The Political Economy of Subsidy Reform: Explaining Divergent Political Outcomes

• In Event: The Political Economy of Economic Diversification

Abstract

Though occupying peripheral positions in global energy complex, developing countries in the Caribbean region have been integral to these circuits of social reproduction. International agencies in particular the International Monetary Fund proposed to both Haiti (a non-energy producing country) and Trinidad and Tobago (an energy producing power) to eliminate their fuel subsidy regimes. In both cases, these agencies argued that redirecting funds from energy subsidies to development projects is a better approach to fiscal and development policy. The main aim to these recent efforts was to liberalize energy markets, re-regulate prices to meet international demand and supply modalities, and create the space for global markets to penetrate these economies.

These institutional changes nonetheless imply winners and losers that are not often considered in market-driven approaches. The paper interrogates the question: how have historical, socio-political and structural dimensions of neoliberalism affected the political outcomes of fuel subsidy reforms in Haiti and Trinidad and Tobago? Evidently, the outcomes in both cases were very different in political terms. In Haiti, the government announced a sudden change in fuel prices leading to widespread violent uprisings across the country and the resignation of the Cabinet. While mainstream scholars would argue that Haitian policy makers did not effectively manage the process and offer technocratic solutions like ‘phasing in’ changes or ‘side payments’ to citizens, the socio-political and structural conditions impinged upon the outcome. In contrast, Trinidad and Tobago government authorities took a gradual approach to increasing fuel prices that did not have immediate political fallout. Some observers may argue that the process was better managed because of primarily technical considerations. However, the government had engaged prior in months of ‘preparing’ the population for fiscal austerity, blaming global energy prices and the corruption and incompetence of the previous government.

In part, the framing of the issue on both accounts holds an important explanation to the issue – that in the first instance, the decision was demanded by an international agency in Haiti, which Haitians resisted, while it was the national government in the latter case making the decision not spurring any political resistance. This paper interrogates these divergent outcomes by considering the political economy factors, in particular the effects of neoliberal policies, technocratic and the extent of influence of international economic institutions. It challenges historical materialist perspectives in energy and neoclassical economic arguments, placing emphasis on the history and social structures of both countries as the causal rationale for these effects. It brings to light the historical and institutional conditions of both countries utilizing an integrated analytical framework that considers the structural, technical and socio-political dimensions of energy subsidy reform efforts in the current global political economy.

Author

• Keston K Perry, Fletcher School of Law and Diplomacy, Tufts University