Last week's article challenged the conventional wisdom (the Economic Partnership Agreement) that foreign investment is the fuel that will power regional economic development. The article also claimed that, rather than the lack of capital in some developing countries, the problem appears to be the paucity of entrepreneurship and the low propensity to invest in plant and equipment especially to raise efficiently the output of exports. This is adequately demonstrated by the fleet of massive malls sprouting up in T&T.

The Governor of the Central Bank commented that in the present situation of cash-rich consumers our entrepreneurs find it easier to import, mark-up and sell than to go through the hassle of producing globally competitive tradable goods and services. The question that immediately springs to mind is why are India, China, Ireland and, say, Singapore bothering to build things and provide services when, like us, they can simply import and resell locally? We are even importing some of our Carnival costumes from China. With much cheaper labour in China and the T&T Government pouring endless energy-based money into the economy it is indeed cheaper to get our costumes made there. Finland, with its high salaries, has found itself in the same position in which it cannot compete with the Asian countries in the production of goods and services whose competitive advantages depend on cheap labour. Hence Finland depends on knowledge-intensive goods, has to keep one, two steps ahead always and as a result has spawned the mobile phone giant, Nokia.

Compare this to our Dutch Disease philosophy that depends on the use of foreign investment in the exploitation of our depleting resources in which foreign-owned production plants do not foster local development of innovative technology companies to be competitive. Yet there are some myths still surrounding the timeworn view of the importance of foreign investment to economic and social development in developing countries. These are well dispelled at www.globalpolicy.org/ffd/fdi.

The problem, then, is how can a developing country marshal its own resources into its own development? Certain poor countries cannot depend completely on their own resources. But countries like T&T can do much more than they are doing at the moment in collecting and allocating resources. There should be a fair and efficient tax regime in which capital and resource consumption is taxed (not subsidised) more than labour - VAT is regressive and burdens the less-fortunate. No tax exemptions or incentives should be given to foreign investment. Taxes and royalties from foreign investments in oil and gas should be published by the Government and the companies. Lack of transparency facilitates corruption and tax evasion (see Venezuela). Energy companies should be made to disclose all financial flows between them and institutions of other countries. Countries should resist any further pressure to liberalise in international negotiations since budgets in developing countries depend on customs revenues and liberalisation leads to substantial income losses. Developing countries should resist pressure to privatise or reduce public expenditure under IMF pressure that requires reduction of tariffs and the imposition of VAT to compensate for these losses.

Governments have to eliminate harmful subsidies, a huge part of which is spent on subsidising energy (gasoline, electricity etc) that is environmentally damaging. Instead, governments should provide support for energy conservation techniques. I was encouraged by the Minister of Trade and Industry when he said that the subsidy on gasoline has to go. I made that call in my Budget presentation the Senate in 2007. It is a major misallocation of resources. Such subsidies should target specific households, not everyone. Some can provide for sustained socio-economic development. In fact the social damage the gas subsidy has wrought on our traffic situation is now legendary. We have had no investment in the restructuring of the economy besides the talk about TAMANA. An industrial park will not work unless it is part of an innovation system. Point Lisas worked because foreign investment was interested in cheap energy.

Of importance is the shifting of resources from prestigious but wasteful infrastructure projects like the Tarouba stadium, the PM's house, rapid rail and the tall buildings of Port of Spain, to basic economic development projects.

Likewise it is important to shift attention away from unsustainable and environmentally damaging downstream energy projects like Alutrint, in which we spend some of the limited capital we have towards the building of an innovation system to re-engineer the on-shore sector. We can make it if we try!