of the heavy dependence upon sugar and the high portion of Cuban trade with the U.S. There were also complaints about the discrepancy between urban and rural living standards and the high unemployment rate (around 12 percent). After an attempt at diversification and development of a manufacturing economy that brought about economic collapse in the mid-1960's Cuba once again specializes in sugar production. Also the high proportion of trade with the U.S. was replaced by high dependence upon the Soviet Union. Measured unemployment was reduced.

Central America
This region consists of Costa Rica, Guatemala, El Salvador, Honduras, Nicaragua and Panama.

1. After the conquest of Central America by the Spanish in the sixteenth century there followed three centuries in which the primary function of the government was to extract as much as possible for the benefit of Spain.
2. The conquest brought diseases that killed 90 percent of the native population and created a labor shortage. The Spanish solved this labor shortage by importing Africans. Although slaves, these Africans were frequently employed as overseers of native workers. In contrast to the British policy of using the colonies as dumping grounds for prisoners and political and religious dissidents, the Spanish policy was to prevent such people from migrating to the Spanish colonies.
3. Initial development was largely limited to placer mining of gold and silver. There was also some cacao raising on the Pacific coast side.
4. In the early seventeenth century the Spanish government tried to promote the production of the scarlet dye cochineal. Cochineal is produced by an insect that lives on a cactus. This dye has a high value per unit weight that makes it possible to cover its transportation costs to distant markets. El Salvador produced indigo for blue dye.
5. The decline of the Spanish fleet in the seventeenth century produced isolation and stagnation in Central America. Britain took control of Jamaica and Belize at this time. The haciendas became more autonomous.
6. Between 1680 and 1730 there was a series of natural disasters such as earthquakes and epidemics which resulted in a collapse of the standards of living and friction between the classes.
7. The expansion of textile production in England in the latter part of the eighteenth century stimulated the production of indigo in Central America. But when England captured India at the end of the eighteenth century she promoted indigo production there to the detriment of the indigo industry in Central America. The collapse of the indigo industry in Central America contributed to the independence movement.
8. At the time of independence in the 1820's the provinces of Central America were only lightly settled. Guatemala had a population of 595 thousand, El Salvador 248 thousand, Nicaragua 186 thousand, Honduras 135 thousand and Costa Rica 63 thousand. Chiapas opted for independence first and joined Mexico. Guatemala's Assembly of Notables voted to sever its relationship with Spain and join with Mexico. El Salvador voted for independence from Spain and from Guatemala and applied for admission as a state in the United States. El Salvador was sacked by a combination of Guatemalan and Mexican troops. In 1823 the Central American crillos (residents of Spanish descent, usually spelled "creoles") declared their independence from Mexico and announced the creation of the United Provinces of Central America, a federation of five provinces. Chiapas due to its occupation by Mexican troops remained part of Mexico.
9. Slavery was abolished and a Liberal political movement ruled. The Liberal parties wanted to promote economic growth and saw social liberalization as a necessary ingredient. They favored curbing the power of the Catholic Church and the promotion of equality through the removal of special status for natives and their communities. The Liberal policies led to revolts among the crillos and the Liberal leader moved the capital of the United Provinces from Guatemala City to San Salvador, El Salvador, a place of stronger Liberal sympathy. In addition to opposition from crillos supporting the Conservative parties there came in 1837 a rebellion of native Indian and latino peasants opposing the social liberalization of the government. The leader of the rebels was a mestizo swineherd named Jose Rafael Carrera. The rebels, despite united Liberal and Conservative opposition, captured Guatemala City. An English diplomat described the scene,
"Awhile after came the hordes of barbarians headed by Carrera...Only think what a sight...The sight was awful and horrible--to witness 4,000 barbarians rude, half-naked, drunk and elated, vociferating with all their might 'Long live Religion and death to all foreigners'... At the hour of 'oracion' they all knelt down in the square and sang the Sanctus Dei and Ave Maria."

The Conservatives recognized the fundamental conservativism of the rebel and assimilated the movement politically. Up until his death in 1865 Carrera continued to control Guatemala, El Salvador and Honduras and occasionally invaded Nicaragua.
In 1838 the federal assembly formally disolved the United Provinces of Central America. Central America was essentially controlled by local strongmen, caudillos, who generally were associated with the Conservative political factions. The political system that emerged has been called caudilloism.
10. A cross isthmus railroad was completed in 1855 and the U.S., Britain and France were looking to build a canal. The most promising route seem to be through Nicaragua, but the French had started work in the northern extension of Colombia that is now Panama. A successful rebellion was promoted in Panama by U.S. and French interests.