Download - Developing a BioIndustry cluster in Jamaica: a step towards building a skill-based economy
Developing a BioIndustry cluster in Jamaica: a step towards building a skill-based economyAuthor(s): Anthony ClaytonSource: Social and Economic Studies, Vol. 50, No. 2 (JUNE 2001), pp. 1-37Published by: Sir Arthur Lewis Institute of Social and Economic Studies, University of the WestIndiesStable URL: http://www.jstor.org/stable/27865231 .
Accessed: 14/06/2014 14:44
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp
.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].
.
University of the West Indies and Sir Arthur Lewis Institute of Social and Economic Studies are collaboratingwith JSTOR to digitize, preserve and extend access to Social and Economic Studies.
http://www.jstor.org
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Social and Economic Studies 50:2 (2001) ISSN: 0037-7651
Developing a BidIndustry cluster
Jamaica: a step towards building
skill-based economy1
Anthony Clayton
ABSTRACT
With increasing competition, small countries like Jamaica may find it dif
ficult to maintain a presence in traditional export markets. There has been
much debate about trading arrangements, but the more fundamental prob lem is the long-term decline in commodity prices. This trend will accelerate
as average resource-use efficiency rises, as this will weaken demand for
virgin materials. Jamaica should therefore now use emerging market op
portunities to drive the development of knowledge-based business/indus
trial clusters, and thereby restructure and transform the economy before current export markets are lost. One of the most promising opportunities is the market for a range of biological extracts and derivatives: for flavour
ings and essences, industrial crops, and nutraceuticals and functional foods, as this could be used to support the development of a strong Biolndustry cluster.
Introduction
There has been controversy recently about the process of
globalisation; the progressive removal of barriers to international
trade. It is important to note, therefore, that we are still at an early
stage in this process. At present, only 20% of world output is con
testable, which means open to both international acquisition and
1 I am grateful to a number of colleagues for their comments on early drafts of this
paper. In particular, I would like to acknowledge Dr Amoldo Ventura, the Chief
Scientific Advisor to the Prime Minister of Jamaica, Professor Neville Duncan
and Dr Pat Northover of the University of the West Indies, Professor Roland
Clift and Dr Walter Wehrmeyer of the University of Surrey, and two anonymous reviewers. The final form and content of the paper, and any errors, are the sole
responsibility of the author.
Pp 1-37
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
2 SOCIAL AND ECONOMIC STUDIES
competition in the supply of goods or services. If the political diffi
culties can be resolved, however, that segment will grow. Micklethwait (1999) recently predicted that by 2030 some 80% of world output will be contestable. With increasing competition from
larger entities, small countries like Jamaica may find it difficult to
maintain a presence in some of their traditional export markets. Attention has focused, recently, on the Cotonou accord, the
ACP's residual preferential trading arrangements with the EU, the
planned transition to regional free trade areas, and on the recent EU
decision to allow tariff-free access to the 48 least developed coun
tries (CETN 2000).2 This is understandable. It is certainly true that
Jamaica's sugar and banana industries, for example, currently rely on the protection afforded by the preferential trade arrangements with the EU, and will therefore be vulnerable when these trade ar
rangements are phased out.
However, in one important respect, much of the current de
bate about trading arrangements is irrelevant, as these can only pro vide temporary solutions. The more fundamental problem for many
commodity-exporting nations is the long-term decline in commod
ity prices.
Declining commodity prices
The Economist recently noted that their industrial commodities in
dex lost 80% of its value between 1845 and 1999 (Economist, April 1999). As a result, the industrial commodities price index for 1999
was about 50% below the price level reached in the depths of the
Great Depression of the 1930s.
The World Bank index of non-oil commodity prices shows a
similar pattern. Over the course of the 20th century, the index lost
2 The European Union (EU) recently proposed to assist the world's poorest coun
tries, the Least and Less Developed Countries (LLDCs), by allowing them duty free and quota-free access to the EU market for all products with the exception of
armaments. This has caused concern amongst the Africa, Caribbean and Pacific
(ACP) nations that have been the traditional beneficiaries of the preferential trade
terms from the EU, as some of the LLDCs are likely to be able to supply com
modities such as sugar and rice in greater volume and at lower cost than the
ACP suppliers and may therefore supplant the ACP suppliers in the European markets.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster In Jamaica; 3
over two-thirds of its value (in constant terms, relative to the prices of other goods during that time). If the reference point is taken as
the peak in non-oil commodity prices at the time of the first world
war, then the index lost about three-quarters of its value by the end
of the century (World Bank GCM 2000a). The aggregate value of traded commodities has increased mark
edly in recent decades, which may appear to contradict these find
ings. The apparent real value of production of a group of 22 major commodities compiled by the World Bank, for example, rose by 59%
(an increase of US$481 billion) between 1970/71 and 1996/97. In al
most every case, however, the growth in the value of production resulted from the very large increase in the volumes of commodities
being produced and traded, as the real price of nearly all the com
modities fell sharply over the period. For example, rice production doubled over the period, while the price of rice (in real terms) fell
by half (World Bank GCM 2000b). The extent to which commodity prices have fallen is remark
able, given other changes over the period: The population of the planet increased from 1.65 billion
people in 1900 to 2.55 billion in 1950 and to 5.97 billion
people in 1999, thus more than tripling the number of pro ducers/consumers over the period (US Bureau of the Cen
sus, 2000). Per capita output also increased over the same time, par
ticularly over the last fifty years. Brown et al. (1997) note
that Gross World Product was $4.9 trillion in 1950, which
equated to $1,925 per capita (in 1995 dollars). By 1995 GWP
was $26.9 trillion, which equated to $4,733 per capita, and
has continued (Brown et al. 1998) to increase at the same
apparently exponential rate.3
Over the last half of the 20th century, therefore, both the number
of producers/consumers and their average level of per capita out
3 World output grew by some $7 trillion between 1986 and 1996, which means
that the growth in that decade was substantially more than the total growth over
the rest of human history.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
4 SOCIAL AND ECONOMIC STUDIES
put more than doubled, generating a nearly six-fold increase in ag
gregate output and thereby increasing average levels of disposable income and per capita consumption. Clayton et al. (1999) note that these increases in global industrial production have been strongly correlated with increases in the consumption of resources. Graedel
and Allenby (1995) point out that the rate of global consumption of
fossil fuels, for example, has increased about 50-fold since 1900. Be
tween 1950 and 1997, the world fish catch increased five-fold, grain
consumption tripled, fossil fuel consumption quadrupled, the con
sumption of timber tripled and the consumption of paper rose six
fold.4
Given that some key commodity resources are non-renewable and therefore finite, while others are renewable but also (in some
cases) vulnerable to semi-permanent depletion, costs of exploration, extraction and processing might have been expected to increase (as richest, lowest cost reserves are generally extracted first), thereby causing commodity prices to rise. In practice, however, the reverse
has happened. Over the same fifty-year period, commodity prices fell in real terms by nearly two-thirds.
It is clear, therefore, that the forces acting to drive down com
modity prices are extremely powerful, as they have overcome strong
countervailing pressures. The relative changes in demand, volumes
and prices make it clear that, at least to date, the pace of change and
development with the various factors that have helped to drive costs
down has significantly exceeded the rate of growth in demand caused
by the increases both in total population and in per capita consump tion.
Technology driving change
Precise circumstances vary across different sectors, but in general
commodity prices have been driven down by the dynamic interac
tion of a number of factors: improved scientific understanding,
4 Bonifant and Ratcliffe (1994) have pointed out that the per capita consumption of paper is particularly strongly correlated with a nation's level of industrial de
velopment; the primary uses of paper are in communications and packaging, and both of these activities increase significantly as economies develop and service sectors expand.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 5
mechanisation, incremental technical improvements, new technolo
gies and structural technological change, the discovery and exploi tation of new sources, increased volumes of production and conse
quently greater economies and efficiencies of scale, improved logis tics and better supply chain management, increased competition, and, in some cases, substitution (Clayton 2000).
Technological development has transformed the oil industry, for example, making it possible to extract previously (economically) unrecoverable deposits, thus expanding reserves and creating a
source of downward pressure on the price. New technologies also have implications for patterns of demand. For example, the transi
tion to fibre-optics, opto-electronics and mobile rather than landline
based communications will increasingly dilute the demand for cop per. A number of related developments are in the pipeline. Takehashi, for example, notes that reconfigurable semiconductors
should reach the market by 2002 or 2003 (Takehashi 2001). This will
allow the development of 'universal devices', which will reduce the
demand for a range of plastics and metals. Similarly, recent devel
opments with carbon nanotubes and graphite-reinforced polymers hold out the promise of a new generation of strong, light materials, which may eventually displace aluminium and other metals in aero
space engineering, car body parts and other engineering and con
struction applications. Hydrogen-powered fuel cells may displace
petroleum-powered internal combustion engines in motor vehicles, thus reducing demand for oil, while the transition to mass use of
hydrogen-powered fuel cells may in turn enable much greater use
of alternative base energy sources, for example, geothermal power from countries such as Iceland, thereby displacing other power sta
tion fuels such as coal. As the last example illustrates, many of these
technological developments stimulate or enable further technologi cal developments, which further accelerates the pace of change.
The next phase of development is likely to be driven by a com
bination of economic and environmental pressures to simultaneously reduce costs and control environmental impacts, and the relatively new concepts of cleaner production and industrial symbiosis are
increasingly seen as offering a solution to both problems (Clayton 1999). These are strategies that focus on raising energy and resource
use efficiency in business and industry, typically by minimising or
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
6 SOCIAL AND ECONOMIC STUDIES
eliminating wastes at source (by process or product redesign) or by
using wastes as inputs into other processes and thereby converting them into auxiliary products. This approach offers significant
potential gains: a series of studies by von Weizs?cker et al. (1997)
suggests it should be economically feasible and technically possible to increase average energy and resource-use productivity by a fac tor of four, which holds out the promise of an effective doubling of
global wealth while simultaneously halving resource use.
This effect has already started to become visible in various sec
tors, including the markets for metals such as steel and aluminium.
The EU now recovers and recycles about 30% of its aluminium, for
example, while the USA recovers and recycles about 60%. Recycled aluminium costs about 15% of the price of aluminium from ore,
reflecting the cost of the energy required to mine, process and trans
port bauxite and alumina, so there are strong incentives for increas
ing these recovery rates further, towards the technical-economic
limit, which in the US and EU could indicate an eventual 90%
recovery rate. World demand for aluminium is currently growing at some 3-5% per annum, so further increases in the level of
recycling are not expected to impact immediately on the market for
bauxite-alumina, but once industrial and domestic recovery loops for aluminium are fully established in the major markets any fur
ther increase in demand could then be met via increased recovery rather than increased bauxite production. Some scenarios suggest that world demand for bauxite could stabilise below the current level,
with the aluminium market in the developed nations increasingly based on closed-loop production-consumption systems in which the
material content cycles continuously.
Developments such as these represent steps towards what
Stahel (1987) has termed the dematerialised economy, an economy in
which the process of economic development is progressively
decoupled from environmental demand, with a transitional period in which resource-use efficiency rises faster than growth in GDP, thus achieving economic growth on a basis of declining resource
consumption.
Sheikh Yamani, the former Saudi oil minister, indicated in a
recent interview that the rate of economic growth had already started to decouple from the consumption of oil, for example, and that the
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 7
importance of oil in the world economy had already diminished as a result of this development:
In the past...for every one percentage point rise in the rate of growth, there would be another one-point rise in the oil consumption. Then that factor [the energy co-effi
cient] came to 0.5 to 1. But in Europe in the year 1999/ 2000 you have a rate of growth averaging around 2.5 per cent and the rate of energy growth is below zero. In the US they had a rate of growth of 4.9 per cent with con
sumption up only about 50,000 bpd.5 There is a related but even more profound transition underway.
Genetic engineering, itself a technology of extraordinary potential,
represents a step towards a yet more powerful new technology: molecular engineering. Drexler (1996) has noted that molecular en
gineering, or nanotechnology, will allow the construction of repli
cating molecular assemblers and disassemblers, which will in turn
allow the construction of virtually anything that can be designed, from a wide range of source materials, thus resolving most remain
ing physical constraints.
The full impact of nanotechnology still lies some years ahead.
The general trend, however, is clear. It is likely that, in future, in
creasing value will be attached to the knowledge component of a good or service rather than the physical component. In electronics, for ex
ample, the physical content of metals and polymers is being con
tinuously reduced, and could in principle fall by perhaps another
two orders of magnitude even on the basis of existing technology. What matters, of course, is the knowledge embodied in the assem
bly. Similar principles apply in biotechnology. Microfabrication
technologies offer much more extreme examples, as there is a very clear penalty attached to mass, and nanotechnologies will virtually eliminate the significance of the physical inputs.
It is possible, therefore, that we are at an early stage in a deci
sive transition from an era of materials-based economies to a new era
of knowledge-based socio-economic systems.
5 Interview with Sheikh Yamani reported in the Observer, 14 January 2001
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
8 SOCIAL AND ECONOMIC STUDIES
Implications for commodity prices
As cleaner production systems are further developed and deployed, and as promising new semiconductors, microfabrication techniques and biotechnologies mature and come to market, average resource use efficiency will rise, which will generate a range of economic and environmental benefits. Studies indicate that most of the immediate economic benefit, however, stems directly from reduced input vol umes and costs, which will weaken demand for virgin materials and
thereby further accelerate the historical decline of commodity prices (CEST 1995a and 1995b).
The economic and environmental benefits of this transition will therefore largely accrue to the consuming nations, while the imme diate prospect for some commodity exporting nations is a loss of
export revenue. For many developing countries, therefore, the pro
gressive dematerialisation of major sectors of the world economy will present a number of serious transitional difficulties. Further falls in commodity prices are likely to squeeze out the remaining high cost producers, leaving low-cost producers with the remaining mar
ket. In the case of bauxite-alumina, for example, most future price scenarios suggest that Australia, with the lowest production costs for oauxite, will be able to continue to export this commodity
profitably, but countries such as Jamaica, with relatively high pro duction costs, may be vulnerable. The recent decision by Alean to
expand their operations in western Australia and divest their plant in Jamaica reflected this growing disparity: their overall costs of
production in Jamaica were almost 50% higher than in Australia.6 These developments will have a particular impact on regions
such as sub-Saharan Africa, where commodities still account for
6 In 2000, the world average cost of production was about $US130/tonne. The av
erage cost of producing alumina in Jamaica was $140-150/tonne, compared to
$100-110/tonne in Australia. Production costs of $150/tonne and a market price of $175/tonne gives an operating margin of $25/tonne, compared with the mar
gin of $65-75 achieved elsewhere. In addition, it is in principle necessary to re
tain about $20/tonne for the level of re-investment required to maintain existing assets. Actual expansion requires further capital retention. Operating costs of
$150/tonne and a retention of $20/tonne for maintenance gives a total cost of
$170/tonne, which leaves a margin of just $5/tonne.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 9
about three-quarters of export earnings. As these countries also have
limited human, capital and technological resources, it will be par
ticularly difficult for them to develop higher value-added alter
native exports.
The problems of managing commodity export-dependent economies
In the medium term there will, of course, continue to be marked
fluctuations in the prices of most commodities. Many prices have
now recovered from the trough of early 1999, and further increases
are expected in the short term.7 Largely as a result of these higher
commodity prices, economic growth rates in sub-Saharan Africa have
again started rising. However, these higher growth rates will be tran
sient in proportion to the extent that these economies continue to be
primarily dependent on commodity exports, as they will then also
tend to follow commodity prices back down.
For the foreseeable future, it is likely that the general baseline
trend of falling commodity prices will not just continue, but will
accelerate, partly as a result of the new technologies already in the
pipeline. As a result, the World Bank is currently predicting lower
real prices for most commodities in 2010 than in 1997 (reported in
the Economist, 1999).
Any nation that depends on commodity exports for a high per
centage of foreign revenue will be vulnerable to this continuing de
cline in commodity prices. There are, unfortunately, several addi
tional factors that make the task of managing the economy of any such nation (including any strategy to reduce dependence on com
modity exports) particularly difficult.
Commodity market cycles
Prices have been depressed recently by increases in supply. These
increases in supply result from increases in capacity that were
planned when commodity prices picked up in the early 1990s, but
7 Reuter's annual poll of metal price forecasts of January 2000 suggested that the
price for aluminium, for example, was set to increase for the next two years (re
ported in the Financial Times, 12 January 2000).
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
10 SOCIAL AND ECONOMIC STUDIES
which have only recently started to come on stream. This highlights another important feature of commodity markets: the inherent lags involved in increasing the production of most commodities typi cally impose a large, cyclical fluctuation on prices. It takes at least one growing cycle to increase crop production, and years to open a
new mine, build a new ore processing plant or find, survey and de
velop a new oil field. High commodity prices encourage investment, but there are usually significant delays before these investments can
generate results. Eventually, the investments will result in increased
production, which will then bring prices back down. If demand has
slowed or fallen in the meantime, of course, the market may then be
oversupplied, which will depress prices further. A sustained pe riod of Jow prices will deter investment, force inefficient producers out of the market, and lead to the closure or mothballing of some
plants, thus reducing supply. This will tend to push up prices (espe
cially if demand also picks up again), thus starting a new cycle. As a
result, production levels for many commodities will track market
prices, with a lag that ? as Tustin (1952) and Bellany (1997) have
pointed out ? effectively guarantees relatively large oscillations.
Extraneous factors
There are therefore two relatively predictable underlying variables
driving the market price of many commodities: the long-term trend
decline associated with the introduction of new technology and struc
tural change in the industry, and the commodity price cycle. There are also, however, more short-term and less predictable extraneous
factors, some of which can superimpose sharp fluctuations on mar
ket prices. The explosion in the Gramercy alumina processing plant in the US on 5 July 1999, for example, temporarily removed capacity from the market and reduced exports of bauxite from Jamaica over
the following year. Similarly, an outbreak of qvil unrest might force multinational corporations to shut down their production in the
country concerned, or a producer cartel such as OPEC might decide to force up prices by reducing production. Natural events also shape
markets: an unusually cold winter, for example, will increase de
mand for fuels. Alternatively, new environmental constraints might be imposed. Growing concerns about global warming, for example, might lead to government action to reduce carbon emissions, which
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 11
would then impact on the price of hydrocarbon commodities. Thus (pseudo) random shocks can be superimposed on the
trend rate, which makes the task of managing the economies of coun
tries that are overly dependent on commodity exports particularly difficult (Clayton 2000). In the most extreme cases, where a coun
try's foreign revenue derives largely from the sale of one commodity (Guinea, for example, derives some 85% of foreign revenue from
exports of raw bauxite, while countries such as Libya and Iraq are
largely dependent on exports of oil) the economy tends to work on
a 'stop-go' basis, with general business activity slowing markedly when the market price of the key commodity falls and foreign rev
enues decline.
The aluminium industry provides a recent example of several
of the above effects. The former CEO of Alean recently reviewed
some of the factors shaping the market:
Despite all the ups and downs in the world economy, Western World aluminum consumption has continued to rise, increasing by about 25% ?- from about 20 million tonnes to 25.5 million tones between 1990 and 1997. That
works out to a compound annual growth rate of 3.5% for aluminum consumption, versus growth of only 2.5% for world GDP over the same seven-year period. Looking ahead, current forecasts call for overall Western World
consumption to rise from the current level of 25.5 mil lion tonnes to 32 million tonnes by the year 2004. That
would translate into compound annual growth of 3.3% for aluminum -
exceeding the annual growth rate of 3% forecast for world GDP between now and 2004. So over the next seven years, we expect our industry to outstrip the global economy in terms of growth
- just as it did
over the past seven years. [But] those reasonably posi tive statistics.. .don't tell the whole story of aluminum in the 1990s. Beginning in 1991, with Perestroika and the
subsequent collapse of the old-style Soviet economy, massive shipments of Russian metal began pouring into the international aluminum market. Aluminum was the
single Western industry most hard hit by the Soviet up heaval. Exports from Russia and other members of the Commonwealth of Independent States (CIS) zoomed from practically zero to a level of about 2.5 million tonnes ?more than 10% of the market. Not surprisingly...the sudden influx disrupted markets, resulting in a steep decline in prices as inventories increased. Specifically,
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
12 SOCIAL AND ECONOMIC STUDIES
from 1990 to 1993 average aluminum prices fell over 35% in real terms. Can you imagine if that sort of jolt occurred in your line of business ? and at a time when much of the Western World was in recession?8
The implications for Jamaica
As indicated earlier, the long-term decline in commodity prices
represents a serious problem for a number of developing countries, as all but the most efficient, low-cost producers will eventually be
squeezed out of the market. Several of the current trends pose seri ous transitional problems for Jamaica. Jamaica's bauxite-alumina
production costs are now significantly higher than in western
Australia, banana production costs are more than double those in
Honduras, and sugar production costs are now over four times
higher than those of efficient producers elsewhere and about three
times the actual market price.9 This means that Jamaica must either
reduce production costs of these commodities to competitive levels, or accept the eventual loss of these markets to more efficient
producers. The negotiations with regard to the Cotonou accord, the
remaining preferential trading arrangements with the EU and the
increased competition from the LLDCs may provide a short-term
extension of market access,10 but this will not provide a solution to
the basic problem of uncompetitive production costs.
At this stage, it seems unlikely that costs will be reduced to the
point where Jamaica could again be fully competitive in the
8 Speech titled "The Roller Coaster of Change: Looking Back, Looking Forward"
by Jacques Bougie, President and Chief Executive Officer of Alean Aluminium
Limited, to the Board of Trade of Metropolitan Montreal, Montreal, Canada, 27
January 1998.
9 Industries cannot normally survive when the costs of production exceed the value
of the product, at which point they become net destroyers of value. Jamaica's
sugar industry has survived, however, at least to date, because it is a major re
cipient of EU and domestic subsidy. As the subsidy also exceeds the value of the
output, Jamaica's sugar industry has effectively become a mechanism for con
verting EU and domestic tax revenue into a number of largely low-waged, low
skill jobs in an industry that does not appear to have a future.
10 The EU's support for preferential trade arrangements has been undermined by their perceived failure as a stimulus to development. An EU green paper in 1997 notes that:
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 13
commodity markets. The cost structure, labour issues, market con ditions and other circumstances vary for each commodity, but
Jamaica's mining and agricultural operations are small by world
standards, with relatively high costs, low per capita productivity, and consequently slender margins. It would, of course, be possible to make improvements in these areas, but this would not be suffi cient. It would be necessary to improve more rapidly than compet
ing suppliers, who ? in an intensely competitive environment ?
are constantly expanding, innovating, and reducing costs. At the
moment, many of the productivity and cost disparities are actually widening, which suggests that Jamaica is falling further behind and
may eventually be supplanted in the commodities markets by lower cost producers.
Even apparently negative changes in the external environment can be productive, however, albeit perhaps in the longer term, by spurring the development of new industries and the (overdue) switch out of declining industries. A sustained fall in the price of sugar, for
example, was an important factor in Brazil's decision to encourage the development of an ethanol industry. This created a downstream
market for sugar as an industrial crop, thereby providing a viable alternative to increasingly uneconomic production for consumption.
The important point about the current changes in the external environment is that they are being driven by a powerful confluence of economic and technological developments, which means that the
pace and extent of change are likely to continue to increase. It also
ACP share of the EU market declined from 6.7% in 1976 to just 3% in 1998.
Just 10 products accounted for 60% of total ACP exports to the EU. Per capita GDP in sub-Saharan countries covered by the trade terms grew by just 0.4% per annum over the period 1960-1992, compared with 2.3% for the
developing countries as a whole. There is therefore little evidence that the trade terms have either (a) enabled
ACP countries to increase their share of the European market, (b) helped ACP countries to diversify their economies or (c) assisted in the creation of a positive dynamic for growth. It has been suggested recently that the preferential trade terms have had the unintended effect of encouraging countries to persist in eco nomic activities in areas in which they had no real competitive advantage, dis
couraged diversification and allowed over-manning, thereby postponing the in evitable accommodation to market reality to the point where the adjustment will now be more painful.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
14 SOCIAL AND ECONOMIC STUDIES
means that there will be many significant discontinuities in the years ahead, with the array of market opportunities and constraints con
tinuing to transform as new technologies are developed and dis seminated.
The critical task facing Jamaica and other developing coun
tries, therefore, is not to manage a difficult transition to a new set of
stable trading arrangements, but to foster a culture of change and to
build the capacity to respond to change, as this represents the best
strategy for surviving and thriving in a rapidly evolving external environment.
This will in turn require a number of interlinked changes in
current political, business and institutional cultures and structures, some of which are reviewed below. The management of this process
must itself be both dynamic and flexible, as the nature of the task
and the associated priorities will themselves change over time. In general terms, the market trends and technological devel
opments reviewed earlier suggest that the future for small island
nations such as Jamaica must be based on:
Supplying niche markets (characterised by low volumes,
high margins, and competition on the basis of quality), rather than commodity markets (characterised by high volumes, low margins, and competition on the basis of
price). Product and service differentiation, to establish a clear role within those niche markets.
Capturing an increasing share of the total value by add
ing value to goods and services before export. This is, of course, an obvious conclusion. The difficulty, as
usual, lies in implementation. Implementation (especially when a
significant switch in strategy is entailed) often requires overcoming
organisational difficulties and inertia, raising capital, remedying skill
deficits and shortages, acquiring contacts, building new infrastruc ture and so on. Product and service differentiation adds an addi
tional level of complexity to this process, as it requires sophisticated market analysis, particularly with regard to tracking and anticipat
ing market trends, and an equally sophisticated analysis of current
capability and potential obstacles to progress. This is because op tions for product and service differentiation are not necessarily
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 15
equally available to all; some will inevitably be better positioned than others to access particular market opportunities. Good timing is also vital: products can fail by being too far ahead of their time as
well as by being too far behind. This is one reason why product and service differentiation can provide significant first-mover advan
tages; there may be few rewards for the procrastinators or over
cautious once the first movers have established their brands and
secured the contracts to supply.
Building a skill-based economy
In some sectors, Jamaica already has a strong basis on which to build.
Tourism, a classic service sector activity, is now Jamaica's dominant
industry, bringing in over half of all foreign revenue. The industry does require significant investment, rejuvenation and repositioning, and has to address a number of serious social and environmental
issues, but all of these problems are ? in principle ? solvable. Pro
vided that the immediate problems are solved, the industry is clearly
capable of considerable further expansion. What is proposed in this paper, however, is rather more pro
found: that Jamaica should look to develop skill-based activities across all major sectors in order to restructure and transform the
economy.
This will require addressing a number of issues simultaneously.
Clayton (1997) notes that any economy is underpinned and imbued
by social values, codes of behaviour and ethics, which are in turn
reflected in the structure and functioning of public sector institu
tions and private sector firms. If Jamaica is to develop a skill-based
economy, therefore, it may be necessary to adopt a number of meas ures as part of an overall strategy to remodel the key economic, social and institutional factors that will be required to provide the
necessary underpinning. There are several possible models. The South East Asian
nations, for example, have substantially restructured their econo
mies. Several have moved decisively into high value-added,
high-technology sectors, and the majority have ? even taking the recent world financial crisis into account ? demonstrated high, robust economic growth rates.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
16 SOCIAL AND ECONOMIC STUDIES
The Nordic countries provide another possible model. They are all relatively small countries, in terms of population. Some ?
such as Norway (population 4.4 million) ? have significant natural
resources, but others ? such as Denmark (population 5.3 million) ? do not. They all, however, have an economic philosophy that has
certain key features in common: high wages, an emphasis on high
quality production, high skills and high levels of trust in the
workplace. These factors are mutually reinforcing. High wages, for
example, create high levels of disposable income, which support the level of consumption required to absorb high quality (and ex
pensive) consumer goods. These countries also tend to have high levels of taxes, but these support high levels of investment in educa
tion, public infrastructure and social welfare. The Nordic economies are generally successful and interna
tionally competitive, in spite of their high labour costs and high taxes.
They represent just 6% of the population of Europe, but they are
home to 10% of the biggest and most successful European compa nies (Financial Times FT500 survey, 2000). For example, the largest manufacturer of mobile phones in the world ? Nokia ? is based in
Finland (population 5.1 million), while the third largest ? Ericsson
? is based in Sweden (population 8.9 million). The competitive success of the Nordic economies, with their
high labour costs and high taxes, is based on a small number of key factors. Of course, high levels of social cohesion, low rates of crime, a strong legal framework and stable macroeconomic policy are very
important, and provide a general underpinning. One of the most
important specific factors, however, is the existence of industrial clus
ters in economically significant areas. Finland, for example, hosts not just the mobile phone manufacturer Nokia, which is currently the third biggest company in Europe, but also Sonera, a mobile phone operator, which was first listed in 1998 but is already the thirty sixth biggest company in Europe. These clusters tend to be geographi cally concentrated, and have a strong emphasis on research, learn
ing and development and high levels of inter-company information
exchange.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 17
The importance of clusters in economic development
Many recent studies of economically successful regions and coun
tries have emphasised the importance of clusters as the engines of
economic growth. Clusters typically consist of a geographically close
group of companies, the majority working in the same sector. The
effect of a strong cluster is to accelerate innovation, the formation of new businesses and economic growth rates. The success of the Sili con Valley cluster around Stanford University in informatics, the
City of London in international share dealing, hi-tech entrepreneur
ship in both Massachusetts in the USA and Baden W?rttemberg in
Germany, Switzerland in pharmaceuticals and the north of Italy in
precision engineering are all examples of this effect.
There are also examples of clusters in developing nations, such
as the petrochemicals industry in Trinidad. Starting with natural
gas, satellite activities developed in the production of ammonia,
methanol, urea, and liquefied natural gas, while low-cost energy
permitted the development of smelters. The successful development of a very strong information technology and back office function
cluster in India is even more remarkable, as India has been notably successful in moving down the value chain, starting from basic back
office functions, and moving into top-end high margin activities.
The industry has been expanding at approximately 50% per annum
for over ten years, and there is large and as yet untapped human
capital to permit future expansion. A recent review in the Economist
(2001) notes that estimates as to the eventual contribution to national
development range as high as an effective tripling of India's GDP,
although most estimates are more modest.
India has clearly established the necessary critical mass of hu
man, financial and technological resources and business contacts to
form a dynamic cluster. The developments in India also highlight the process by which leads, once established, can become locked in
and stable. As the industry goes from strength to strength, it will
inevitably set a higher and higher standard for any potential com
petitor, thereby making it harder to potential new entrants to tap into the same market, while established firms in India are already
seeking to protect their position by erecting additional barriers to
entry.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
18 SOCIAL AND ECONOMIC STUDIES
The majority of clusters in developing nations are relatively small-scale, however, albeit economically vital: such as cottage in
dustries in Indonesia, garments and fishing in Kenya, clothing in
Peru, footwear in Mexico, India and Brazil, knitwear and tannery
products in India, and surgical instruments in Pakistan (various stud
ies reported in World Development, 1999). Clusters work, essentially, because they bring together the key
players in economic development. A successful cluster consists of a
dense local network of venture capitalists, entrepreneurs and tech nical innovators. Geographical closeness (especially in conjunction with a range of diverse business and leisure meeting venues and
opportunities) allows numerous, frequent interactions between these
players, in many different social and business combinations. Handy has pointed out that of the top 30 Internet entrepreneurs in the UK, for example, 25 live within half a mile of Notting Hill, in London.11
This dense clustering means that anyone with a good techni
cal idea is no more than one handshake away from both an entre
preneur and a venture capitalist ? and vice versa. This creates a
fertile breeding ground for new business start-ups. The 'boutique' environment is important, as it fosters, for example, venture capi talists who have detailed, specialist knowledge of particular lines of
enquiry, know the individuals concerned, and are therefore able to
spot potential commercial winners at an oarly stage. The success of
the Silicon Valley cluster can be attribute d, in part, to the willing ness of the venture capitalists there to take equity stakes on a long term basis and to retain a close involvement in the commercial de
velopment of software concepts, frequently with a mentoring role.
The number of formal and informal interactions provides a
rich information environment. Important technical and market in
formation and ideas can be gleaned, checked and cross-checked from a range of different sources, and can be assembled into creative new
opportunities for projects. Clusters also represent a wider 'gene pool' of skills than can
be located within any one company. This is especially important in
11 Charles Handy, in Alex Hunt, "Visions of Business in the 21st Century/' BBC, 1 November 1999.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster ?n Jgmaica: 19
technology-driven, rapidly developing markets, as the economic
terrain within which companies have to operate is particularly fluid. A new opportunity
? or challenge ?
might oblige a company to
acquire new skills at short notice. In a successful, dense cluster, these new skills may also be no more than one handshake away, which means that they can be rapidly traced and bought in.
As clusters become more successful, they tend to become mag nets, drawing in an expanding group of people with similar ideas
and ambitions. The Silicon Valley cluster, for example, had a small
original nucleus at Stanford University, but has now expanded enor
mously and spread widely across California and Oregon. As clus
ters become centres of excellence, developing and extending their
lead over other areas, their wealth, infrastructure, technical ability and sophistication multiply accordingly, thus widening the gap still
further. Thus leads, once established, can become relatively locked
in and stable.
The City of London provides a good example of this effect. As
of November 1998, the value of the domestic market on the London
stock exchange was very similar to that of Tokyo, at ?1.3 trillion.
This was only just over one-fifth of the value of the domestic market
on the New York exchange, which was worth ?5.4 trillion. The situ
ation on international markets, however, was completely different.
In that year, London turned over ?722 billion in international share
trades, about two and a half times the volume in New York. In fact, London had a larger market in international share trades than the
rest of the world's major bourses (New York, Chicago, Nasdaq, Frankfurt, Paris, Hong Kong, Tokyo and so on) put together. The
relatively small domestic market of the UK is no longer a limiting factor, as the City has transformed itself into a dominant global
player. This success can be attributed largely to the cluster effect, as
the reason why many financial firms with significant international
market trading operations prefer to trade through London is simply that the other financial firms with significant international market
trading operations are also represented there.
To remain dominant, however, clusters must retain their dy namic drive to innovate, staying at the cutting edge of their sectors.
This means, in practice, that they must be able to constantly re-in
vent themselves. The City of London, for example, in spite of its
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
20 SOCIAL AND ECONOMIC STUDIES
dominant position on international markets, was relatively late in
adopting electronic share dealing systems. As a result, the London
Stock Exchange is currently considered to be potentially vulnerable to take-over.
Within a successful cluster, there is usually both competition and cooperation. In a number of cases, successful firms that
compete aggressively with each other in some areas will trade, par
ticipate in joint ventures, share experiences and technologies and
otherwise cooperate in others. In many cases, cooperation can
generate clear mutual benefits in reducing the risks involved in in
novation. Any research strategy will fail, on occasion, with firms
obliged to write off capital invested in aborted projects. A broader
search strategy therefore represents a hedge against risk. No one
firm, however, may be able to mount a sufficiently broad search
strategy. The innovation model adopted in Japan, therefore, involves a defacto division of labour between separate firms, coordinated by the Ministry of International Trade and Industry, with failure for one firm in one endeavour being compensated by success in another.
On a less orchestrated basis, Boeing and Airbus ? for example ?
compete aggressively on sales, but co-operate and pool information on safety engineering.
The strategic approach
The starting point in the formulation of any long-term strategic plan for national development must lie outside Jamaica, in an assessment
of the changing nature of global markets. It is particularly impor tant to examine the way in which key sectors of the global economy are currently being restructured, to review new technologies and assess emerging market opportunities. In that way, it would be pos sible to devise a plan to insert Jamaica into this process by building a new role as a market supplier (and possibly market-maker) in a
high-growth sector. It may thus be possible to develop a lead, then
to translate that into a strategic position of competitive advantage. The strategy for Jamaica's transition to a skill-based economy
should be based, therefore, on the identification of clear external
market opportunities which would allow the development of knowl
edge-based business/industrial clusters.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 21
Emerging opportunities
There are several such opportunities. One of the most promising is
the market for a range of biological extracts and derivatives. These
include:
The existing markets for flavourings and essences.
The potential market for industrial crops. The emerging markets for nutraceuticals and functional
foods.
These overlapping markets are reviewed in more detail below.
1) Flavourings and essences
The major customers for bulk flavour concentrates are predominantly food and beverage manufacturing and processing firms. Demand is
growing, and the market is becoming more sophisticated and di
verse. The relatively rapid growth in the Hispanic consumer market
in the USA, for example, is generating increased demand for fla
vour concentrates from tropical and sub-tropical plants (currently used in a range of fruit drinks and food products).
A number of Jamaican fruits and vegetables are noted for their
intense, complex flavours, which indicates a relatively high ratio of
flavour-endowing ingredients to water in the plant juices, with a
wider range of flavour notes. Rather than compete directly in the
fresh produce market, therefore, a better strategy might be to go down the value-added chain by extracting and exporting, in a
low-volume, high-value concentrated form, the various flavour
ingredients.
2) Industrial crops
'Industrial crops' refers to the managed production of biological materials for industrial processing into non-food products. There
is, of course, a long history of development in this field; timber has
been an important construction material since the dawn of civilisa
tion, and remains so today. Flax, cotton, rubber and many other
materials have similar traditions. The next phase of development, however, is likely to involve a number of very significant quantita tive and qualitative changes.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
22 SOCIAL AND ECONOMIC STUDIES
Recent research and development work by Mercedes-Benz do
Brasil, for example, involved manufacturing car parts from a
mixture which included natural fibres. The first phase involved
pressing back walls, pillars and door panels from jute fibres (from
recycled sacks), using polypropylene (also from recycled sacks) as
the binding agent. Mercedes-Benz do Brasil now use rubber as a
binding agent for coconut fibres in headrests and seat backs, and
sisal, jute and cotton for interior panels. Mercedes-Benz in Germany are now making rear shelves and insulating mats from shredded
cotton, and upholstery from coconut fibres and latex. The interior door panels in the Class C cars have, since 1994, been made from
flax-sisal mats covered in epoxy resin (they are 20% lighter than the
original panels, and perform better in crash tests because they do not shatter).
The Plastics and Elastomers Department in Mercedes-Benz Ma
terials Technology Centre are now moving beyond the use of natu
ral cellulose fibres as fillers to use them as substitutes for glass fi
bres as reinforcing fibres.12 Natural cellulose fibres are an attractive
option for a number of reasons:
The world's plants produce some 10 trillion tonnes of them
each year, enough for any likely amount of use.
They cause less wear in processing machinery than glass fibres, and they do not have the same association with res
piratory and other health problems. Their tubular structure provides both good insulation
against heat and noise and active humidity regulation, ideal
for upholstery. Some natural fibres exhibit tensile strengths that exceed
that of steel cable, while remaining extremely flexible, a
12 It is the combination of natural fibre and plastic matrix that determines the prop erties of a component, and the key technical task is integrating the two. This is
quite difficult, as natural fibres are heat-sensitive; lignin (which binds the cellu lose chains) degrades above 230?C. There are currently two solutions to this prob lem; one is to use a pressure-setting plastic (such as polyurethane) which can be
processed into rigid foam components at low temperatures, the other is to use
thermoplastics (such as polypropylene) with additional bonding agents to assist
integration. The first route is limited to rigid products with little impact resist
ance; the second route is more promising but requires changing processing pro cedures in order to avoid thermal stress to the natural fibres.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 23
highly desirable combination of characteristics. Ramie (an Asian nettle) has the strongest plant fibres, and is currently used in the manufacture of parachutes and bank notes. Flax
is considerably weaker, at only half the strength of fibre
glass, but it also has only half the weight of fibre glass, which means that flax-based components can be made that are as strong as glass fibre counterparts on a weight for
weight basis.
They can in some cases be recycled and re-used without
significant deterioration in quality. Thus the next phase will be to produce parts entirely from re
newable sources. Mercedes are already manufacturing brake hose
out of polyamide 11, which is manufactured from castor oil. It is not
yet clear, however, whether it will be economically viable to manu
facture polypropylene or polyurethane from plant-seed oil, but the
vision now is of eco-composites; natural fibres in a biological matrix
derived from plant starches or tree resins (Daimler Benz High Tech
Report, 1995). Several research programmes are already underway. The Uni
versity of Delaware, for example, has developed a process to re
place existing petrochemical-based polyester, epoxy and vinyl ester
resins and composites with resins and composites manufactured
from soya oil. Parts engineered from soya oil give equivalent strength for about 25% of the weight of parts manufactured from petrochemi cal resins. Corn oil appears to have a similar potential as an
engineering material. The Delaware project employed glass fibre as
the reinforcing matrix, but the intention is to replace this with plant fibres as well. It may prove possible to scale up to produce even
structural engineering components entirely from plant fibres and
resins.
The use of natural fibres, oils and resins as eco-composite
engineering components offers completely new prospects for agri culture. There is an immense potential market for such industrial
crops, many of which could be advantageously produced and
processed in tropical and sub-tropical regions. This will in turn
allow farmers to expand beyond their traditional role at the base of
the food industry and evolve into increasingly skilled phyto-techni cians as they become part of a larger industrial complex.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
24 SOCIAL AND ECONOMIC STUDIES
3) Nutraceuticals and functional foods
One of the most significant current changes in the restructuring of
the global economy is reflected in the wave of consolidations and
mergers ? in the aluminium, iron and steel, cars, chemicals, food
and pharmaceuticals sectors, amongst many others ? as economic
logic compels companies to scale up to deliver their goods and serv
ices on a truly global level (sometimes by merger and acquisition of
the smaller players). For example, the Economist (2000) notes that
just three companies now dominate the world's iron-ore business.
Similarly, just six volume car manufacturers now control 70% of the
total world market for cars (the remaining 30% is divided up amongst over 30 smaller players), and this percentage is predicted to increase
further.
A similar logic is driving the consolidation of the pharmaceu tical industry. A pharmaceutical company will typically start assess
ing approximately 10,000 molecules for every one that finally gets
brought to market as a product. Parlange (1999) has pointed out
that - as a result of the need to assess many possibilities for each
viable product - a new drug takes, on average, 12 years and costs
$300-400 million to develop. There is an enormous 'hidden' cost,
therefore, for the R&D required to develop a given new product and get regulatory approval, which only the largest companies can
bear - which is why pharmaceutical companies increasingly feel that
they have to become even larger to survive.
One development of particular interest in this regard is that
there are early signs of a partial fusion of interests of the food and
pharmaceutical industries, which may open the way to even larger cross-sectoral mergers and acquisitions. This particular development is particularly promising, in that it also holds out the promise of new economic development opportunities for countries such as
Jamaica.
Leighton (2000) has noted that the global food and pharma ceutical industries are being transformed by a series of simultane ous events:
One is the growing strength of the consumer culture, which
is now driving political, social and economic changes around the world. The market for foods and pharmaceuti cals is, as with other sectors, increasingly being driven by
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 25
consumer lifestyle needs. It may seem surprising that this
should be true of the pharmaceutical industry, which is
traditionally associated with health care, but among the
biggest selling drugs today are those designed for lifestyle enhancement, such as Prozac (used for mood enhancement, as well as dealing with stress and depression) and Viagra (used for sexual enhancement, as well as redressing erec
tile dysfunction).
Demographic changes (increasing life expectancy and a fall
in family size) are causing a rise in the average age of the
population in Europe, North America and Japan. As a re
sult, there is an unprecedented move amongst consumers
in the world's three largest markets towards fitness, self
care, better nutrition and a more preventative approach to
managing the age-related degenerative diseases. At the
same time, these consumers have adopted a fast-paced and
demanding lifestyle, and are not prepared to compromise on this in achieving their new health goals.
Many of these consumers in the USA have, to date, had to
go outside the mainstream in order to meet this need.
In 1996 US consumers spent $15 billion on general practi tioners, but spent $80 billion on alternative medicines, in
cluding dietary supplements. This is forcing the food and
pharmaceutical industries to respond, as they have noticed
that in general, anything that gives the consumer more
control and more ability to self prescribe markets well.
As a result of both the demographic changes and rising consumer expectations, there is growing economic pres sure for a move to a more prevention-based healthcare
model. The US healthcare system cost taxpayers over $1 trillion in 1996. In 1998, retail pharmacy prescription drug sales alone totaled $102 billion, an 85% increase in only five years. It has also become clear that (a) promotion of healthier life
styles can improve and extend lives while reducing healthcare costs, and (b) improved nutrition is one of the
keys to more effective prevention. For example, one study noted that a daily dietary supplement of vitamin E could
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
26 SOCIAL AND ECONOMIC STUDIES
save an average $578 per patient by significantly reducing the incidence of non-fatal heart attacks. This indicates the
extent of the potential savings per patient and on aggre
gate, as a year's supply of micronutrient supplementation will typically cost less than hospitalisation for one day. The net result of all of these changes and trends is the emer
gence of the nutraceuticals and functional foods subsector, which is where the distinction between foods and phar maceuticals is becoming increasingly blurred. Increasingly, consumers (with high pressure lifestyles, but concerned
about their health) are looking to enhanced food products to deliver preventative health care, improved health status and increased life expectancy. There is a rapidly growing market for such functional foods, defined as those
purchased primarily because they deliver an additional
health or nutritional benefit. Sales of functional foods now
exceed $80 billion worldwide, with an additional $10 billion or more spent on nutraceuticals and other dietary
supplements in medical formats. In the USA, nearly $15 billion was spent on functional foods in 1997, and the rate
of growth is now over 12%13 (Datamonitor, 1997). Similar rates of growth obtain in other major markets (Datamonitor,
1998). This compares very favourably with the relatively
sluggish 3% growth for traditional foods. Some projections
(assuming an increasing CAGR) indicate that the global market could be valued at some $240 billion by 2005.
These factors represent a very powerful combination of drivers
forcing the pace of development of a new, global market for
nutraceuticals and functional foods.
Definitions
Nutraceuticals and functional foods are new industries based on
recent advances in medical science and improved understanding of
human nutrition. There are a number of molecules, known as
13 Between 1992 and 1996 the functional foods sector in the USA grew by an aver
age CAGR of 12.9%.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 27
actives, which are now thought to be able to significantly improve health status. Most of these actives are currently derived from food
plants. Many leading researchers in this field now believe that it should be possible to give effective protection against heart disease, stroke, dementia, osteoporosis and many types of cancer, for exam
ple, with a diet that contains elevated levels of these actives. These actives can be extracted from plants and given in medical formats
(nutraceuticals) or used as food additives in standard food products (functional foods) as a highly cost-effective way of raising the health status and average life expectancy of a population.
This should not be confused with traditional herbalism, for several reasons. One is that most of the plants of interest are actually food plants, not herbs. Another is that the new industry has a rigor ous basis in science, not tradition. A related reason is that the new
industry uses ultra-refined doses which contain nothing apart from the desired actives, whereas traditional herbalism uses materials with little or no processing and which therefore contain unknown quan tities of desirable (and undesirable) actives.
There are a number of both ingredients and finished products that could be advantageously produced and supplied to this new
market from the tropical and sub-tropical regions of the world. For
example:
Ginger contains flavonoids that have anti-inflammatory, vascular stabilising and anti-platelet effects. They can be used in the treatment of rheumatoid and osteo-arthritis, and they are likely to be cardio- and stroke-protective. Turmeric contains flavonoids that are anti-inflammatory, and also block tumour necrosis factor alpha. They are likely to find a use in the treatment of arthritis, asthma and ul
cerative colitis, and their properties also indicate that they will be cardio- and stroke-protective.
Sugarcane contains trimethyl glycine (betaine), which pre vents the build-up of the toxic amino acid homocysteine and thus protects against heart attack and stroke. This effi
cient methyl group donor also offers protection against cancer, liver damage and central nervous system degen eration. High levels of betaine are found in sugar bagasse, which is currently regarded as a waste product.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
28 SOCIAL AND ECONOMIC STUDIES
Banana contains various phospholipids, some of which may reduce the risk of heart disease, asthma and allergic rhinitis
conjunctivitis, especially when used in conjunction with
betaine. The highest levels of phospholipids are found in
the skin of the banana, which is also treated as a waste
product.
Kava Kava is already a commercially important source of source of actives with anxiolytic and anti-addiction prop erties. It is currently grown mostly in Hawaii, but could
probably be grown well in the Caribbean.
Preliminary estimates14 suggest that the potential share of world
market for standardised extracts from sub-tropical plants in the
Caribbean region could be in the range of 1-5% of the global ingre dients market, while the potential share of the world market for fin
ished nutraceutical and functional foods products could be perhaps 0.5%. The maximum value of these shares by 2005 would be $1.8
billion; approximately equivalent to the total foreign revenue gen erated by Jamaica's tourism industry and bauxite/alumina industry combined (these figures are purely illustrative, as it is likely to take at least 10 years to build a 5% market share).
A move to establish a solid presence in the new market place could therefore transform Jamaica's economic circumstances and
development prospects: The agriculture sector, which is still a major employer, is
in decline. The new export opportunities could help to
arrest and reverse this decline.
Diversification out of traditional agricultural areas into pro duction for high-value products such as nutraceuticals and functional foods would allow existing uneconomic crops to be replaced by crops with a higher economic returns, and create employment opportunities in a form of agri cultural activity for which there is a real and expanding
market as opposed to the protected and subsidised mar
ket for certain traditional agricultural exports. Instead of
exporting bananas for ripening, for example, it would be
14 Sources: Commercial and technical data, assessments and reports from Univite, Nutrinova (Aventis), the Leatherhead Food Research Institute, Danish Food
Group Consulting, Promar International Consulting, and Datamonitor.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 29
possible to process the bananas in Jamaica, extract various
value streams (such as phospholipids for the pharmaceu tical industry, flavourings and essences for the food and
cosmetics industries and so on), and sell these extracts into
high-value, lucrative niche markets. The value of the ex
ports would be significantly higher while the weight would
be significantly lower, thus improving value to weight ratios, largely eliminating the transport cost penalty of
island production and greatly increasing profit margins. The potential customers in, for example, the nutraceuticals
and functional foods industry, typically require oleoresins or other processed fractions, standardised and refined to a
very high level of purity before export. This means that
both primary (production) and secondary (extraction)
stages would be based in Jamaica, thus capturing more of
the value-added. In the long term, it also may be possible to capture another value-added stage by expanding into
the finished products market.
Establishing a competitive position in the nutraceuticals
market
The nations of the Caribbean have certain natural advantages ? a
long growing season, high rainfall and consequent rapid rates of
plant growth offer favourable conditions for certain tropical plants with high levels of desirable actives ? but these conditions would
not, by themselves, be sufficient to guarantee a competitive posi tion. India, Africa and China are already suppliers to the
nutraceuticals and functional foods industry, for example, and will
in some cases be able to compete in the same product lines.
There are a number of species that are endemic to Jamaica, some of which may prove to contain valuable actives. Other species are not endemic, but may still contain unusually high levels of valu
able actives. The local variety of ginger, for example, is noted for its
pungency, which indicates a high flavonoid content. Either situa tion could give Jamaica a valuable lead time advantage, but this
would probably prove to be temporary as other countries could
replant with cultivars of the plants and varieties concerned.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
30 SOCIAL AND ECONOMIC STUDIES
The higher costs of production in Jamaica, however, would not necessarily be a serious impediment, as the ingredient cost in a
finished nutraceuticals product is typically less than 1% of the final consumer price. Thus India can produce ginger, for example, at about
1/7 of the Jamaican cost, but this advantage becomes less important (in comparison to other factors) when it has relatively little impact on the final price.
Thus the primary determinants of competitive advantage, in this case, are likely to be agility and marketing.
Agility It will be essential, in a dynamic and rapidly evolving field, to be
fully abreast of both the biomedicai research and the various factors
shaping the emerging market, so that the nascent industry can re
spond in a pro-active manner to anticipated consumer demands. This requires the development of a 'culture of change', in which the
industry is prepared to exploit a niche until the competition becomes too intense, then to move on rapidly to new outlets and products. This also requires that farmers, for example, must be advised to plant on the basis of forward market projections, a radically different dis
cipline from the traditional 'on a cart to market' model.
Marketing
Actives from Jamaica will, in most cases, be chemically identical to various actives produced elsewhere. In a consumer-driven market, however, this factor is usually less important than image (consider, for example, the 10-fold price difference between leading brands of
training shoes and otherwise identical clones). This highlights the crucial importance of branding, and of building on the Jamaican
image to establish a strong consumer demand for the Jamaican prod uct lines.
More generally, the process of product identification, devel
opment and marketing is fundamentally important, as it is with most consumer products. Markets must be identified and assessed, pro totypes developed, consumer reaction gauged, prototypes sifted and
modified, and so on, in an iterative process that eventually leads to the launch of a new (or modified) product.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 31
Thus the key factor in securing and maintaining a competitive
position in these new markets is to develop strong relationships with
customers, brokers, and biomedicai research institutes. Product de
velopment and marketing is a two-way, interactive process. The
precise formulation of each product must be determined in close
collaboration with both the technical and marketing divisions of the
client firms. On the production side, it is essential to develop a mar
ket entry strategy, target a market share, secure a client base and
distribution channels, determine the optimal product mix, and agree
policies on branding, pricing and volume. With food ingredients, in
particular, both the reality and the image of product purity are vital.
Thus quality control and product consistency are of paramount im
portance, as well as reliability with regard to delivery schedules.
Developing a Biolndustry cluster in Jamaica: a step towards build
ing a skill-based economy
The market opportunities in flavourings, industrial crops and
nutraceuticals outlined above suggest a real opportunity to build a
Biolndustry cluster in Jamaica. Much of the infrastructure required (in terms of growing, handling, processing and storage facilities)
would overlap, as would some of the scientific and management skills, industry contacts and so on. This offers a range of potential
synergies, with the development of firms specialising in the differ ent market opportunities, competing for some contracts but cooper
ating across others to minimise their capital outlay and research and
investment risks.
These market opportunities could, with good management, be
used to demand-pull a process of economic restructuring that could
allow Jamaica to raise the skill level in the workforce, attract and
retain human and financial capital, and make a decisive move down
the value chain, thereby escaping from the 'commodity trap'. There are important practical issues, however, as to how to
stimulate, then lock-in this transition to a skill-based economy. The
skills, infrastructure, capital, market knowledge and contacts that
would be required to build a Biolndustry cluster are all either present in Jamaica, or can be fairly readily accessed. However, these factors
of production are currently dispersed across a number of different
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
32 SOCIAL AND ECONOMIC STUDIES
institutions and firms. The problem, therefore, concerns the organi sation of existing assets.
Building a skill-based economy
Universities and research institutions are, typically, the main con
centrations of relevant knowledge and skill, especially in develop ing and transitional nations, and therefore have a crucially impor tant role to play in supporting and enabling a transition to a skill based economy. They cannot, however, drive this process. The dis tinction becomes clear when considering the failure of traditional
strategies for education and training, which have tended to focus on
increasing the supply of skilled and educated people into the
workforce. This approach has been criticised recently, on the grounds that there is little convincing evidence that the process of economic
development can be supply-pushed by education. An oversupply of over-qualified graduates in an economic recession can lead, in
stead, to a situation where many university graduates are unem
ployed or underemployed, and consequently disaffected, or driven to emigrate in search of better opportunities overseas.
rhe evidence suggests, rather, that education is demand-pulled by economic development. As economies strengthen and diversify they assume the inverted pyramid shape of a mature economy (in
which tertiary service sectors increasingly dominate secondary
processing and manufacturing sectors, which in turn increasingly dominate primary mining and agricultural sectors). As this happens, the demand for a widening range of increasingly diverse, specialist and sophisticated skills expands, which thus expands the range of
opportunities and demands for educational courses.
There is a more fundamental issue, therefore, as to how to en
courage entrepreneurship in knowledge- and service-based eco nomic activity, particularly in countries with a thin skill base in those areas. Classically, low business start-up rates tend to be associated with particular problems in translating ideas and interest into ac
tion. These problems can include a lack of the necessary skills and
resources, difficulties in obtaining finance, and a lack of personal or
business confidence. Such factors can make starting a business or
undertaking a new business venture less attractive both to entrepre neurs and to potential investors.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 33
To change this pattern, it may be necessary to change attitudes towards entrepreneurship and private sector action more generally, to encourage more companies and individuals to become less risk averse and more entrepreneurial by making advisory and logistical
support more readily available, to increase the provision of venture
capital, to encourage and facilitate business start-ups, and to pro mote enterprise and wealth creation through the educational sys tem.
Financial institutions have a critically important role in this
process, and it is particularly important that they are well managed, have a strong professional ethos, and a clear set of long-term strate
gic goals. In a situation where countries are heavily indebted, and
governments are engaged in a constant struggle to meet their obli
gations, many otherwise attractive investments may be squeezed out by high-interest government bonds. Financial institutions may well prefer to deal in government paper, rather than tangible in
vestments, unless the investment can offer an unusually high and
rapid rate of return. This can starve the real economy of investment
capital, while simultaneously encouraging endemic short-termism, in which inherently riskier and more speculative ventures are pre ferred over relatively dull but worthy investments offering lower
returns. This pressure, in conjunction with weak or absent supervi sion, can foster a dysfunctional business culture and a "casino
economy" mindset, in which insider trading, conflicts of interest
and more direct forms of corruption become increasingly common.
Thus governments must take steps to ensure that public sector fund
ing requirements do not crowd out private sector investments, that
the financial services sector is properly regulated and supervised, and that firms adopt appropriate international standards with re
gard to corporate accounting and reporting procedures. There are also implications for corporate structure. Traditional
firms tend to have hierarchical models of organisation and job de
sign. They generally invest little in human resource development and training. The chain of command and the flow of ideas are
usually one-way. Skill-based firms, by contrast, tend to have flatter, more devolved management structures, invest significantly in hu man resource development and training, encourage various forms
of participation and entertain ideas from the different levels in the
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
34 SOCIAL AND ECONOMIC STUDIES
company. Unfortunately, many Jamaican companies are currently
handicapped by a combination of poor labour relations, under-in
vestment, and a lack of strategic management skills, and do not cur
rently have good personnel and human resource management poli cies (Carter 1997). This suggests that a number of changes will be
required of management, the workforce and the unions in a transi
tion to a skill-based economy. The transition may be particularly demanding in a situation
where trade unions are generally reactionary, inflexible, resistant to
change, and quick to defend existing job demarcations, and where
the majority of members are low-waged and low-skilled. In such
circumstances, particularly in an economic downturn, unions will
tend to resist modernisation and mechanisation, being primarily con
cerned with the immediate job losses rather than the longer-term
potential economic gain. The situation may be further entrenched
when the union itself is not liable to pay benefits to workers on strike.
If the union representatives are insulated from the effects of their
decisions, they are more likely to call for a stoppage before fully
exploring other options. This implies that management must become more sensitive to the perceptions, needs and concerns of their
workforce directly, without the mediation of the union, and that
governments must assume a more focused role in educating unions as to the implications of liberalisation, changing technology, and increased competitive pressure.
The macroeconomic context is also important. Potential entre
preneurs also tend to become less risk-averse, and more willing to
engage in a business start-up, if the risk and consequences of mass
unemployment diminish. Different countries have adopted various
combinations of a more stable economic environment and a more
supportive welfare system in order to try to encourage this process. There are a range of similar issues concerned with social and
political stability, levels of corruption and the maintenance of law
and order, all of which bear directly on investment decisions. Insta
bility entails a risk that projects cannot be pursued to completion,
high levels of corruption are associated with high hidden costs ?
especially where dysfunctional public institutions create a constant
incentive for expeditious arrangements to bypass bottlenecks ? and
frequent or systemic failures of law enforcement leave investors
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 35
vulnerable to extortion or more subtle pressures to take on unneces
sary labour or pay 'social taxes' in order to prevent sabotage, the alternative being to absorb heavy costs for additional security. For
eign investors routinely take such factors into account, so that coun
tries can no longer compete on the basis of low wage costs alone.
Thus governments of developing countries, particularly those with
out significant reserves of strategic natural resources, must also take
steps to ensure that they can offer a reasonably safe, stable environ
ment for business development. There are even deeper issues as to the nature of a country's
political culture and the quality of its business management and
political leadership, and as to the extent to which a country is thereby able to shape its own destiny. The remarkable post-independence
development of Singapore demonstrates the vital role of political
integrity and capacity, and of determination, consistency and focus, in creating opportunities, attracting and utilising people of ability and talent, and creating a positive dynamic for development (Yew
2000).
Conclusion
In summary, therefore, a set of wide-ranging changes would be re
quired in order to foster and support a transition to a skill-based
economy. It would be necessary to develop a strong science base, an
entrepreneurial private sector and supportive government policies. This would be a challenging process. The alternative for countries
such as Jamaica, however, may be economic decline, environmental
degradation and social disintegration.
References
Bellany, I. (1997). The Environment in World Politics. Cheltenham: Edward
Elgar.
Bonifant, B. and I. Ratcliffe (1994). Competitive Implications of Environmental
Regulation of Chlorinated Organic Releases in the Pulp and Paper Industry. Washington, DC: Management Institute for Environment and Busi
ness Case Study.
Brown, L., M. Renner and C. Flavin (1997). Vital Signs 1997-1998. London: Earthscan.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
36 SOCIAL AND ECONOMIC STUDIES
Brown, L., C. Flavin and H. French (1998). State of the World 1998. London: Earthscan. Caribbean Export Tradewatch Newsletter 16/11/2000
Carter, K. (1997). Why Workers Won't Work. The Worker in a Developing Economy: a Case Study of Jamaica. London: McMillan.
Centre for the Exploitation of Science and Technology (1995a). Waste Mini mization ? a Route of Profit and Cleaner Production: Final Report on the Aire and Calder Project. London: CEST
Centre for the Exploitation of Science and Technology (1995b). Waste Mini mization and Cleaner Technology: an Assessment of Motivation. London:
CEST.
Clayton, A. (1997). Sustainability: a Systems Approach. London: Earthscan.
Clayton, A., G. Spinar di and R. Williams (1999). Cleaner Technology: A New
Agenda for Government and Industry. London: Earthscan.
Clayton, A. (2000). Cleaner Technologies: The Implications for Developing Na tions. Marronage, in press.
Daimler Benz High Tech Report: News from Research, Technology and Environment (1995). Natural Born Fillers. Vol. 2.
Datamonitor Report (1997). US Nutraceuticals: Forging a Functional Future.
Datamonitor Report (1998). European Nutraceuticals Drexler, K.E. (1996). Engines of Creation: The Coming Era ofNanotechnology. London: Fourth Estate.
Economist (1999). "A Raw Deal for Commodities/' 17 April.
Economist (2000). "Feeling the Heat." 23 November.
Economist (2001). "Back Office to the World." 3 May. Financial Times (2000). FT500 Survey. May.
Graedel, T. and B. Allenby (1995). Industrial Ecology, New Jersey: Prentice Hall.
Knorringa, P. (1999). "Agra: An Old Cluster Facing the New Competition." ?" World Development Special Issue: Industrial Clusters in Developing Coun tries. September.
Leighton, P. (2000). "Up and Coming Markets: Opportunities and Issues From a Darwinian Perspective." Nutraceuticals World, October.
McCormick, A. (1999). "African Enterprise Clusters and Industrialization:
Theory and Reality." World Development Special Issue: Industrial Clusters in Developing Countries. September Micklethwait, J. (1999). "A Future
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions
Developing A Biolndustry Cluster in Jamaica: 37
Perfect: The Essentials of Globalization." In The World in 2000 (Business and Management). The Economist.
Parlange, M. (1999). "Eco-nomics." New Scientist 2172, February 6.
Rabellotti, R. (1999). ''Recovery of a Mexican Cluster: Devaluation Bonanza or Collective Efficiency?" World Development Special Issue: Industrial Clus ters in Developing Countries. September.
Stahel, W.R. and M. Borlin (1987). Strategie ?conomique de la durabilit?. Ge neva: Soci?t? de Banque Suisse.
Takehashi, D. (2001). "The Age of Erasable Hardware." Red Herring, May 1.
Tustin, A. (1952). "Feedback." Scientific American 187.3, September: 48-55.
US Bureau of the Census International Data Base: Dataset for 05/10/2000.
Visser, E-J. (1999). "A Comparison of Clustered and Dispersed Firms in the Small-Scale Clothing Industry of Lima." World Development Special Issue: Industrial Clusters in Developing Countries. September.
Weijland, H. (1999). "Microenterprise Clusters in Rural Indonesia: Indus trial Seedbed and Policy Target." World Development Special Issue: Industrial Clusters in Developing Countries. September.
von Weizs?cker, E., A. Lovins and L. Lovins (1997). Factor Four: Doubling Wealth, Halving Resource Use. London: Earthscan.
World Bank (2000a). Commodities in the 20th Century. Special report in World Bank Global Commodity Markets, April.
World Bank (2000b). Change in Commodity Production and Trade: Values and Concentration. Global Commodities Market, April.
World Development (1999). World Development Special Issue: Industrial Clusters in Developing Countries. September.
Yew, L.K. (2000). From Third World to First: The Singapore Story 1965-2000. New York: Harper Collins.
This content downloaded from 188.72.126.108 on Sat, 14 Jun 2014 14:44:29 PMAll use subject to JSTOR Terms and Conditions