Investing in local human capital = sustained national productivity and economic growth
Edgar Leonard - Saturday, March 17th, 2012 at 2:57 AM
Her Royal Highness Queen Elizabeth II celebrates this year her 60th year (Diamond Jubilee) on accession to the throne upon the death of her father, King George VI, on 06 February 1952. The Diamond Jubilee celebration is historic. She is one of two modern-day monarchs to achieve such a feat; Queen Victoria in 1897 the other. During this 60-year reign, the Virgin Islands (BVI) has experienced much social, political, cultural, and economic change. However, the BVI did not effectively allocate the resources to invest in its human capital to develop the employment skill sets commensurate with the changes.
Some changes during this period included separating from the Leeward Islands Federation, elevating to Colony status, ushering in of ministerial government, the agitating of national hero Noel Lloyd and Positive Action Movement about the Bates-Hill Wickams Cay-Anegada lease, becoming self-supporting/less dependence on grant-in-aid, and the growing and diversifying of the economy. Moreover, one of the more significant changes during this period was the transitioning of the economy primarily from subsistence agriculture to the current twin pillars of the economy, tourism and financial services.
From Emancipation through the early 1960’s, the BVI’s economy was primarily subsistence agriculture. Most BV Islanders eked out a living by working ground (farming), burning coal, fishing, raising cattle and other livestock, sailing, or boat building (shipwright). A selected few worked for government. In addition, others emigrated to the USVI, Dominican Republic, Cuba and other places to work, sending remittances home to their families. This is similar to what the large expatriate population is doing today. Furthermore, though subsistence agriculture was the primary economic engine, it presented two primary concerns.
First, agriculture had a stigma to it; it was link to the vestiges of slavery. Consequently, BVI parents like parents in other regional Anglophone countries coaxed their children into migrating into the cities to find employment in government and other offices. And in this instance, they followed their parents’ advice, landing jobs with government and becoming civil servants. Moreover, in time, government became the primary employer and the employer of choice. In fact, given few other options, acquiring a government job was a big deal and working for government became a career choice for many Virgin Islanders. Today, many BV Islanders still prefer working for government either directly or indirectly. And they demonstrate a preference for clerical and managerial work.
Secondly, the subsistence agricultural economy produced few jobs and fewer job titles. Some of the Job titles included fisherman, farmer, carpenter, teacher, captain, shopkeeper, sailor, tailor, rum distiller, or civil servant. Undoubtedly, parents’ advice was well intentioned in pushing their children toward administrative work (Employment Statistics Table below). Nevertheless, this laser focus on administrative work (white-collar work) resulted in a huge opportunity cost. The high concentration of Virgin Islanders in clerical and other administrative work, even today, comes at a high cost of not training more doctors, lawyers, engineers, plumbers, electricians, business managers, nurses, teachers, computer analysts, boat captains, automotive mechanics, diesel mechanics, architects, pharmacists, information technology workers, appliance repair technicians, surveyors, accountants, laboratory technicians, nutritionists, carpenters, masons, equipment, operators, financial analysts…….etc. Clearly, it is in the national interest to reduce the high opportunity cost.
Moreover, starting in the 1960’s the economy grew and diversified. Tourism started to take root about the mid 1960’s; financial services in the 1980’s. The growth and diversification of the economy afforded Virgin Islanders the opportunity to escape subsistence agriculture and pursue other occupational interest. The transitioning from a subsistence agricultural economy to a service sector economy (tourism and financial services) created more jobs, more titles and greater opportunities. Nevertheless, to take advantage of the greater opportunities required a strategic plan for educating and training locals to take full advantage of the opportunities.
However, the BVI did not effectively allocate/invest in human capital to take advantage of the growth and economic opportunities. Economists define allocation as the act of getting resources to where they are needed or wanted most. Undoubtedly, the BVI did not effectively allocate its resources to increase the deposit in its skills bank to draw out as needed to meet the needs of a growing economy. And one of more effective means to increase the balance in the skills bank is investing in human capital. Human capital is a critical element in economic growth and consists of the education, skill, knowledge, ability possessed by individuals.
The exponential growth of tourism and financial services fueled the growth and development of the BVI. The BVI currently has one of the highest per capita income (`$41K), as well as  the highest standard of living and quality of life, in the region. Further, the Employment Statistics Table below shows that between 2005-2010 the BVI was at full employment at 3.1%(this figure is questionable); typically for most locales full employment (natural rate of unemployment) is between 4-5%. Nonetheless, both the per capita income and unemployment numbers may be misleading. In spite of having one of the highest per capita income in the region, there is still much income inequality and disparity among residents. Much of the income inequality can be attributed to the lack of proper planning, and education and training needed to take advantage of the higher paying jobs resulting from the new and growing economy.
Moreover, youth unemployment is a challenge and a problem. Youth unemployment is always much higher than among other groups, for they bring less experience and skill to the table. As such the BVI should invest the resources necessary to get Virgin Islanders between age 15-24 skilled up for job opportunities in the economy. The NDP government must be lauded for its effort to reduce youth unemployment; per news report 62 youths were placed in jobs. This is a great start but much more needs to be done to prepare younger workers, as well as other groups, for job opportunities. Unemployment is usually high among low skilled workers. Conversely, the more skilled workers are the higher the demand for their skills. Clearly, it is in the national interest to boost skill sets and to keep unemployment as low as practical. Unemployment creates significant measurable opportunity cost for the economy and residents.
Okun’s Law states that for every 1% that the actual unemployment rate exceeds the natural unemployment rate, a 2.5% decline in real GDP is anticipated. For example, let us assume that the BVI has a $1B potential GDP, a 5% natural unemployment rate, and a 10% actual unemployment rate then potentially GDP will decline approximately $125M. Similarly, the cost to the individual is high. Unemployment can deplete any personal savings, lead to health and psychological problems, cause family problems, and can cause an increase in violent and property crimes. Unemployment affects quality of life, as well as the GDP.
Demand for labour increased due to the growth of the twin pillars of the economy, tourism and financial services. The growth and diversity of the economy, coupled with the growth and development of the BVI, fueled more jobs, more job titles and more job opportunities. The increasing myriad of   jobs titles included: doctor, lawyer, engineer, technologist, surveyor, nurse, yacht captain, mechanic, fire fighter, police officer, electrician, plumber, air condition and refrigeration mechanic, nurse, nurse practitioner, physician assistant, psychologist, counselor, accountant, chef, social worker, machinist, teacher, business manager, financial analyst, teacher, project manager, program manager, professor, pharmacist, architect, computer analyst, air traffic controller, politician….etc. Additionally, the economic growth also created the environment for a myriad of entrepreneurial opportunities. The economy grew and provided more job opportunities but Virgin Islanders were not adequately skilled up to fill them; the BVI was slow to anticipate the changes in the economy and adapt to the changes.
The economic growth increased the demand for labour but it also highlighted a shortage of skills. The skill shortage, coupled with the skyrocketing labour demand, drove employers to recruit outside the BVI to fill professional, skilled, and unskilled labour needs. As a result, the expatriate labour force now exceeds the local labour force and the labour force is segmented along BV Islander and non-BV Islander lines. Per the Employment Statistics Table below, the expatriates workforce is at least doubled the local work force. The majority of government, statutory bodies, bank, and telecommunications workers are Virgin Islanders; whereas most expatriates hold senior positions in banks, hotel management, and financial services; construction trades, and service workers. This segmenting of the labour force is creating a growing friction between Virgin Islanders and expatriates. Increasingly, expatriates tend to be blamed for the disproportionate representation in many sectors of the economy. In fact the BVI should blame itself for the situation in which it finds itself, not the expatriates who are just filling an employment void.
Unequivocally, the BVI did not develop an effective strategy to link its labour needs to the needs generated by an expanding and diversifying  economy. Tourism and financial services are the twin pillars of the economy, contributing approximately 70% of the GDP and 60% of the national income. And yet there does not appear to be any effective strategy to dovetail labour strategy with economic strategy. Furthermore, the BVI has not invested effectively in its human capital to meet the opportunities in these industries. So what can be done to allocate resources to develop skills and to get them where they are needed or wanted most? Simply, the BVI urgently needs a comprehensive, national  strategy and a master plan to train and educate Virgin Islanders with   the skills needed to take advantage of available job opportunities.
Thus, a well-planned, structured and implemented master plan will enable the BVI to meet its core labour needs; and it should only have to recruit from the outside of the BVI for specialty skills or to fill jobs that are beyond the capacity of the local work force. Master planning needs to address both short- and long-term needs. The BVI has limited natural resources on which to build its economy.
Its key resource is its people; and it has to invest in and develop its people. Tourism and financial services are currently the twin pillars and foundation of the economy. But for economic sustainability more pillars need to be added to strengthen the economic foundation. As such building a knowledge-based economy is a highly viable option. Investing in human capital equates to economic growth.
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9 Comments
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Why not census information? Where is the census 2010 data? We need official data to analyze and make economic judgment. We need to stop accepting nonsense.
The purpose of a census are many. Among them are deciding the number of elected reps.,the blue print for where resources need to be allocated, a historical record of population and locating where public facilities (hospitals, libraries, schools, rec facilities, roads, housing, post offices…..etc).
But the data is useless if it is not release in. a timely manner. The big question is what is the whole up? Government needs to direct that the results be release within the next 30 days. The responsible office has had enough time to compile the collected data and release it.
Very informative article Leonard. I find the stats particularly insightful. I am particularly struck by the low unemployment rate of 3.1% over the most recent 7 years or the suggested rate of 4-5%. Whatever the actually number was/is, the unemployment rate incredibly as per those stats appears to have remained quite steady and relatively low despite the global economic downturn. That’s incredible.
I am also struck by the almost 3:1 Expat to BVI islander employment stat. On a personal note, It helps me understand some of the tension I pick up here on the blogs between BVI Islanders and expats.
I agree that the “BVI urgently needs a comprehensive, national strategy and a master plan to train and educate Virgin Islanders with the skills needed to take advantage of available job opportunities.” However, I would argue I wise policy would be to simultaneously have an more welcoming open door to those BVI Islanders who have been educated abroad and acquired valuable skills elsewhere who can fill much of the void, and wish to return. And when I say welcoming, it’s not just with a smile, but with attitudes towards them, right up to a competitive compensation package that will give them a good reason to return and stay.
I believe the B.V.I. greatest asset is indeed it’s people which imo has not been fully tapped, and yes, “building a knowledge-based economy is a highly viable option’ as “investing in human capital equates to economic growth.”
Ray, agree that the BVI should extend a more warm welcome to qualified Virgin Islanders living abroad. There are probably many Virgin Islanders abroad that would be elated to return home and contribute to the growth and development of the territory. But many that attempt to return get the cold shoulder with dose of attitude. They are accused of running away when things were rough but now that things are better they want to race back and be embraced.
Further, physical slavery was abolished in the 1800′s but still we shackled with the chains of mental slavery. The vestiges of slavery is still with too many of us. The ghost of Willie Lynch is alive and well. Many want to be like ostriches and head in the sand and pretend that the vestiges of slavery is lingering. But it is.
The BVI needs a strong and effective outreach programme to recruit locals. But I’m not optimistic. We exemplify the crab in bucket syndrome. We prefer to elevate others over own. Spefically, we dislike singing the praises of fellow Virgin Islanders whose family social status was lower than our own. Hog wash and a sad state. Hope that I’m wrong, but it appears as if Virgin Islanders will stay offshore and help to build someelse’s country. Offshoring at work.
Edgar; thanks for taking the time to research and write this article. There are a few areas which seem to beg the question and in which careful interpretation of economics concepts may be required.
Firstly, the leaders and people of the Virgin Islands were aware that rapid expansion in tourism and financial services would require substantial importation of labour to fill the gaps in the labour market. We wanted the economic growth which allowed us to earn money income so that we did not need to migrate to USVI and the USA as much as we did during the 50′s and 60′s. We also welcomed migrants in reciprocal fashion as we were welcomed in Dominican Republic, USVI and USA a few decades earlier.
Secondly, as much as the article suggests that successive Virgin Islands government did not properly allocate financial resources towards the mix of skill sets which were required for the labour market at that time; it begs the question of how and where the writer was educated and in what areas of skill. Fact is the Virgin Islands did not have the population base resident at home from which to pool enough variety nor numbers for training to fill all positions generated in the labour market. May be they did a great good as there are several key positions in industry and public sector filled by Virgin Islanders. It is true that there could be more but this all happened within the last 30 years. Should we have missed the opportunity for growth or pursue those opportunities as we did and then adjust until we get it right.
Thirdly, the application of Okun’s Law which was developed and extended based on empirical work on data from developed countries with relatively higher manufacturing industry concentration, higher “native or non-migrant” populations and much higher economic linkages and multipliers, to the BVI is a dangerous stretch which punishes audiences with academic authority which is very fleeting.
Fourthly, investment in human capital may lead to economic growth but surely it may not equate. Take a look at the BVI statistics regarding investment in education over the years and many human resource planning initiatives (including manpower planning in earlier years) for a wider information set.
Your efforts are commendable and always thought provoking.
Good Effort,thanks for the constructive feedback on the commentary. You presented a passionate and convincing views on some of the issues. We clearly have differing personal views on some issues. And that is all good; differing views on issues are healthy and can be constructive. As such, I will briefly comment on some of the points you made.
Firstly, investing in human capital= economic growth. Many resource-rich countries are poor with low standards of living. Conversely, many natural resource-starved countries have a high standard of living. For example, Russia is blessed with some of the largest deposit of minerals and natural wealth in the world;Japan has few natural resources. But Japan has a much greater economic growth, for it has invested more in its human capital.
Further, the more resources that are invested in educating and developing human capital the more productive and innovative the society. And a more innovative society is a grater entrepreneurial society.Entrepreneurs are one of the drivers of economic growth.
Secondly, true Okun’s Law was developed from empirical observations in developed countries, relating unemployment to production losses and GDP decline. Nonetheless, it has applicability in developing and emerging economies. I think you may agree that unemployment is a drag on national output and on GDP. How GDP is affected is a valid debatable point.
Thirdly, undoubtedly the transitioning of the economy to tourism and financial services in the beginning would require importation of labour. But as you noted, 30 years has elapsed. And at this point, we should have had our people skilled up to fill most core jobs; we should be almost at a critical mass. Recruiting labour would probably still be needed but only for jobs above the capacity of the local work force. My point was and is about reducing the critical skill shortages among Virgin Islanders. We need to get to a point where Virgin Islanders do not have to turn the page when there are advertisements for many jobs. We need to be more self sufficient in meeting the demand for labour commensurate with the needs of the economy. And we could even reverse the trend by building a surplus of skill labour for possible export.
Fourthly, clearly, there are Virgin Islanders holding top positions in the public and private sectors. But we must strive for a critical mass further downstream in both the blue collar and white collar areas and in the professional and skilled areas. Finally, a minor clarification. In the article, I singled out the NDP for its effort in trying reduce youth unemployment. But I do not think that I placed any specific blame at the feet of any government for the lack of effectively allocating resources for human capital development. T think I used the term BVI. Government represents the people of the BVI; but the BVI comprises more than government. This issue is a community issue and will take government and all other BV Islanders to solve.
Again, thanks for the constructive feedback.
it’S her majesty NOT HIGNESS when addressing the head of state.
Ok it may be HM. But the fact is locals are a minority in the BVI work force. We are partly to blame. The question is how will the concern be addressed and how soon? It is well known fact that young people are not prepared for the work force. And this is a serious situation because idle and frustrated people result in criminal behavior. A solution is needed and urgently. I’m more concern about the employment of our people than a inadvertent use of a title. No disrespect intended but our people are hurting and needs help.
@NOBODY. Thank for pointing this inadvertent faux pas. No disrespect intended. My sincerest apology for the faus pas.
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