Master’s Thesis

The Effects of Neo-colonialism on Economic Development

Case study of Guadeloupe, Puerto Rico, and Curaçao

Patricia E. Cepeda Crespo

ID# 12254908

Research Project: The Changing Global Economic Order

MSc. Political Science (Political Economy)

Faculty of Social and Behavioral Sciences, University of Amsterdam

Supervisor: Jasper Blom

Second Reader: Farid Boussaid

Date: June 21st, 2019

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Table of Contents Acknowledgements ......................................................................................................................... 5 I. Introduction ............................................................................................................................ 7 II. Literature Review .................................................................................................................. 11

a. Introduction ..................................................................................................................... 11 b. Institutions Matter ........................................................................................................... 11 c. Factors That Influence Development ............................................................................. 14 d. Colonialism and Neo-Colonialism .................................................................................. 16 e. Colonialism and Development ........................................................................................ 17 f. Neo-colonialism and Development ................................................................................. 18

III. Methodology ...................................................................................................................... 21 a. Research Design ............................................................................................................... 21 b. Case Selection ................................................................................................................... 21

Table 1 – List of neo-colonies in the Caribbean ................................................................ 23 c. Data collection .................................................................................................................. 25 d. Data analysis .................................................................................................................... 27

Figure 2 – Conceptual Map ................................................................................................ 28 e. Research Limitations ....................................................................................................... 28

IV. Context Chapter ................................................................................................................ 30 a. The Origins of Neo-Colonialism ..................................................................................... 30

i. Neo-colonialism in Guadalupe .................................................................................... 33 ii. Neo-colonialism in Puerto Rico .................................................................................. 34 iii. Neo-colonialism in Curaçao ........................................................................................ 35 iv. Conclusion .................................................................................................................... 36 Table 3 – Economic Overview Guadeloupe, Puerto Rico and Curaçao ......................... 36

V. Analysis ................................................................................................................................. 38 a. Market Structure ............................................................................................................. 38

i. Institutional Mechanisms ............................................................................................ 38 ii. Economic Consequences ............................................................................................. 41 Table 2 - Median Price Differential between territories (Guadeloupe, Puerto Rico and Curaçao) and Metropoles (France, United States, The Netherlands) ............................ 41 iii. Discussion ..................................................................................................................... 43

b. Fiscal Policy ...................................................................................................................... 45 i. institutional Mechanisms ............................................................................................ 46 ii. Economic Consequences ............................................................................................. 48 Graph 1 - Economic Growth in Puerto Rico during ENACTMENT of law 936 (1975-1995) ...................................................................................................................................... 50

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Graph 2 - Economic Growth in Puerto Rico after the withdrawal of law 936 (1995-2017) ...................................................................................................................................... 50 Figure 2 - Puerto Rico Total Public Debt in 2014 ($68.1 billion) .................................... 51 Graph 3 - Development of Formal Debt and Arrears (% of GDP) ................................ 52 iii. Discussion ..................................................................................................................... 54

c. Analysis Overview ........................................................................................................... 55 VI. Final Conclusion .............................................................................................................. 57 VII. Bibliography ...................................................................................................................... 59

a. Secondary Sources ........................................................................................................... 59 b. Primary Sources .............................................................................................................. 63

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Acknowledgements Esta tesis va dedicada a dos cosas esenciales en mi vida. Se la dedico a mi isla. Pues la vida como ciudadana de segunda clase me ha enseñado que las desigualdades que forjan nuestro mundo deben ser siempre señaladas y denunciadas. También se la dedico a mis abuelos, pues simplemente todo lo que he hecho en mi vida se lo debo a ellos.

This thesis is dedicated to two essential things in my life. I dedicate this to my island. Because the life as a second-class citizen has taught me that the inequalities that shape our world must be identified and denounced. I also dedicate this to my grandparents, simply because everything I have done in life, I owe it to them.

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I. Introduction

Clear skies, turquoise waters and colorful houses are usually the first images that appear in

people’s minds when the word “Caribbean” is mentioned; in addition to casual appearances in

media outlets when a hurricane or an earthquake strikes the islands. Due to this simplistic and

incomplete view, individuals fail to perceive the lack of equality and the economic and social

underdevelopment in most islands. Various reasons are accountable for the underdevelopment;

Geographic location issues such as insularity and natural disasters, social and political movements

for independence and the legacy of colonialism are important factors that have influenced the weak

and slow development of economic and political institutions in the Caribbean. After centuries of

slavery, exploitation and asymmetrical economic and political relations, some independent

Caribbean countries are still struggling with the legacy of colonialism. Meanwhile, other

Caribbean islands are still entangled in ambiguous and complicated colonial relations. Colonialism

was officially abolished between the 1940s and 1960s as a consequence of the decolonization

movement led by the United Nations. Over 80 former colonies around the globe earned their

independence (United Nations, 2019). However, certain Caribbean islands have a more complex

story. The Caribbean is replete with islands that have an abstruse political status. These are semi-

sovereign entities that, after the decolonization movement, are still to a certain extent dependent

on their metropolitan powers.

Colonialism is officially abolished, but the political status of certain semi-sovereign islands

prove that it is still present and palpable, only disguised as what is currently known as “neo-

colonialism”. This term encompasses the main political and economic relations technically

eradicated during the decolonization movement. The essence of neo-colonialism is that, while the

State appears to have some level of sovereignty, it is in fact controlled by their former colonizers

or metropolitan powers’ economic and political institutions (Nkrumah, 1965). The former

colonizers or metropoles are, for the most part, great powers with “high-quality institutional

systems” and stable economic performances. Metropoles’ “high-quality institutions” have

jurisdiction over neo-colonies in the Caribbean, but the functioning and the outcome differ

drastically. When the economic performance of neo-colonies in the Caribbean is examined, there

are several stark economic differences and inequalities between the metropoles and neo-colonies.

This is the case of the three islands of the Caribbean that will be studied in this research project:

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Guadeloupe, Puerto Rico, and Curaçao. These are politically and economically annexed to France,

The United States, and The Netherlands respectively. Under constitutional law, Guadeloupe is an

Overseas Department of France, Puerto Rico is a Commonwealth of the United States and Curaçao

is an independent country within the Kingdom of the Netherlands. However, these three islands

are usually referred to as “neo-colonies” since, to a certain extent, they are ruled and monitored by

the same institutions of their metropolitan powers, but with institutional mechanisms that still

resemble an asymmetrical colonial relation. Representation of the metropolitan powers’

institutions is often deficient in their territories, which further undermines these territories’

political autonomy (Veenendaal & Oostindie, 2018) and creates visible disparities between their

economies. For instance, while Guadeloupe’s GDP per capita is 11,288 euros, the poorest

department of Metropolitan France, Centre-Val de Loire, has a GDP per capita almost seven times

higher (88,019 euros) (French National Institute of Economic Studies, 2018). Puerto Rico’s

median household income is $19,343, less than half of the household income in mainland United

States ($60,336) (Data USA, 2017). In Curaçao, unemployment ascends up to 13%, while in the

Netherlands unemployment has not surpassed 3.9% in the last decades (Central Bank Curaçao,

2017). Thus, if neo-colonies are administrated by the same institutions as the metropoles, but the

economic performances vary, one must question what factors are influencing these disparities.

This research project sheds light over the relevance of neo-colonialism on economic performance

and discusses how the “high-quality institutions” of the metropoles deliver different economic

outcomes in their neo-colonies by establishing a coherent connection between institutions,

economic development, and neo-colonialism.

In order to solve this puzzle, the research project aims to answer the following question:

(1) How does neo-colonialism affect economic development? The main purpose of this research

is to investigate the direct and indirect effects of neo-colonialism in semi-sovereign states. The

research project’s main argument claims that the neo-colonial status affects heterogeneously the

economic development of countries creating both negative and positive economic outcomes.

However, there exist certain institutional mechanisms within the neo-colonial relations that affect

negatively the economic performance of these territories. The systematic comparison of the three

case studies reveals that the economic effects of neo-colonialism vary depending on the presence

or absence of the specific neo-colonial institutional mechanisms in the territories’ economic

sectors. Moreover, the neo-colonial institutional mechanisms alter the performance of “high-

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quality institutions” and deliver negative economic consequences to the neo-colonies. To be more

specific and elaborate on the issue of discussion, two sub-questions have been added. (2) What

institutional mechanisms within the neo-colonial relationship affect the economic

development of neo-colonies? The neo-colonial institutional mechanisms are specific laws that

are only established in the neo-colonies and portray the asymmetrical power relation between the

metropoles and the neo-colonies. To be able to investigate the economic effects of the neo-colonial

institutional mechanisms, this research paper explores two economic sectors in the neo-colonies’

economic system; these are the market structure and the fiscal policy of Guadeloupe, Puerto Rico

and Curaçao. The analysis consists on a comparison of the economic effects of neo-colonialism in

the three selected cases. Therefore, the final research sub-question is: (3) How does the neo-

colonial status affect the market structure and the fiscal policy (separately) of Guadeloupe,

Puerto Rico and Curaçao? This research project aims to consolidate the questions posed above

and investigate how their neo-colonial status affects their economic development.

Albeit colonialism ranks as one of the most influential processes in human history, western

scholars have not managed to get a grip on its new version, neo-colonialism. Since colonialism

formally disappeared and former colonies changed their official status, individuals find it difficult

to grasp this new term of neo-colonialism. This creates a conservative attitude towards the word

and its meanings as well as the neglection of its existence. Therefore, it endures a lack of theoretical

perspective. A sizable portion of the literature on neo-colonialism targets the cultural consequences

but not the economic. The fact that there is scarce literature available that analyzes neo-colonies

in terms of the relationship between economic growth and institutions constitutes a gap in the

literature and therefore, a relevant topic to study. This research project is intended to extend the

available knowledge on the relation between institutions, development, and neo-colonialism to

primarily, fill the gap of insufficient literature available on neo-colonialism, a phenomenon that is

neglected by governments and international organizations and that is barely studied in social

sciences. Additionally, this research project aims to draw academics’ attention to these deviant

cases in order to alleviate the insufficient cross-culture perspective on neo-colonialism. Most

academic research on this topic focuses on the African continent. However, to stereotype the

legacy of colonialism on the basis of one or two particular cases or to assume that colonialism and

neo-colonialism are characteristic of a particular civilization is simply to ignore the full range of

reality to which human history testifies (Girvan, 2012). Therefore, this research attempts to draw

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attention to neo-colonialism in the Caribbean and to highlight the institutional mechanisms of this

neo-colonial relations. It is essential to note that this research project is not intended to answer

whether the neo-colonies would perform economically better or worse without their metropolitan

powers, nor to send a political message of “de-neo-colonization”. Instead, this research project

aims to explain the causes of underdevelopment in neo-colonies in the Caribbean by analyzing the

institutional mechanisms of the neo-colonial relations and comparing its economic effects between

the three selected cases. This is achieved by analyzing the market structure and the fiscal policy of

Guadeloupe, Puerto Rico, and Curaçao. After the comparison of the economic effects of neo-

colonial institutional mechanisms, the evidence leads to conclude that the neo-colonial status

affects heterogeneously the economic development of these territories. However, the comparison

also reveals that the establishment or the perpetuation of certain institutional mechanisms

characteristic of the neo-colonial relation cause severe negative effects to the economic

development of the islands.

This research project is structured as follows: first, there is an extensive literature review

that establishes a connection between the different theoretical approaches of institutions, economic

growth, and neo-colonialism. This will provide the reader with an understanding of the main

characteristics of “high-quality institutions”, as well as a comprehensive view of the academic

debate about the factors that affect economic development. Up next, the methodology explains

the main characteristics of this type of research, the long process of selecting the case studies, the

research limitations and how the data analysis was performed. The following chapter is a context

chapter to provide the reader with background information about the origins of neo-colonialism,

colonialism in the Caribbean and a description of the metropolitan powers’ main institutional

jurisdiction over Guadeloupe, Puerto Rico, and Curaçao. The research project continues with the

analysis. This will be divided into the discussion of institutional mechanisms and economic effects

of neo-colonialism in the market structure and the fiscal policy (separately) of Guadeloupe, Puerto

Rico, and Curaçao. Finally, the conclusion remarks will follow, in which the main findings and

main arguments of this research project will be explained and coherently connected.

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II. Literature Review

a. Introduction

During the last decades, a consensus emerged among social scientists that political and

economic institutions are crucial for the economic development of a country (Faust, 2006).

Consequently, there is a wide variety of literature that links the role of institutions with economic

growth. Social scientists have devoted to studying the functions of institutions in order to explain

not only the effects of such institutions, but also the type of institutions that assure a successful

economic performance. This literature review establishes a logical connection of the literature

available between institutions, economic growth, and neo-colonialism so as to build a logical

theoretical approach to the topic of research. The literature review will be divided into two

sections. First, there is a discussion based on available literature on the meaning and main functions

of institutions. Academia has developed a vast variety of studies dedicated to the main

characteristics of “high-quality institutions”. Most of the literature available reaches a similar

conclusion: “high-quality institutions” are the main incentive to create and maintain economic

development in a country. In order to be considered “high-quality institutions”, these have to

gather certain characteristics. The second section of this literature review will introduce the

ongoing debate on the types of factors that affect the development or underdevelopment of nations.

A plethora of authors claims that the possession or the lack of “high-quality institutions” is the key

determinant of the “success or failure of nations”. Factors such as geographic location, culture or

ignorance are usually considered not the main influencers on development or underdevelopment.

However, there is a factor that is pondered as an important influencer: colonialism. Recent

evidence attests that colonialism has indeed created heterogeneous effects on economic

development because it has altered the formation and performance of countries’ institutional

system. Nowadays, colonialism does not officially exist, but its main characteristics are gathered

in a relatively new term called “neo-colonialism”. Finally, the literature review presents the gap

on literature available and establishes a link among neo-colonialism and economic growth.

b. Institutions Matter

Economic growth in the last few decades has been accompanied by significant

improvements in social indicators such as literacy, infant mortality, life expectancy, etc. Yet, since

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the rich countries themselves grew at a very rapid clip of 2.7 percent during the period 1960-2000,

few developing countries still struggle to close the economic gap between them and the richest

nations (Rodrik, 2005). The positive economic stand is due to the satisfactory performance of well-

structured institutions, often referred to as “high-quality institutions” (North, 1991; Rodrik, 1999,

2005; Acemoglu, Daron & Robinson, 2002, 2008, 2012; North, Douglass & Weingast, 2009). The

importance of the role of institutions for development began to be highly discussed once Douglas

C. North (1991) defined them as the “prevailing rules of the game in society” and the “humanly

devised constraints that structure political, economic and social interaction. Institutions consist of

both informal constraints (sanction, taboos, customs, traditions, codes of conduct) and formal rules

(constitutions, laws, property rights). For the purpose of this research, only formal rules will be

addressed. As North (1991) clarifies, “together with the standard constraints of economics,

institutions define the choice set and therefore determine transaction and production costs and

hence the profitability and feasibility of engaging in economic activity”. Both political and

economic institutions provide the incentive structure of an economy. It is expected that while the

structure evolves, it shapes the direction of economic change towards growth, stagnation or

decline. While economic institutions are critical for determining whether a country is poor or

prosperous, it is politics and political institutions that determine what economic institutions a

country has (Acemoglu & Robinson, 2008). Consequently, political institutions and decisions,

including the political status of a country, are essential to regulate the performance of its economy.

Institutions are “the rules of the game” (Rodrik, 1999). However, there are some

characteristics that both economic and political institutions must possess in order to become “high-

quality institutions”, the genuine deliverers of economic development. In order to reach

satisfactory economic outcomes, both economic and political institutions must be inclusive and

centralized. Sufficiently centralized and pluralistic political institutions are in charge of vesting

power broadly, which tends to uproot economic institutions that expropriate the resources of the

many, erect entry barriers, and suppress the functioning of markets so that only a few can benefit

(Rodrik, 1999). Such political institutions also hinder others to usurp power and undermine the

foundations of inclusive institutions. The lack of inclusiveness results in the development of

extractive institutions. These concentrate power in the hands of a narrow elite and place few

constraints on the exercise of this power (Acemoglu & Robinson, 2012). Only inclusive

institutions are able to create incentives that beneficiate not just the elite but also everyone in the

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society. It is not a coincidence that countries with a higher GDP and a satisfactory growth

performance are the ones that possess inclusive and centralized institutions. Examples of countries

that have successfully developed their institutions are France, the United States, and the

Netherlands. These countries allow and encourage participation by the great mass of people in

economic activates that make the best use of their talents and skills and that enable individuals to

make the choices they wish (Acemoglu & Robinson, 2012). Furthermore, “high-quality

institutions” must be “context-specific” (Rodrik, 2005). Institutions must vary according to the

socio-economic situation of the specific country. Therefore, attempts to emulate successful

policies from country A often fail in country B.

Centralized, inclusive and context-oriented institutions are considered to be the main

characteristics of “high-quality institutions”. As a result, these deliver several positive economic

outcomes to the country in which they perform. First, they foster economic activity, productivity

growth, and economic prosperity (North, Wallis, & Weingast, 2009). Second, they are able to

supply rule of law and property rights, since only those with such rights will be willing to invest

and increase productivity and not only for the elite but for a broad cross-section of society

(Acemoglu & Robinson, 2012). This leads to sustained economic growth that is almost always

accompanied by technological improvements that enable people, land, and existing capital to

become more productive. Third, “high-quality institutions” are also able to control violence. When

wealth is not concentrated only on elites, everyone in the society is somehow economically

integrated and, when integration is sufficiently high, violence gets too costly (North, Wallis, &

Weingast, 2009). Fourth, “high-quality institutions” are the key to longer-term prosperity.

Institutions that promote growth in the short to medium term do not necessarily guarantee success

in the long-term. Once growth is launched, is it the task of the country’s government to develop

institutions that maintain productive dynamism and generate resilience to external shocks (Rodrik,

2005).

A growing body of literature has evaluated the importance of political and economic “high-

quality institutions” for the proper economic development of a country. France, The United States

and The Netherlands have accomplished the formation of “high-quality institutions” that deliver

positive outcomes to its economies. Nevertheless, “high-quality institutions” are sometimes

shaped by the influence of certain external factors. These factors can alter the positive performance

of institutions. As in the case of the semi-sovereign states under the jurisdiction of France, the

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United States and the Netherlands, there are stark inequalities both within the territories and

between the territories and their respective sovereign countries (Chauvin, Clegg, & Cousin, 2018)

In such semi-sovereign states, economic development is not fully fostered; short-term growth

rather than long-term growth has been achieved and institutions mostly encourage extractive

economic performances rather than inclusive. Hence, one must evaluate the factors that mainly

influence the performance of political and economic institutions and consequently, economic

development.

c. Factors That Influence Development

The second section of the literature review explores the academic discussion about the factors

that influence the success or failure of nations based on the book “Why Nations Fail” (2012) by

Acemoglu & Robinson. The book discards the external factors of culture, ignorance and geography

as main influencers on economic development. These have been recognized to suppose an

influence for development, but not to be the main factor that directly affects economic

development. On the contrary, there is a consensus that the lack of “high-quality institutions” is

the main cause of underdevelopment. For the purpose of this research project, the most relevant

discussion is the dilemma between geographic location or institutions as the main factors that

affect economic development. Due to the particularities of the selected region of study, the

Caribbean is often considered underdeveloped as a cause of its geographic location. The

“geography theory” is sustained not only by social scientists but also by academics specialized in

natural sciences. This theory claims that the great divide between rich and poor countries is created

by geographic differences (Sachs, 2003; Diamond, 2012). While several poor countries in the

regions of Africa, Central America or South Asia are located in the tropics, rich and prosperous

countries tend to be in temperate latitudes. According to this theory, geography is a key

determinant of climate, endowment of natural resources, disease burden, transport costs, and

diffusion of knowledge and technology for more advanced areas. This theory also argues that

tropics are poor because tropical agriculture is unproductive. These statements are not far from the

reality of the Caribbean. The region shares a number of problems common to small island entities:

remoteness, strong reliance on natural resources and environmental fragility (PAHO, 2007). Due

to the islands’ lack of competitiveness and their tendency to specialize in service exports,

remoteness is an important issue in the Caribbean. Importing and exporting goods tend to cost

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more and transportation requires more time. Also, the Caribbean geographic location is subject to

environmental fragilities. Several atmospheric disasters have passed through the islands. Recently,

both the islands of Guadeloupe and Puerto Rico suffered the devastating consequences of

Hurricane Maria and Hurricane Irma, both in September 2017.

While geographic location is a valid factor that influences development, especially in the

Caribbean, it fails to explain world inequalities. History illustrates that there is no simple or

enduring connection between climate or geography and economic success (Acemoglu &

Robinson, 2012). For example, the Aztec and Incas empires, rich and successful civilizations that

were built in tropical places. Moreover, geography is unlikely to explain the poverty of the Middle

East, a region that does not have tropical weather. Although geographic location supposes several

burdens to the Caribbean, there are certain events that the geography theory fails to explain. For

instance, according to a study from the Federal Reserve Bank of New York in 2012, shipping a

container from the United States East coast to the island of Puerto Rico cost $3,063, but shipping

the same container to nearby Santo Domingo, Dominican Republic cost only $1,504 and to

Kingston, Jamaica only $1,607. Additionally, the hurricanes that hit the islands of the Caribbean

during 2017 also affected the southeastern part of the United States, the state of Florida.

Nonetheless, the state of Florida was able to recover electricity and running water in two weeks

while in islands like Guadeloupe took over nine months to completely recover. The geography

theory does not succeed to provide a logical explanation for the above-mentioned situations.

It is the lack or the possession of “high-quality institutions” that really determines the

economic development of a country (Acemoglu & Robinson, 2012). The lack of “high-quality

institutions” generates an absence of specialized intermediaries and regulatory system, low

standards of living, low human development index level, poor education system and high illiteracy,

high unemployment, lack of adequate health care, low degree of political freedom, moderate to

high risk of social rest (Marquis & Raynard, 2015). Nevertheless, the lack of “high-quality

institutions” theory fails to explain a specific situation; while France, the United States, and the

Netherlands have “high-quality institutions”, these sometimes fail to deliver the same positive

economic outcome to their overseas semi-sovereign territories that are under their institutional

jurisdiction. This incongruence calls for the search of external factors that can influence the

functioning of institutions and therefore, the economic development. As mentioned at the

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beginning of the literature review, it is politics and political institutions that determine what

economic institutions a country has. Hence, one must investigate whether the political relationship

between France, the United States and the Netherlands with their semi-sovereign states is

considered a factor that affects economic development. Since their political relation gathers several

characteristics of neo-colonialism, it is imperative to review the literature available on the effect

of colonialism and neo-colonialism in institutional and economic performance.

d. Colonialism and Neo-Colonialism

Virtually every third-world country began its modern history as a colony of one of the

former imperial powers of Europe or Asia. Thus, there is a general basis for comparing colonialism

and development (Watson, 2010). Officially, colonialism is defined as “the extension of a nation’s

sovereignty which infringes on the sovereignty of other nations or people” (Jackson, 2009).

However, the term encompasses more than that brief explanation. Colonialism does not

exclusively refer to the presence of imperialism or colonial administration, but to a modality of

being, as well as to power relations that sustain a fundamental social and geopolitical divide

between masters and slaves (Maldonado-Torres, 2008). Colonialism is also defined as a form of

domination, the control by individuals or groups over a territory and/or behavior of other

individuals or groups, with emphasis on economic variables (Horvarth, 1972). Colonization

completely ended in the 1960s, and development began arguably in the 1940s when President

Truman used the word underdevelopment for the first time. Therefore, these are historically and

chronologically linked processes (Watson, 2010). Nevertheless, the establishment possesses no

widely accepted theory of the end of colonialism, nor does any substantial agreement exist upon

what colonialism is, and the transformation to its current and unofficial term, neo-colonialism.

Jean Paul Sartre’s Colonialism and Neo-colonialism (1964) contains the first recorded use

of the term “neo-colonialism”. This is a term that encompasses the post-colonial relations and

perspectives that reproduce the inequalities and unevenness of their colonial predecessors (Mains,

2004). The societies that live in neo-colonies have not been entirely divorced from their

metropolitan powers (Girvan, 2012). Hence, within a neo-colonialism situation, the imperialists

usually maintain their influence as in many sectors of the former colony as possible, making it less

of an independent state and more of a neo-colony while perpetuating an unequal power relationship

(Horvarth, 1972). What distinguishes neo-colonialism is that the metropolitan powers refuse to

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acknowledge the possession of a colony in a post-colonial era. The failure to adequately identify

internal forces of neo-colonialism and the denial of its existence reflects the uncertainty and

ignorance of the term and the consequences the unofficial status implies as well as the inaction for

different alternatives (Nkrumah, 1965). Just as formal colonialism, the core of neo-colonialism

involves the oppression of people, the exploitation of their labor and resources, and the acquisition

of wealth and power by the colonizer by rendering the colonized impoverished, powerless and

dependent upon the colonizing forces (Horvarth, 1972). Thus, neo-colonialism encompasses the

main institutional mechanisms that were technically abolished during the decolonization

movement. Control by the institutional mechanisms of external powers is exercised in different

practices; notable among these are ideological cooptation, financial, trade and security

arrangements (Girvan, 2012). France, the United States, and the Netherlands do not officially

admit the possession of their neo-colonies. Nonetheless, they current wield their superpower status

through neo-colonial institutional mechanisms that shape several aspects of the semi-sovereign

economic performance.

e. Colonialism and Development

Various approaches have been put forward to determine the effects of colonialism in

different regions of the world. There is a consensus over the fact that the characteristics of both

the colonizing and colonized societies shaped colonial institutions and thereby, the ultimate

development of the form of colonial institutions (Acemoglu & Robinson, 2001, 2002; Mahoney,

2010). This follows the premise established by Acemoglu & Robinson (2008); politics and

political institutions shape economic institutions. Some academics argue that colonialism had a

positive effect on countries’ development. There are various opinions on the effects of colonialism

in institutional performance. La Porta, Lopez-De-Silanes & Shleifer (2008) emphasize the

importance of the colonial origins (the identity of the colonizer) and the legal origin on current

institutions. The authors show that the common-law countries and former British colonies have

better property rights and more structured financial market. Similarly, David Landes (1998) argue

that former British colonies prospered relative to former French, Spanish, and Portuguese colonies

because of the good economic and political institutions and culture they inherited from Britain.

At the same time, Acemoglu & Robinson (2001) call into question these past assumptions

and draw a new distinction. First, they acknowledge colonial experience as one of the main factors

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affecting institutions and therefore, economic growth. Then, Acemoglu & Robinson (2001)

provide evidence that colonialism has shaped modern inequality in several fundamental aspects,

but in a heterogeneous manner. They document that in a large number of colonies, especially those

in Africa, European powers set up “extractive institutions”. The explicit aim of the European in

these colonies was the extraction of resources, in one form or another. This colonization strategy

and the associated institutions contrast with the institutions Europeans set up in other colonies,

especially in colonies where they settled in large numbers, for example, the United States, Canada,

Australia, and New Zealand. In these colonies, the emphasis was on the enforcement of property

rights for a broad cross section of the society, especially smallholders, merchants and

entrepreneurs. This created heterogeneous institutional legacies in different colonies of the world,

with profoundly divergent consequences for economic development. As colonialism caused

heterogeneous effects around the globe, there are some regions in the world in which the effect of

colonialism was more negative than in others. A different study conducted by Heldring &

Robinson (2012) argues that, when the focus of the study on colonialism is on Africa, the types of

heterogeneity which characterize colonialism are muted. There is no success story like Australia

or the United States from which economically dynamic settlers’ economies emerged. Falling

African incomes in conjunction with rising average incomes imply that there was a huge increase

in inequality as the consequence of colonialism.

In summary, colonialism did affect the performance of political and economic institutions

in former colonies around the world. This influence was heterogeneous, while in former colonies

like New Zealand the economic outcomes were positive, most countries in the African region

suffered negative consequences. This is useful to understand the background of the term of study,

neo-colonialism and to set the ground for the research question: How does neo-colonialism affect

economic development?

f. Neo-colonialism and Development

The studies discussed in the previous section were conducted to countries that used to be

colonies and now they are independent countries with barely official or unofficial economic ties

to their ex-colonizers. Therefore, these studies analyzed the effect of the performance of

institutional mechanisms of colonies that no longer exist. However, the literature does not discuss

the economic effects of countries or territories that are still under colonial institutional

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mechanisms, the neo-colonies. There exist additional studies that discuss the political, economic

and social effects of neo-colonialism in African nations. But, despite the great academic interest

in the African region, neo-colonialism is present in different parts around the world, including the

Caribbean. After an extensive review of the literature available, this research paper has reached

the conclusion that there is not sufficient writing on neo-colonialism in the Caribbean, nor studies

that provide an insight into the effects of neo-colonialism in economic performance. Due to the

existence of this gap in the available literature, this research project focuses on establishing a

coherent correlation on the effect of neo-colonialism in economic development.

This literature review has provided the following information: Institutions are incentives

to economic agents. Institutions that are inclusive, centralized and context-oriented are considered

“high-quality institutions”. These types of institutions are able to promote economic growth and

deliver economic prosperity in the long-term. Furthermore, “high-quality institutions” are able to

control violence in societies and deliver rule of law and property rights. Great powers like France,

the United States, and the Netherlands gather the characteristics of “high-quality institutions” and

have been able to deliver positive outcomes to their economies. Still, the “high-quality institutions”

do not always deliver the same economic outcomes to their overseas semi-sovereign territories.

Therefore, it is imperative to question what factors truly affect economic development. Several

authors have found that the main factor that cause development or underdevelopment is the

possession or lack of “high-quality institutions” rather than other factors such as ignorance, culture

or geography. Geography, as previously discussed, is an important factor in the Caribbean, but it

is not sufficient to explain development or underdevelopment. However, the institutions’ theory

does not fully explain the lack of development in neo-colonies either. The literature review has

discussed that political institutions are the ones that influence economic institutions, therefore, the

political status of a country matters in the influence of its economic institutions. Colonialism,

which was a political status of several countries for centuries, has been considered a factor that

directly affected the establishment of political and economic institutions and therefore, its

performance. Nonetheless, colonies have currently transformed into the unofficial political status

of neo-colonialism. Several territories around the world are under this ambiguous and unofficial

status. While there is plenty of literature on the effects of colonialism, there is scarce literature of

the effects on its evolution, neo-colonialism.

20

Based on the presented theory, this research project parts from the assumption that neo-

colonialism, as well as colonialism, affects the economic development of countries. However, this

research project’s main task is to find out how does neo-colonialism affects it. By conducting a

comparative analysis between three neo-colonies in the Caribbean (Guadeloupe, Puerto Rico and

Curaçao), this research projects argues that neo-colonialism has heterogeneous effects on the

economic development of semi-sovereign territories. Neo-colonialism creates several positive and

negative outcomes in economic performance. However, there exist certain institutional

mechanisms within the neo-colonial relation that create negative effects on the economic

performance of these territories. The neo-colonial institutional mechanisms are represented in the

form of laws. The economic effects of neo-colonialism vary depending on the presence or absence

and the level of intensity of these specific neo-colonial institutional mechanisms in the territories’

economic sectors. These neo-colonial institutional mechanisms alter the performance of the

metropoles’ “high-quality institutions” negatively.

21

III. Methodology a. Research Design

This section describes in detail the methods that were used to conduct this research. This

research is intended to understand the relative terms of institutions, development, and neo-

colonialism and elaborate a qualitative analysis that measures the effect of neo-colonialism on

institutions, and economic development. Therefore, this research is not intended to generate

numerical data, but to gain an understanding of the underlying realities behind the effects of neo-

colonialism by evaluating and discussing the data already available in primary and secondary

sources. This research aims to add a new dimension to the study of institutions, economic growth

and its links to neo-colonialism that cannot be obtained through the measurement of one variable

alone. Consequently, the study is conducted by analyzing three case studies that will be reviewed

in the Case Selection section.

This is an explanatory and comparative research. This research is explanatory because it

is intended to go further the description of concepts or phenomena and create an explanation of

the above-mentioned concepts (Hernandez Sampieri, Fernandez Collado, & Baptista Lucio, 2010).

This research describes and establishes relations between the concepts to generate an explanation

about the effects of neo-colonialism on economic development. Also, this is a comparative

research, in which each case is considered as a complex entity that needs to be studied in a case-

sensitive way (Hernandez Sampieri, Fernandez Collado, & Baptista Lucio, 2010). It is comparative

because it analyzes the similitudes or differences in the effects of neo-colonialism between the

three case studies (Guadeloupe, Puerto Rico and Curaçao).

b. Case Selection

This section is devoted to explaining and justifying the selected cases that were tested to

conduct this research project. Since this research discusses the effects of neo-colonialism, it was

crucial to choose a case or a region that possesses nations under this unofficial political status. The

region of Africa was discarded because, as previously mentioned, it is a region that has been

severally studied in terms of colonialism and neo-colonialism. In addition, Africa is not the only

region in the world that currently possesses a great number of neo-colonies. The Caribbean was

selected as the main region of study for this research due to various motives. First, because of the

elevated number of neo-colonial entities in comparison with other parts of the world. Second, the

22

Caribbean has several entities that suffer economic stagnation. Since this research paper tests

economic development, the selected cases must be entities with economic development issues.

And third, because of the lack of available literature on neo-colonialism in the Caribbean. After

having decided the region of study, it was necessary to identify what territories are considered neo-

colonies in the Caribbean. To determine so, a list with the main characteristics of a neo-colony

was developed. It was imperative to find cases that gathered the following characteristics:

1. Countries or territories in the Caribbean that used to be colonies before the

decolonization movement. The majority of current countries or territories in the Caribbean

used to be colonies before the 1940-60s.

2. Countries or territories in the Caribbean that after the decolonization movement did

not obtain full independence. Instead, these countries or territories obtained an ambiguous

semi-sovereign political status.

3. Countries or territories that are currently not in the list of Non-Sovereign States

established by the United Nations. Most of the United Kingdom territories (Anguilla,

Bermuda, British Virgin Islands, Cayman Islands, Falkland Islands, Montserrat, Saint

Helena, Turks and Caicos Islands) and the United States Virgin Islands are the current eight

(8) Caribbean entities that are under the United Nations list of Non-Sovereign States.

Consequently, these entities officially do not have self-determination and they are not

relevant for this research project. This research is intended to investigate countries that

according to the law (mostly national constitutional law) enjoy certain political and

economic self-determination.

4. Semi-sovereign states that currently maintain economic and political ties with their

prior colonizers or their metropolitan power. Their autonomy to create policy is often

restricted as a result of their shared governance relationship.

23

Table 1 – List of neo-colonies in the Caribbean

Territory

Metropolitan

Power French Guiana France

Guadeloupe France

Martinique France

Les Saintes France

Marie-Galante France

Le Désirade France

Saint Barthélemy France

Saint Martin France

Curaçao The Netherlands

Aruba The Netherlands

St. Maarten The Netherlands

Bonaire The Netherlands

Saba The Netherlands

Saint Eustatius The Netherlands

Puerto Rico United States

Navassa Island United States

After conducting a process of elimination based on the four main points presented above,

this list (Table 1) shows the results of the sixteen (16) entities that gather the characteristics of a

neo-colony. For a holistic study, it would be ideal to analyze and compare the economic effect of

neo-colonialism in all the sixteen entities. But based on the limitations on time and format of this

research project, the case studies will be reduced to three (3). In order to still obtain holistic results

with a reduced amount of cases, this research project opted to use a diverse-case method. This

case-selection strategy has as its primary objective the achievement of maximum deviance along

relevant dimensions (Gerring, 2008). Since diversity can mean various things, its employment in

a large-N setting is necessarily dependent upon how this key term is defined (Gerring, 2008). The

large-N in this research project is neo-colonialism. Based on this method, this research project

24

evaluates three (3) Caribbean territories that gather neo-colonial characteristics but have different

official political statuses. The three selected cases are the islands of Guadeloupe, Puerto Rico, and

Curaçao. The order in which the cases are named here is the same order in which they will be

described and analyzed during the entire research. This order represents the level of legal

dependency of the territories to their metropoles based on their official political status. The first

case is the island of Guadeloupe, this is an Overseas Department of France. The second case is the

island of Puerto Rico. Its official name the Commonwealth of the United States. Finally, the island

of Curaçao used to be part of the Netherlands Antilles but, it is officially an independent country

since 2010. Its current official name is the country of Curaçao within the Kingdom of the

Netherlands. For the purpose of this research, despite of the official political status, the three cases

will be considered “neo-colonies”, since certain economic aspects still operate under the

institutional jurisdiction of its metropolitan power. These territories are considered neo-colonies

since the time they were decolonized in 1946, 1952 and 1954. Therefore, the economic and

political decisions and consequences discussed in the analysis of this research are based on events

transcurrent in this specific period of time (1946-present). It is important to note that Curaçao

recently changed its official status (2010) and it has become an independent country within the

Kingdom of the Netherlands. Nonetheless, Curaçao still possesses several neo-colonial

institutional mechanisms in its relationship with the Netherlands. This research will evaluate its

economic performance as a neo-colony from 1954 until today, taking into consideration the change

of official status and its effects on economic development.

Then, in order to analyze the neo-colonial effects on economic development, it is

imperative to investigate the different economic sectors of Guadeloupe, Puerto Rico, and Curaçao.

There is an array of economic and political sectors in the three territories that are monitored or

overseen by the institutions of the metropoles. Nonetheless, due to the framework of time and the

size of this research project, the decision was to select two important economic sectors that are

economically and politically monitored by France, the United States, and the Netherlands

individually and respectively. In addition, it was important to select economic sectors in which

there was enough available data, since certain neo-colonial entities did not have any access to their

primary data. Finally, two (2) aspects of the neo-colonies’ economy were selected. There is a

notable influence from the metropolitan powers in both of them. The two selected economic

sectors are market structure and fiscal policy. For the purpose of this research, market structure

25

is defined as the characteristics of the market either organizational or competitive, that describe

the nature of competition and the pricing policy followed in the market (Chen, 2018) The fiscal

policy is referred to the decisions in which the government uses its spending and taxing powers to

have an impact on the economy. The direct and indirect effects of fiscal policy can influence

personal spending, capital expenditures, exchange rates, deficit levels and even interest rates,

which are usually associated with monetary policy (Schmidt, 2018). The analysis will consist on

the evaluation and comparison of the prominent institutional mechanisms that have shaped the

market structure and fiscal policy on Guadeloupe, Puerto Rico and Curaçao since they became

neo-colonies.

c. Data collection

In this qualitative research project, the collection of data is oriented to provide a better

understanding of the significance and the correlation between neo-colonialism and economic

development. For the purpose of completing this research successfully, an array of different

sources has been gathered to build and support the main argument and deliver reliable and

objective justification of the main research points. There are two types of sources: primary and

secondary sources. The sources are also divided in this order in the bibliography chapter. The

process of collecting data was progressive. First, the research project started with the collection of

secondary sources to understand the theoretical stand: the relation between neo-colonialism,

institutions, and development. Then, when enough secondary sources were gathered, the research

question was created, and the main argument was formulated. In order to answer the research

question and prove the validity of the argument, several primary sources were assembled.

Secondary sources were mostly used for the literature review and the context chapter. This

research project gathers a variety of academic papers that discuss the main definition and

characteristics of institutions and neo-colonialism, as well as the strong link between institutions,

economic growth, and neo-colonialism. The literature available on economic growth and

institutions is extensive, therefore it was narrowed down by opting for the most notable writers in

the field of economic development such as Acemoglu & Robinson, Douglas North and Rodrik,

among others. The main concept of study, neo-colonialism, is not an official version accepted by

governments nor international organizations. Thus, it was essential to gather numerous academic

papers that describe and justify the existence of the term “neo-colonialism”. In order to avoid a

26

biased selection of literature, this research project has selected academic papers that discuss the

positive and negative effects of this unofficial status. To a less extent, the secondary sources were

used for the analysis of the economic effects of neo-colonialism, in order to understand how other

authors have interpreted the available empirical data extracted from primary sources. Finally, to

obtain a better insight into the economic effects of neo-colonialism and its institutional

mechanisms, the research paper has collected news reports from local newspapers. These sources

were necessary since some of the institutional mechanisms that are discussed have had very recent

modifications or consequences that are not yet presented in academic papers. The research project

includes recent news coverage from local newspapers (El Nuevo Día in Puerto Rico, Curacao

Chronicles in Curacao and Seguin Gazzete in Guadalupe). The research project also uses

newspapers from the United States (The Washington Post, Times and New York Times) France

(Le Monde) and The Netherlands (NL Times).

Primary sources were used in order to validate with empirical data the main arguments of

this research. Hence, the main important points that establish the neo-colonial relationship between

the metropoles and their territories were obtained from the Status of the Kingdom of the

Netherlands, the Constitution of the United States and the Constitution of France. This information

is essential to learn the main context of the territories and to guide the readers who are probably

not familiarized with the islands’ economic situation. Other type of primary sources were the laws

that represent the institutional mechanisms on market structure and fiscal policy. Different

government reports have been evaluated to determine the main characteristics of these laws.

Finally, this research project uses primary sources that contain mostly numeric data from official

sites such as The World Bank, the International Monetary Fund, the Central Bureau of Statistics

in Curaçao, the National Institute of Economic Statistics of France and the New York Federal

Reserve. These statistics, graphs and numbers show the percentages of GDP, Growth Rate,

Household Income or local prices that will provide the objective data necessary to measure the

effects of neo-colonialism in economic development. Unfortunately, some official websites did

not provide easy access to reliable data, therefore this posed some difficulties to certain parts of

the research. This will be further discussed in the limitations section.

27

d. Data analysis

The analysis of this research project consists of pairing up the defined concepts of high-

quality institutions, economic growth and neo-colonialism obtained from the secondary sources

with the information acquired from the empirical data, which are the economic effects. The

analysis consists of a systematic comparison between the effects of neo-colonialism on the

economic performance of Guadeloupe, Puerto Rico, and Curaçao in the market structure and the

fiscal policy (separately). Figure number 2 represents the conceptual map that was formed to

obtain a visual and clear view of the building of the research’s analysis. The analysis explains and

examine the neo-colonial institutional mechanisms present in the selected economic sectors. The

analysis is divided into two different sections: Market structure and fiscal policy. Each section

starts with a description and explanation of the institutional mechanisms of the three territories.

These will explain the laws that forge the market structure and the fiscal policy of each sector.

This provides the reader with a holistic understanding of the main features of these laws. The

comparison of the institutional mechanisms is to be able to determine the ones that are

characteristic of a neo-colonial relation. Continuously, there is a comparison of the economic

effects of the institutional mechanisms. This section contains mostly empirical data from official

reports. Finally, a critical discussion follows. This discussion focuses on how the presence or

absence of neo-colonial mechanisms affect the delivery of economic development in these

territories. In addition, this section explains how the neo-colonial institutional mechanisms alter

the performance of the metropoles’ “high-quality institutions”.

28

Figure 2 – Conceptual Map

e. Research Limitations

The limitations of this research are important to be clarified in order to justify the absence

of certain data and also, to encourage the continuity of this project as a further enlarged research.

Four limitations have been identified in this research, although the existence of other limitations

that are not mentioned is not discarded. First, the size of the sample is relatively small to provide

a holistic view of the effect of neo-colonialism in the world. An enlarged sample could be useful

to enhance the reliability of this research. But, as explained before, the amount of case studies is

based on the time frame for this research project. Nonetheless, a clear explanation has been

provided to justify the three case studies. A second limitation is the lack of numerical findings.

Quantitative findings could provide a more precise approach to the effects of neo-colonialism in

development. However, this research is focused on the qualitative aspects of the economic effects.

Nonetheless, this is considered to be an incentive to continue this research project with a

quantitative approach in the future, in order to expand the available knowledge on the subject. The

third limitation addresses the lack of certain empirical data on the analysis. Some primary data was

not available on official sources and could not be obtained. Also, both the World Bank or the

International Monetary Fund do not provide studies conducted on Guadeloupe or Curaçao. For

Caribbean Neo-colonies

Puerto RicoGuadeloupe Curaçao

Market Structure

Fiscal Policy Fiscal PolicyMarket Structure

Fiscal PolicyMarket Structure

Octroi de Mer N/ACabotage Law Law 936 N/A Tax Exemption

Economic Consequences

29

instance, in the market structure section of the analysis, there is certain data missing with respect

to pricing on local products. Additionally, in the fiscal policy section, there exists no data on

economic growth in Curaçao (or the Netherlands Antilles) from 1950-1980. Most data are

available after the 1980s. This is a limitation for this research but could also be an incentive to

expand this research by conducting fieldwork in the three islands in order to search for the

unavailable data. The validity and reliability of this research are conditioned by those limitations

that have been acknowledged. Nonetheless, the limitations do have long term solutions for further

amplification and development of this research.

30

IV. Context Chapter a. The Origins of Neo-Colonialism

It is a commonplace that Third World countries, despite their achievement of political

independence in the post-war period have yet to achieve economic independence (Paragg, 1980).

Colonialism supposedly died during the mid-twentieth century (Jackson, 2009), but the current

world order seems very different from that. To label the present day as the post-colonial era can

be misleading, since colonialism just changed its façade, but not its main structure, giving birth to

the term neo-colonialism. Outside of the context of formal colonialism, neo-colonialism would be

a more appropriate prefix. The first use of the word may have occurred in the 1950s when new

independent nations found themselves only partially independent; a new term to be exploited for

political purposes was needed. The 1960s were marked by an unparalleled eruption of new states,

rising from the ruins of colonialisms, which took place primarily in Africa but reached to other

parts of the world (Girvan, 2012). The radical change in the balance of membership pushed the

dominant opinion in the United Nations far over into the anti-colonial movement. The United

Nations Charter acknowledged the principle of equal rights and self-determination of peoples

among its purposes; based on the belief that colonialism was an outrageous practice that must be

left in the past (Girvan, 2012). It then established a set of principles and obligations in relation to

all non-self-governing territories which gradually opened the door to a demand for international

accountability on the part of all the colonial powers. This created a wave of decolonization between

the 1940s and 1960s. Colonial nations changed their official name and were separated into three

different categories. First, Chapter XI of the United Nations Charter denominated the “Non-Self-

Governing Territories”. These are territories “whose people have not yet attained a full measure

of self-government”. The Charter states that the interests of the occupants of dependent territories

are paramount and requires member states of the United Nations in control of these non-self-

governing territories to submit annual information reports concerning its development. The second

category was the “Self-Governing” or “Autonomous” countries. These are independent countries

full in charge of all their government affairs. And thirdly, the United Nations named the “Integrated

Jurisdictions”, political entities that annexed to an existing country. Nonetheless, there is an on-

going debate over the content and implications of the different arrangements, especially in the

category of “Non-Self-Governing” territories. The United Nations list does not include the French

Caribbean Departments, presumably because they are regarded as “Integrated Jurisdictions”; as

31

well as the Dutch territories and Puerto Rico, presumably because they were regarded as

“Autonomous Countries” (Girvan, 2012). The debate is mainly caused because the political status

of the above-mentioned cases does not fully fall into any of the United Nations categories. Those

categories do not really encompass the accurate status of these states because a country may be

both post-colonial (in the sense of being formally independent) and neo-colonial (in the sense of

remaining under the economically and/or culturally dependent) at the same time (Loomba, 1998).

These partially independent territories have embarked on a variety of different post-colonial

pathways (Bishop & Phillip, 2018) and have increasingly come to be seen as legitimate political

jurisdictions by politicians, scholars, and constitutional lawyers alike.

i. Neo-colonialism in the Caribbean

Neo-colonialism is neither a European phenomenon, nor it is restricted to the Scramble for

Africa (Heldring, Leander, & Robinson, 2012). As discussed in the literature review, most

academic attention on neo-colonialism has been focused on Africa, since the first neo-colonies in

the world were technically born in the region. However, the “last colonies” or “confetti of empire”

lay scattered across the globe are mainly situated in the Atlantic, the Caribbean, the Pacific and

the Indian Ocean (Veenendaal & Oostindie, 2018). The contemporary Caribbean is one of the most

politically fragmented regions for its size on earth; and one with the strongest remaining colonial

presence (Girvan, 2012). There are thirty-five identifiable political entities in the Caribbean in a

population of 43 million (Girvan, 2012). Sixteen of the thirty political entities in the region can be

regarded as “colonial Caribbean countries”, in the sense that they are non-independent entities over

which extra-regional powers exercise ultimate control under international law. The main

characteristic of the Caribbean neo-colonies the fact that they are still under the institutional

mechanisms of its neo-colonial relation. Despite the Caribbean has sixteen entities considered neo-

colonies, this research will focus on three specific cases in order to evaluate their unofficial

political status on their economic development.

The ties to the metropolitan powers have brought mainly positive outcomes to the neo-

colonies. Even if sovereign micro-states may prove to be remarkably viable, non-sovereign

territories world-wide definitely score better by economic standards. Semi-sovereign islands in the

Caribbean are usually compared to former colonies that were able to acquire their independence

32

such as Haiti or Cuba. There is an evident positive correlation between non-sovereignty and

standards of living and to some degree between non-sovereignty and good governance, including

guarantees of human rights and liberties (Chauvin, Clegg, & Cousin, 2018). This is mainly due to

the substantial amounts of financial aid from the metropoles that provide the neo-colonies with

economic stability. Nevertheless, direct metropolitan monetary transfers are not the only or

necessarily the most important factor. There are several advantages of being under the institutional

jurisdiction of great powers. By maintaining economic and political ties to their metropoles, its

residents enjoy shared nationality. Therefore, residents of neo-colonies have the right to move to

the metropoles. Overall, being embedded in a larger and generally stable constitutional entity

serves to strengthen the dependent territories’ institutional environment, with ensuing positive

effects for local businesses and governments and enhanced credibility for international finance.

(Oostindie, 2006).

Nonetheless, semi-sovereignty is generally a mixed economic blessing for micro-states

(Oostindie, 2006). Whereas various scholars have praised the non-sovereign status as “combining

the best of both worlds” and as “superior” to other arrangements (Veenendaal & Oostindie, 2018)

they visibly fall short of metropolitan standards of living. Metropolitan protectionism and the

frequently massive accompanying financial transfer may have boosted per capita income, but they

have also served to create uncompetitive consumer economies and (Oostindie, 2006) high levels

of financial dependency. Inequalities between metropoles and neo-colonies are stark in the

different levels of the economy. The three selected cases show the underlying differences with the

metropolitan economies. The Dutch, French and American overseas territories are part of a

fragmentary and blind-spotted reality. The islands’ economic stands are shaped and defined by an

array of external forces, mainly pursued and perpetuated by the metropoles (Chauvin, Clegg, &

Cousin, 2018).

In order to understand the ambiguous neo-colonial relation with the metropoles and the

stark economic differences between them, the next section will explain the neo-colonial status in

the three selected cases (Guadeloupe, Puerto Rico and Curaçao). This section will include a more

detailed explanation of the political status of each case, the relationship of dependence with the

metropoles and finally, the economic differences between the neo-colonies and the metropoles.

This is to set the ground to then explain the institutional mechanisms within the neo-colonial

relation, how they work and how they affect the economies of these neo-colonies.

33

i. Neo-colonialism in Guadalupe

Guadalupe is a group of islands in the Lesser Antilles located the eastern Caribbean Sea. It

is considered one of the Overseas Department and Overseas Region of France, in addition to

Martinique, St. Barth and one half of St. Martin, the other half being ruled by the Netherlands. The

department is a main territorial unit of France and there is no difference in the administrative status

of these islands from any department of metropolitan France. Its colonial history started with the

arrival of Christopher Columbus in 1493. France had several economic interests on this

archipelago. Guadeloupe was a slaveholding colony. After colonizing the Caribbean islands in the

17th century, France established profitable plantation economies for the cultivation of sugar,

tobacco and bananas by capturing and slavering Africans. The dual territories “D’outre Mer” or

“Overseas Department” classification was introduced in 1946: Guadeloupe, along with Martinique

were granted the administrative status of “Department”. The island became an integral part of

France having the president of France as head of the government. Moreover, Guadeloupe is a

constituent territory of the European Union and the Eurozone. However, it is not part of the

Schengen Area. All territorial institutions, whether municipal, departmental or regional operate

like the metropolitan equivalents. In other words, the Overseas Departments are subject to the

same rules as other departments in mainland France including infrastructure, economic, social

endeavors, financial stability, transportation and social aid. While the region or the local

government of Guadeloupe (equivalent to the local government of L’île de France or Province)

has power to promote, but not fully manage, economic, social, cultural and scientific development.

It also has power in matters of vocational training and domestic transportation.

Albeit both France and Guadeloupe share the same institutions, their economic

performance is different. Guadeloupe benefits in different aspects from being part of France.

Government services are central to the island’s economy, which is primarily sustained by the

salaries of officials and by French aid in the form of allocations and grants. The islanders’ standard

of living is among the highest in the eastern Caribbean (Cornevin, 2018). Guadeloupean residents

also enjoy French salaries (1,300 a month). In 2016, France created a universal healthcare system

for individuals who live within Guadeloupe. The scope of coverage ranges from medicinal

prescriptions to death insurances, in attempts to further decrease poverty (Cornevin, 2018).

Nonetheless, there exists several inequalities. In comparison with metropolitan France,

Guadeloupe faces the difficulties of a rather weak economy (Daniel, 2001). While the salaries are

34

the same as in mainland France, these are not enough to sustain a proper life on the island, due to

a continuous increased in the prices of all goods and services (Bonilla, 2012). Additionally, in

Guadeloupe 46% of the population lived below the poverty line, compared to the 13% for

metropolitan France (French National Institute of Economic Studies, INSEE, 2018) and

unemployment rates surpass the 26%.

ii. Neo-colonialism in Puerto Rico

With 100 miles long and 35 miles wide, Puerto Rico is an island among the Greater Antilles

located the northeast Caribbean Sea. Puerto Rico is officially a Commonwealth or a Free-

Associated State to the United States. It was first colonized by the arrival of Spaniard in 1493 and

then by the Americans after the Spanish-American war in 1898. In 1917, Puerto Ricans became

United States citizens when Woodrow Wilson decided it was useful to obtain more soldiers on the

eve of the Great War (Little, 2017). From 1898 to 1952, Puerto Rico was in a colonial political

limbo. It was an official colony without any political or economic power, not even an official

political leader. The United States had a great interest in the island, due to its strategic location

facing the Atlantic Ocean. Officially, in 1952, the island was granted with the “Commonwealth”

status due to the pressure of the United Nations decolonization movement. Since 1952, Puerto

Rico has been recognized as an entity with a different local government to the United States.

Constitutionally, Puerto Rico is under the territorial clause of Article IV of the United States

Constitution. This clause also establishes that all federal level laws apply to Puerto Rico as well.

This implies that the United States institutions have full control of the communications, currency,

trade, transportation, immigration, tariffs, labor relations, wage laws, military, security, social

security, prices, penal and court system (Bras, 2011); Additional to absolute powers on territorial

waters and coast guard services or domestic and foreign affairs. Despite being completely

supervised by its metropole, Puerto Rico to date has no legal representation and equal rights in the

United States Congress (Nina, 2016). For example, residents of Puerto Rico cannot vote for the

presidents of the United States.

Despite the United States federal institutional system control almost every aspect on the

economy of Puerto Rico, the island’s economic performance is detrimental. While the United

States has maintained stable “high-quality institutions” that have kept the high performance and

35

most importantly, have been able to recuperate for downgrades in the economy, Puerto Rico has

had a completely different path. Puerto Rico development rates have ranged from negative to

unimpressive since 1973. Incapable of recovering during the past decades, the residents of Puerto

Rico have experienced drastic highs on social depravation. 44.9% of the population for whom

poverty status is determined in Puerto Rico (1.54M out of 3.44M people) live below poverty the

line, a much higher number than the national average of the United States, which is 13.4% (Data

USA, 2017). Additionally, labor force participation in Puerto Rico is extremely low, compared to

the United States, Puerto Rico is at 39.7% while the United States is 62.4% Puerto Rico is

suffering its worst economic recession since 2014, when the local governor declared that the island

could not pay the public debt that has ascended to $72 billion.

iii. Neo-colonialism in Curaçao

Curaçao is an island in the Caribbean Sea situated 27 miles north of Venezuela. It is the

biggest island of the Netherlands Antilles. The Netherlands Antilles was a democratic federation

formed by the five islands of Curaçao, Bonaire, Sint Maarten, Sint Eustatius, and Saba. Since 2010,

Curaçao is officially an independent country within the Kingdom of the Netherlands. The island

became a colony of The Netherlands in 1630. It was a valuable acquisition for the Dutch since it

was established as a major center of trade for the Dutch West India Company during the Dutch

Golden Age. Additionally, the VOC made Curaçao a center for the Atlantic slave trade, which was

in charge of moving slaves to the island to sale them elsewhere in the Caribbean or South America.

It was not until 1954 that the whole Netherlands Antilles obtained internal self-rule within the

Kingdom of the Netherlands. The country of the Netherlands Antilles was governed according to

the ‘Staatsregeling van de Nederlandse Antillen.’ The central government consisted of three

bodies, namely a governor, a council of ministers, and a parliament. As a consequence of the

‘Staatsregeling van de Nederlandse Antillen’, the government structure of the federation was two-

tiered: A federal (central) government located on Curaçao, and a local public entity on each island

territory (island government). In the 1990s, the politicians of Curaçao concluded that the political

restructuring of the Netherlands Antilles had failed. In 1993 a referendum was held on Curaçao in

which the people were asked to opt for a Status Aparte for Curaçao as well. (Goede, 2011). Full

autonomy in internal affairs was granted in 2010. Per October 10, 2010 Curacao is an autonomous

36

country within the Kingdom of the Netherlands. The political structure of the Kingdom is

delineated in the Status or Charter for the Kingdom of Netherlands, in 1954 (Veenendaal &

Oostindie, 2018). Agreed on 10/10/10, Curaçao is independent in internal affairs. Nonetheless,

several factors are also controlled institutional mechanisms of The Netherlands, that put in

question the supposed independence earned in 2010. The institutional ties with the mainland are

still latent, since the government of the Netherlands is responsible for defense, foreign relations,

financial supervision and similar matters. (Ansano, 2018). Additionally, the locals have Dutch

nationality and carry Dutch European passports.

As an independent country, Curaçao has an open economy, with tourism, international

trade, shipping services, oil refining storage and international financial services. Nonetheless, most

of its revenues are dependent services and family transfers from the Netherlands such as oil

refinery earning (90% of the exports) offshore banking, and tourism (Central Bank Curaçao, 2017).

Although the formal title is independent country, Curaçao does not truly meet the characteristics

of an independent nation. Examinations of the key performance indicators of Curaçao, such as

population growth, economic growth, the unemployment rate, the budget deficit, and government

debt, reveal that Curaçao has not done too well over the last years. (Goede, 2011). Compared to

other countries in the region, Curaçao has a relatively high standards of living, with an income per

capita of USD 20, 161 euros (Central Bank Curaçao, 2017). Nevertheless, real GDP contracted

by about 1 ¾ percent in 2017, marking five years of recession in the past seven years (International

Monetary Fund, 2018). Unemployment rates, although not as high as in other parts of the

Caribbean, are more than double compared to mainland Netherlands. On the fiscal front, the public

finances of Curaçao have worsened during the last two years (Central Bank Curaçao, 2017).

iv. Conclusion

Table 2 – Economic Overview Guadeloupe, Puerto Rico and Curaçao Guadeloupe Puerto Rico Curaçao

GDP Per Capita (Euros)

19.810€

23.152€

20.161€

Unemployment Rate %

26.2% 9% 14.1%

Poverty Rate %

46% 43.5% 25.1%

37

Guadeloupe, Puerto Rico, and Curaçao’s economic performance is mainly determined by

the “high-quality institutions” of their metropolitan powers. The overview of these three cases

shows that there is no unique correspondence between the functions that good institutions perform

and the form that such institutions take. The data available reveals the lack of development in these

territories and the stark inequalities between the metropolitan powers and their territories. Due to

the importance of the political status and political institutions in economic development, this

research project takes into consideration the unofficial neo-colonial status as a main influencer of

the territories’ economic performance. This paper argues that these disparities are mainly

influenced by certain neo-colonial institutional mechanisms in the different economic sectors of

the neo-colonies. In order to sustain the argument, the next section will investigate the effects of

the neo-colonial institutional mechanisms in the market structure and the fiscal policy of

Guadeloupe, Puerto Rico, and Curaçao.

38

V. Analysis This chapter conducts an analysis of the institutional mechanisms of the market structure

and the fiscal policy in the three case studies to determine the effects of neo-colonialism in

economic development. By exploring the mechanisms in each economic sector, it is expected to

determine the effect on economic development. The institutional mechanisms are represented in

the form of laws. Laws regarding to market structure and fiscal policy will be analyzed in the next

section. The analysis of these economic sectors will show that certain laws or institutional

mechanisms in the neo-colonial relation exemplify that these territories are still subsumed in one

way or another under metropolitan authority and have to deal with recurrent metropolitan

interventions (Veenendaal & Oostindie, 2018) that completely alter their economic performance.

a. Market Structure

The market structure determines the characteristics of the market either organizational or

competitive, that describe the nature of competition and the pricing policy followed in the market

(Chen, 2018). In the three case studies, the market structure is to a certain extent monitored and

overseen by the institutions of the metropolitan powers. Besides the burdens caused by the islands’

geographic location, this monitorization also creates several afflictions to the islands’ market

structure. The monitorization is sometimes characterized by certain restrictions, only applicable to

these territories; restrictions imposed by certain institutional mechanisms distinctive of the neo-

colonial relation between the metropoles and the territories. These institutional mechanisms,

distinctive of the neo-colonial relationship, are preserved in the market structure of these territories

since the colonial era. This analysis shows that Guadeloupe and Puerto Rico face more restrictions

by the metropoles than Curaçao in their market structure, due to certain neo-colonial institutional

mechanisms and these contribute to the negative performance of that specific economic sector.

This analysis develops a comparative discussion between the specific situation of Guadeloupe,

Puerto Rico and Curaçao.

i. Institutional Mechanisms

Since Guadeloupe became a French colony in 1670, the market structure of the island has

been shaped by a law called “Octroi de Mer”. This institutional mechanism can also be named a

“dock due” and it is a type of tax imposed on products imported into or produced in the French

39

outermost regions (also in Martinique, French Guiana, La Reunion and Mayotte). It is broadly

speaking, a sophisticated form of import duty that perfectly illustrates the persistence of

mercantilist principles (Crabtree, 2013). It is an old colonial form of tax that has shaped

Guadeloupe’s market structure for centuries. All imports have an “overseas tax” of between 5%

and 25% of duty value. Additionally, VAT must be added to the price of all goods and services

sold (Caribbean Export Development Agency, 2017). According to data compiled from the French

National Institute of Economic Studies (2018), this tax adds 2.5% plus an 8.5% VAT. The VAT

is reduced to 2.1% on food and medical products. In theory, local products should not be taxed,

since Guadeloupe is under the European Union jurisdiction and this institution does not allow

tariffs on local products or imports. After years of negotiations between France and the European

Union, new rules proposed by the European Commission at the end of December 2018 will allow

more local products to benefit from tax exemption or reduction. The purpose is to encourage

economic activity and safeguard the competitiveness of local products of these French outermost

regions to allow local businesses to compete more effectively. The European Union furnished the

lists based on stated criteria – 10% permitted on basic goods, 20% where heavy local investment

would be required in a small market to compete with imports, and 30% on products of big

companies where there was a great vulnerability to imports from major countries nearby (European

Comission, 2018).

The institutional mechanisms of Puerto Rico have a similar situation to Guadeloupe. The

current market structure of the island is also constrained by neo-colonial institutional mechanisms.

In 1920, Woodrow Wilson signed the Jones Act that enabled The Cabotage Law. This law

established that the island was restricted by the United States on the import and export of products.

Section 27 requires that “all goods ferried between United States ports to be carried on ships built,

owned and operated by United States citizens”. This was a preemptive measure taken by the United

States government after German submarines drowned almost 5,000 American ships in a recent

conflict (Phillips, 2017). Almost 100 years later, not a foreign ship has docked on the island of

Puerto Rico. The island’s market structure is completely based on the decisions and the

performance of United States ships and its personnel. In order to transport goods that come from

a foreign country to Puerto Rico, foreign ships usually arrive in Jacksonville, Florida. After that,

the material is moved to a ship built and owned by the United States. Then, the goods are finally

transported to the island. The Jones Act that enacted the Cabotage Law is a curious survivor from

40

the mercantilist period when governments heavily regulated most economic activities. It has the

same negative consequence in the economy as any tariff or trade barrier, without providing any

sign of improving national security (Grennes, 2017). It was not until recently (2012) that a United

States federal agency developed an official report to calculate the estimated extra cost of this law.

According to the data obtained from the New York Federal Reserve Report (2012), transporting

containers from the United States costs on average 2.5 times, or 151% more than to any other

island in the Caribbean. These cost differentials range from a high of 89% to a low of just under

30%. The New York Federal Reserve (2012) explained in the report that bringing a container by

land from California to Jacksonville costs around $7,000 which is then added to the maritime cost

of $2,404 for a total of about $9,404. This contrasts greatly with shipping a container from Chile

by sea at a cost of $2,483, for a difference of 279%. This supposes a problem to the island’s

economic performance, since as of today in 2019 and for almost 100 years, Puerto Ricans living

in the island import 85% of all the goods consumed locally.

Different from the market structure of Guadeloupe and Puerto Rico, Curaçao is not

imposed on restrictions on the import of goods, nor to an extra tax on the import and the production

of goods. The institutional mechanisms that forge the market structure of Curaçao are mainly

characterized by its privileges of being in a Free Trade Zone since its colonial past (Curaçao

Chamber of Commerce & Industry, 2001). Free (Economic) Zones are fenced-in areas where

goods can be stored, displayed, packed, assembled, manufactured, released from bond and where

certain types of services, for example regional repair centers, may be rendered. The import, export

and transit of merchandise are completely duty-free while special tax incentives are provided to

free (economic) zone companies through the economic zone law. The activity on the island is

focused on trading with or providing services to consumers and companies outside of Curaçao

(Curinde, 2018). This grants the island freedom to import and export goods without restriction or

strict supervision from the Netherlands. The neo-colonial institutional mechanisms in the market

structure of Curaçao are less visible than in the other two cases. In the next section, the economic

effects will be compared.

41

ii. Economic Consequences

The neo-colonial relation between Guadeloupe, Puerto Rico and Curaçao and its

metropoles imply heterogeneous effects on the market structure. The outcomes mostly depend on

the performance and intensity of certain neo-colonial institutional mechanisms. Guadeloupe and

Puerto Rico’s market structures are shaped by the neo-colonial laws or institutional mechanisms

that restrict them on several fronts. However, Curaçao is not subordinated to these restrictions. The

neo-colonial institutional mechanisms in Guadeloupe and Puerto Rico (Octroi de Mer and

Cabotage Laws) contribute to the significant rise in prices of goods. Additionally, these laws

contribute to the lack of competition in the market structure of both islands.

Table 3 - Median Price Differential between territories (Guadeloupe, Puerto Rico and Curaçao) and Metropoles (France, United States, The Netherlands)

Guadeloupe Puerto Rico Curaçao

Drinks (soda, coffee, tea) +107% -34.14% -28.16%

Canned Food +66% +4.48% -24.39%

Pasta and Rice +99% N/A +7.49%

Gasoline +42% +4.81% -44.13%

Household Products +49% +23.35% -10.37%

Cigarettes N/A +22.16% -24.35%

Cars N/A +12.42% -30.23%

Source: French National Institute of Statistics (2017) United States Bureau of Labor Statistics (2017) Curaçao

Central Bureau of National Statistics (2017)

The “Octroi de Mer” and “Cabotage Laws” push prices up with little to no stimulating

effects on economic activity. Table 3 compares the percentage price differential between

territories and neo-colonies. The most extreme case is Guadeloupe, with percentages of prices

exceeding a 100% more than in metropolitan France on products like soft drinks or pasta and rice

prices. In-store price differentials between the overseas departments and metropolitan France were

beyond 55% for more than half of the 75% products analyzed. In Guadeloupe, the “Octroi de Mer”

is a contributing factor to higher prices that argue detrimental to the local consumers. In addition,

the high prices are progressively. The French National Institute of Economic Statistic announced

42

that in 2015, price differentials were higher between the French Caribbean and metropolitan

France than in 2010. Annually, the prices in Guadeloupe raised by +1,8% in 2018 and +1,0% in

2017. The tariffs on energy have grown +6,5% and oil products +7,8%. These are double than in

2014 (French National Institute of Economic Studies, 2016).

Table 3 shows that prices on goods are higher in Puerto Rico than in the United States.

Nonetheless, the case of Puerto Rico does not show percentages as extreme as in Guadeloupe.

Products like soft drinks are considerably less expensive in Puerto Rico than in the United States.

The rest of the products are between 4% - 23% more expensive than in the mainland. The price

percentage differentials of Puerto Rico are less than in Guadeloupe, which could imply that the

economic effects of Octroi de Mer are more devastating than the ones from the Cabotage Law.

Nonetheless, while Guadeloupe has the same household annual income than metropolitan France,

Puerto Rico’s household annual income ($23.152) is less than half compared to the mainland. The

process of moving goods to United States’ ships to then transport them to the island increments

the tariffs and taxes. Consequently, the price of the merchandise rises exponentially. Residents of

Puerto Rico have to pay between 20% and 60% more for goods imported from the mainland; this

is due to the fact that the United States maritime flag is the most expensive in the world. The

Federal Reserve of New York (2012) calculated that the Cabotage Laws suppose an increase of

$367 million in additional costs to the local economy. Individually, families pay $300 more or

$107 per person for food and beverages. Adding that, the resulting higher prices for goods on the

island cost residents nearly $375 a year, or $1,050 for a typical family of three members.

Table 3 displays that, contrary to Guadeloupe and Puerto Rico, the percentages of Curaçao

are rather different. Prices on Curaçao are for the most part, lower than in the metropole. The price

percentages differentials compared to the Netherlands range from -44% the lowest to just +7% on

some products. The lowest percentage differential accounts for the prices of gasoline (-44.13%),

this is due to the oil refinery labors conducted on the island. It could be argued that the price

differential percentages of Curaçao are not sufficiently lower, if one takes into consideration that

Curaçao does not have neo-colonial institutional mechanisms on its market structure. Nonetheless,

this is because the entire region of the Caribbean is subjected to a standard increase in prices caused

by insularity and remoteness. However, Puerto Rico and Guadeloupe have to manage the insularity

problems in addition to the constraints of the neo-colonial institutional mechanisms.

43

The neo-colonial institutional mechanisms also influence the lack of competitiveness and

economic diversification in the market structure. Anti-competitive behavior seems to be feature of

Caribbean economies particularly in the retail sector as a cause of its high concentration. The entry

of new firms and new stores opening are difficult due to the high taxes in Guadeloupe and the

tedious and expensive process of importing goods to Puerto Rico. Both the European

Commission’s Regional Program of Guadeloupe for 2014-2020 (2013) and the New York Federal

Reserve Report on Puerto Rico (2012) pointed out the necessity to remove or alleviate the market

restriction caused by the “Octroi de Mer” and “Cabotage Laws”. Both reports acknowledge that

the removal of the laws would be beneficial for the prosperity of market competition in both

islands. Certain political actions have been conducted in Guadeloupe; the European Commission

has pushed France to lower the local taxes in order to incentivize more market competition. This

was announced in a press release in December 2018; therefore, results will only be obtained in the

long-run. The Cabotage Laws in Puerto Rico also undermines the island’s ability to diversify its

economy. This neo-colonial institutional mechanism constrains the Commonwealth to have direct

trade deals with foreign countries, since these decisions are absolutely dependent on the United

States’ preferences and ship or personnel availability. It makes Puerto Rico invisible to the

international market and national products such as coffee, beer, plantains or sugar cannot be

exported to the outside world, but the United States. Guadeloupe and Puerto Rico still suffer from

a deficit of competitiveness also linked to the limited size of the market, the difficult access to

external markets and the high labor costs compared to the neighbor countries. These are problems

that also Curaçao face in their market, but not to the same extent as Guadeloupe and Puerto Rico.

iii. Discussion

One of the main objectives of the decolonization movement was to provide the residents

in former colonies with equal treatment and liberate them from the subordinated political and

economic colonial institutional mechanisms. However, the neo-colonial institutional mechanisms

of two (2) out of the three (3) cases explained above still represent the asymmetrical relation of

colonialism and contribute to the negative performance of its economic development. These neo-

colonial institutional mechanisms also demonstrate that not much has changed after decolonization

since conditions of domination remained unaffected. The economic comparison has revealed two

main important points: First, the economic effects vary depending on the presence or absence of

44

the specific neo-colonial institutional mechanisms in the territories’ market structure. Curaçao is

not a country that has a successful economic performance but, as exhibited before, its market

structure is not blocked or affected by any type of extra import tax or transport restriction. The

comparison between the percentage differential of prices between neo-colonies and metropoles

shows that Curaçao, in which its markets structured is not determined by a neo-colonial law, has

the least negative effects on its prices. The presence of the neo-colonial institutional mechanisms

in the market structure influences negatively the neo-colonies’ performance. Consciously or not,

the actions of the state destabilized the economy of these territories and represented a major source

to the high cost of living.

The second important point obtained from the previous section defends that the neo-

colonial institutional mechanisms alter the main outcomes of the metropoles’ “high-quality

institutions” in a negative manner. As learned in the literature review, “high-quality institutions”

are able to deliver positive economic outcomes. However, both the “Octroi de Mer” and the

“Cabotage Law” play an important role in altering the “high-quality” institutional performance

and deliver negative economic results. Primarily, because these laws influence the negative

economic performance on the islands by contributing to the increase of local and imported prices

and the lack of market competition. For instance, the Cabotage Law supposes a rise and delay on

imported products to the island. This became a catastrophic issue after September 20th, 2017.

Puerto Rico suffered the impact of one of the worst hurricanes in history. Hurricane Maria

destroyed the island’s electric grid, water system and communications system. Residents quickly

ran out of necessary supplies such as water, food or fuel. 2,975 people died (Denis, 2017) Most of

the deaths were caused by drinking contaminated water due to the overpriced or simply not

available drinking water or because victims needed medical assistance that could not be provided

because of the lack of available medical equipment. The arrival of aid could only be provided by

the United States federal government. Neighbor countries offered to ship supplies. These supplies

could not go directly to Puerto Rico due to the Jones Act. After numerous requests from the

governor of Puerto Rico, president Trump decided to lift the Jones Act. It was lifted for a week. It

is materially impossible to gather, prepare and send supplies by ship and expect them to arrive in

less than a week. This caused that only a few supplies entered the island, therefore the prices

increased (Mazzei, 2019). In the meantime, three million people were living a humanitarian crisis

(Rosello Nevarez, 2018).

45

The lack of competitiveness is perpetuated with the reinforcement of these neo-colonial

institutional mechanisms. This also is incongruent with the theory of “high-quality institutions” of

the metropoles. The neo-colonial institutional mechanisms contribution to the perpetuation of

extractive institutions, rather than inclusive institutions. This maintains the business control on a

certain group, usually the elite. For instance, in Guadeloupe, this tax favors its elite group, the

“Békés”. The direct descendants of slaveholders and colonists (Numa, 2018) maintain their

position as the main controllers of the market. The perpetuation of “Octroi de Mer” favors the lack

of market competition and therefore, preserves the stability of extractive institutions, in which

development growth is possible, but the elites allocate resources to high-productivity activities that

they themselves control, excluding the rest of the society from it and creating sharp inequalities

(Acemoglu & Robinson, 2012). In conclusion, the neo-colonial institutional mechanisms

perpetuate the asymmetrical relationship characteristic of the colonial period and contribute to the

detriment of the economy.

b. Fiscal Policy

The fiscal policy of a country consists on the decisions in which the government uses its

spending and taxing powers to have an impact on the economy. The direct and indirect effects of

fiscal policy can influence personal spending, capital expenditures, exchange rates, deficit levels

and even interest rates, which are usually associated with monetary policy (Schmidt, 2018). The

fiscal policy of most of the semi-sovereign states in the Caribbean, regardless of their official

status, is determined or has been determined by their metropolitan powers. This fiscal dependency

has accounted for different benefits for the semi-sovereign territories such as steady financial aid

imbursements to promote economic stabilization. However, this relationship based on dependence

has also aggravated the inability of decision making for the neo-colonies in fiscal policy matters.

This has led to the reinforcement of an asymmetrical relation between the metropoles and the neo-

colonies, creating an altered outcome not characteristic of the metropoles’ high-quality economic

and political institutions. This section will explore the effects of neo-colonial relations in fiscal

policies by exploring its main institutional mechanisms in the three case studies. Different from

the previous section, the fiscal policies of these neo-colonies have been shaped mostly by

institutional mechanisms that were implemented after the decolonization process of Guadeloupe

46

(1946), Puerto Rico (1952) and Curaçao (1954). As in the previous section, the evaluation of the

laws and its economic effects will lead to the conclusion that the existence of certain neo-colonial

institutional mechanisms in the form of laws has severally contributed to the negative to the

devastating of certain territories.

i. institutional Mechanisms

Right after the decolonization movement between the 1940s and 1960s, not only the semi-

sovereign states but also different islands in the Caribbean were used as Offshore Financial

Centers, or as they are commonly called, tax havens. With the exception of Guadeloupe, the

remaining two case studies, Puerto Rico and Curaçao had served as Offshore Financial Centers

due to decisions of both the United States and the Netherlands. Offshore Financial Centers involve

transnational regulatory arbitrage; businesses take advantage of differences in regulations between

sovereign and semi-sovereign jurisdictions to facilitate increased profit for one or more parties

involved in a transaction (Vlcek, 2018). In the form of tax minimization, it involves the arbitrage

of national tax rates since the justification oversight of most states’ calculations for taxable income

stops at the national border, with foreign source income presumed to be taxed at the foreign

location. Beyond tax minimization there exist other forms of regulatory arbitrage facilitated by the

Offshore Financial Centers, including international business company registries and through them

the ability to arbitrage the differential treatment accorded to a firm based on its jurisdictions of

corporate registration (Vlcek, 2018). The establishment of tax havens and the amendments of fiscal

laws were decisions taken by the United States and the Netherlands as an alternative to enhance

the economic situation of the territories. However, the economic results were different than

expected.

Different from the majority of the Caribbean islands, Guadeloupe was not selected by its

metropolitan power to be a tax haven. On the other hand, France had several tax havens around

the world and in the Caribbean such as Saint-Barthelemy, New Caledonian and Dependencies

(European Parliament, 2017). This fiscal policy of Guadeloupe has mostly been altered by the law

“Octroi de Mer”. discussed in the previous section. Not becoming a tax haven diverged the

attention on fiscal policy renovations from France which, in the long run, was satisfactory for the

island of Guadeloupe. A different story characterizes the fiscal policy of the remaining case

studies. A feature that is considered one of the most important issues in the United States-Puerto

47

Rico relation is the triple tax-exempt status approved by the 936 Law in 1976. Congress granted it

the ability to issue “triple tax-exempt” bonds, meaning buyers did not have to pay local, state or

federal taxes on those bonds, regardless of where they resided. Section 936 of the Internal Revenue

was implemented as an initiative to provide the island’s local colonial government with access to

cheaper credit, meaning that anybody who invested in these securities would not pay taxes

anywhere regardless of where they lived in the United States (Fuste, 2017). The law permitted the

subsidiary branches of United States-based corporations to repatriate earnings derived from the

Puerto Rico operations tax free to the United States. This converted Puerto Rico to a tax haven for

American businesses and providing countless benefits to United States corporations with

investments in Puerto Rico (Caban, 2002). The combination of tax breaks, constitutional

guarantees, and the fact that the bonds were issued under United States legal jurisdiction made the

bonds extremely attractive to investors. The boom did provide middle class jobs, but it never

created an ownership class. The law underwent certain renovations that implanted several

restrictions in 1982, 1986 and 1993 (United States Senate Committee on Finance, 2015). Finally,

Bill Clinton repealed it in 1996. During these law alternations, in 1984, Congress explicitly forbade

Puerto Rico from declaring bankruptcy under Chapter 9, title 11, United States Code. Under United

States Bankruptcy Law, Chapter 9 provides a favorable framework for restructuring the debts of

public local entities, which respects the sovereignty of the debtor and does not allow courts to

require liquidations of assets. The reasons behind why Puerto Rico was excluded from Chapter 9

remain a mystery, with no explanation for the amendment to be found (Williams Walsh, 2017).

The island of Curaçao underwent a similar situation to Puerto Rico. The fiscal policy of

Curaçao during its neo-colonial period has been evaluated within the framework of the Netherlands

Antilles, as Curaçao was not officially independent by the time it became a tax haven. However,

the Central Bank of the Netherlands selected Curaçao to obtain a trust office in Willemstad since

it was a small jurisdiction with political stability, but also with fiscal autonomy. This decision was

taken with the intention of pointing at the substantial tax income that an Offshore Financial Center

could generate. This succeeded in convincing the Curaçao elite that it was worthwhile to introduce

special legislation (Vlcek, 2018). The tax treaty started in 1955 with the United States and lasted

until 1987. Three articles were determined the boundaries of this tax treaty: Article VII reduces

from 30 to 15 percent the United States withholding tax on dividends paid by a United States

48

corporation to a resident or corporation of the Antilles not engaged in business in the United States

through a permanent establishment. Under Article VIII interest so paid is completely exempt from

the United States tax, except interest derived from real estate or real estate mortgages. Article XII

declares that dividends and interest paid out by an Antilles corporation are exempt from United

States tax unless the recipient is a citizen, resident, or corporation of the United States. This

exemption assisted in making the Netherlands a hub through with to rout dividends originating in

other countries to Willemstad. Additionally, the trust offices were for a great part owned by Dutch

banks, and many accountancy firms and tax consultants had a Dutch background, and Dutch

companies exercised a strong influence on legislation. This led to the Netherlands Antilles as a

whole, and Curaçao in particular, to become the home for a significant number of corporate

subsidiaries. These provisions attracted an appreciable number of non-resident aliens and

prospective non-residents who prefer United States investments (Vlcek, 2018). The tie with the

Netherlands was essential for the Curaçao Offshore Financial Center, also because the United

States tax treaty would not have been possible without it. The Dutch financial sector and the

Curaçao offshore had a symbiotic relationship that benefitted both. But the United States decided

to finish this treaty in 1987, disturbed by its use to minimize the United States withholding tax

revenue collections (Crandall, 1988).

ii. Economic Consequences

The implementation of tax havens in the semi-sovereign territories is a clear representation

of the asymmetrical power in the neo-colonial relationship. The economic consequences of the

establishment of neo-colonial institutional mechanisms in the form of tax exemptions (or the

absent in the case of Guadeloupe) have been extremely important for the economic development

of these islands. The implementation of the neo-colonial institutional mechanisms contributed to

the accumulation of high debt burdens in several semi-sovereign states. Caribbean countries have

been said to be among the most highly indebted market economies in the world (Girvan, 2012).

Debt burdens are significantly higher than in the rest of Latin America. Because of their weak,

undiversified economies, most Caribbean countries are unable to borrow on international financial

markets or can only do so on unfavorable terms. The tax exemptions were main factors that

accounted to the accumulation of debt in the case studies. However, the economic comparison is

very drastic between the three cases. While Guadeloupe suffers several economic consequences

49

from the neo-colonial such as the high prices and lack of market competitiveness, in the fiscal

sector Guadeloupe has no available record on any type of public debt accumulation (Britanica

Book of the Year , 2011). Neither of the International Monetary Fund or the World Bank provide

data on accumulation of debt in Guadeloupe. The island of Guadeloupe has remained with

unalarming levels of public and foreign debt during its time period as a neo-colony.

In Puerto Rico, the triple tax exemption created certain growth during its first years of

implementation. Graph 1 shows the annual percentage of GDP growth between 1975 and 1995

(the years in which the Law 936 was working). In 1973 when the oil crisis occurred, it caused a

sharp decline in local oil earning. However, from -0.655% in 1975, after the establishment of the

law, the GDP growth percentage was maintained from 6.243% up to 7.90%. There was visible and

substantial growth, nonetheless, there were several falls revealing that growth was not consistent

but completely the opposite. Already in 1974, Puerto Rico surpassed debt limits specified by the

constitutions. The Puerto Rican government entered a four-decade-long debt spiral with brief ups

and downs (Fuste, 2017). After its greatest fall in 1983 with -2.342%, the government of the

United States decided to remove Puerto Rico from Chapter 9 of the United States Code. The United

States were aware that debt was accumulating and, despite being in charge of Puerto Rico’s main

institutions, the United States had no intention to cover the accumulation debt. After that, Puerto

Rico’s GDP percentages have fallen drastically, Graph 2 determines a drastic fall, with the

exception of 2004, in which there was an elevation from 8.74% to -1.98%. The growth percentages

have remained in negative numbers since then. In order to cover the imbalance, the government

issued bonds rather than adjust its budget. This resulted in the accumulation of public debt that

reached its top in 2014 with the amount of 68.1 billion dollars. While triple tax exemption (free

from municipal, state and federal taxes) status of Puerto Rico debt paved the way for excessive

debt accumulation, other federal policies exacerbated weaknesses in Puerto Rico’s economy

(Williams Walsh, 2017). In 2014, the governor of Puerto Rico declared the debt as “unpayable”.

Figure 3 provides an overview of the public debt. Out of the $68.1 billion, 40.5%, around $27.6

billion was held by bonds of different federal administration offices such as Electricity and Power

Authority, or the Highway and Transportation Authority. In the primary government debt:

approximately $20 billion was held by hedge funds and $20 billion was held by United States

mutual funds on behalf of individual investors outsides.

50

Graph 1 - Economic Growth in Puerto Rico during Enactment of Law 936 (1975-1995)

Source: The World Bank – Percentage of GDP growth

Graph 2 - Economic Growth in Puerto Rico after the withdrawal of Law 936 (1995-2017)

Source: The World Bank – Percentage of GDP growth

51

Figure 2 - Puerto Rico Total Public Debt in 2014 ($68.1 billion)

Source: GAO analysis of Puerto Rico’s fiscal year 2014 audited

In the case of Curaçao, the profit tax generated by the Offshore Financial Center exceeded

25% of government revenues (International Monetary Fund, 2016). 1.5 million in income tax in

1963, rising to $28.5 million in 1976, a big sum for such a small jurisdiction on. By 1987, about

half of all government income was originated from the offshore sector. The Eurobond issues

increased from $ 1.1 billion in 1978 to $ 6 billion in 1983, though it is hard to be exact since most

data is only available for the Dutch Antilles and not separately for Curaçao (yet Curaçao was the

dominant player among the former Netherlands Antilles’ islands, with St. Maarten playing a

minimal role). The government deficit of the Netherlands Antilles and Curaçao became structural

after the sharp reduction in revenues led by the repeal of the United States withholding tax since

the mid 1980s. In addition, Shell, which operated the refinery, shut down their Curaçao operations

in 1985, causing a large decline in the profit tax. The announcement caused turbulence in

international markets, with some bond prices falling by 15 to 25%. This drastic fall of revenues

and the inability to recover from this great economic shock greatly contributed to the accumulation

of a public debt of over 4 billion euros by the Netherland Antilles. According to the report of the

Central Bank of Curaçao and Saint Maarten (2005) that addressed possible solutions for the debt

problem, the debt ratio increased from 48% to 84% of GDP. Curaçao, being the largest island of

the Netherlands Antillean federation was also responsible for the debt roll-over. Curaçao continued

to run fiscal deficits and its outstanding debt and arrears continued to grow (Central Bank of

Curaçao, 2003). As graph 3 shows, the development of formal debt did not stop increasing since

the moment the tax agreement finished until 2008, two years before its independence, counting up

to 70% of its GDP. The high budget deficit was one of the main problem areas of the political

arena in Curaçao. The growing public deficit led to a steady increase in the public debt during this

52

period, as the lack of proper expenditure supervision control systems led to expenditure overruns.

The government finances of Curaçao were unsustainable, as they were characterized by a vicious

debt roll-over cycle and increasing interest payments. Without a doubt, the Offshore Financial

Center was heavily dependent on this single tax treaty as a result the business declined

precipitously (Vlcek, 2018).

Graph 3 - Development of Formal Debt and Arrears (% of GDP)

Source: Central Bank of Curaçao and Sant Maarten (Central Bank of Curaçao and Sant Maarten, 1986-2008)

Despite the economic positive performance during the early years as tax havens, Puerto

Rico and Curaçao slowly fell into economic recessions. Consequently, this contributed to the

accumulation of public debt. Due to the increasing debt amounts and the inability to solve it from

part of the islands, both the United States and the Netherlands respectively, decided to implement

certain measures to control the fiscal policy of both islands. A second indirect consequence of the

neo-colonial institutional mechanisms was the implementation of fiscal boards that oversee the

fiscal budget of both islands. A year after the announcement of the public debt, Congress passed a

law to secure the repayment of the debt which was called “PROMESA”. It was approved by the

United States Congress and signed by former United States President Obama in June 2016. This

law approved the creation of the Financial Oversight and Management Board for Puerto Rico, as

an entity apart from the government of Puerto Rico, providing the board with complete

sovereignty. The Financial Oversight and Management Board for Puerto Rico is not a department

nor an agency, it is an independent entity constituted by seven members named by the United

53

States president, most of them are bankers (United States Congress, 2015). The Board is in charge

of controlling and supervising Puerto Rico’s fiscal budget. The Fiscal Board can make any

reductions to the government expenses to make sure that the debt is repaid in the fiscal plan. The

Financial Oversight and Management Board for Puerto Rico can freeze job positions and forbid

any type of financial transaction. Additionally, any law approved by the legislative branch of

Puerto Rico must be presented to the Fiscal Board for approval or amendment. The main goal of

the Financial Oversight and Management Board is the complete repayment of the debt by the

Puerto Rican government. Since Puerto Rico was removed from Chapter 9 of the United States

Revenue Code, the government of Puerto Rico and its inhabitants must repay the entire amount of

debt. This is different from any other mainland state; United States citizens from, for example,

Louisiana can fill bankruptcy and not pay the entire amount of debt to the United States. In the

meantime, United States citizens of Puerto Rico must pay a debt without having the right to discuss

possibilities. With the approval of this law, Congress made it clear that it has no intention of

offering the island government or its people any kind of redress (Fuste, 2017).

Curaçao underwent several austerity plans before establishing some type of fiscal

oversight. For example, the central government and the island government of Curaçao proposed

to implement the ‘Ekilibrio’ project for the years 1986-1989 (CFT Working Paper, 2011).

However, the public finances of Curaçao continued to deteriorate. The decision to implement a

fiscal board was attached to the decision of making Curaçao an independent country. On 10/10/10

the Netherlands decided to reinvent their fiscal policy strategy towards Curaçao and facilitate a

new beginning with two main steps: first, the Netherlands agreed to forgive most of the public debt

by assuming 70% of the Antillean debt. Furthermore, in order to prevent the accumulation of yet

more debt, the Dutch made proactive financial supervision a condition of this debt relief (Statuut,

2010). A Kingdom consensus law, known as Financial Supervision Curacao and St. Maarten was

formalized in 2010. The College of Financial Supervision, a team of financial experts from all

three participating countries, monitor the budget agreement and reports regularly on the state of

financial affairs to the Caribbean countries and the Hague (Numa, 2018). The debt restructuring

program was guided by the belief of a “fresh start” for the public finances for the islands of the

former Netherlands Antilles, in their new constitutional status within the Kingdom of the

Netherlands (CFT Working Paper, 2011). The start of the new country of Curaçao was tied to a

debt relief in a so-called restructuring package. The package consists of debt relief, the introduction

54

of several budgetary norms and policies, the supervision of public finances, and compulsory

improvement of financial management. It was also agreed that the Netherlands would have a

standing subscription on all new government loans, as such creating the possibility for Curaçao to

borrow at substantially lower rates. The College of Financial Supervision administers whether the

public budget and related processes comply with the existing norms and regulations and oversees

the issuance of public loans by the government of Curaçao.

iii. Discussion

The comparison between the economic effects in the fiscal policy of the three islands leads

to similar outcomes than the analysis on market structure. First, the neo-colonial relation between

the territories and the metropoles does not create the same economic outcomes in their fiscal

policy. However, the neo-colonial institutional mechanisms that have shaped the fiscal policy of

Curaçao and Puerto Rico in the last decades have contributed to devastating effects on their

economies. Meanwhile, Guadeloupe, which was never imposed to become an Offshore Financial

Center, has no record of public debt accumulation. The neo-colonial institutional mechanisms

established by the metropoles have altered the outcome and the performance of the “high-quality

institutions” of the United States and the Netherlands contributing to the negative economic

performance of the territories. The approval of the tax exemption laws in both Puerto Rico and

Curaçao proved to enhance short-term economic growth but failed to secure long-term prosperity;

rather it contributed to the decline of both economies. The history of Curaçao and Puerto Rico as

Offshore Financial Centers demonstrates that offshore activities created an attractive, but

vulnerable source of government income and an equally attractive and vulnerable economic sector

(Vlcek, 2018). Contrary to the assumption that “high-quality institutions” create long term

economic growth, just as in the United States or in the Netherlands, the mechanisms in forms of

law that characterize the neo-colonial relation have not promoted growth in the long term since the

neo-colonial laws altered the delivery of the “high-quality institutions” tasks.

This establishment of fiscal oversight boards in both Puerto Rico and Curaçao presents an

incongruence with the main principles of the dissolvement of asymmetrical power that was

intended in the decolonization movement. The decolonization movement was conducted to an

encourage a horizontal rather than hierarchical relationship between former colonizers and

colonies. However, the neo-colonial institutional mechanisms that were implemented in the fiscal

55

policy of Puerto Rico and Curaçao have fed the perpetuation of a more asymmetrical relation and

the accumulation of power from the metropoles to the neo-colonies. In the case of Curaçao, the

financial autonomy that was long requested was not granted completely, the 10/10/10 only created

an illusion of autonomy composed mainly by an unequal relation. Kingdom relations are

existentially imbalanced. One lesson learned from 10/10/10 is that constitutional reform does not

in itself brig about socio-economic development, better kingdom relations or enhanced Caribbean

good governance. On the contrary, it seems that some things have gotten worse (De Jong & Van

Der Veer, 2018). The fact that Curaçao is currently an independent country does not mean that it

is completely sovereign on its economic decisions. However, it is important to remember that the

Netherlands covered a substantial amount of its public debt, which saved Curaçao from a more

catastrophic economic recession. Puerto Rico’s situation is far from this privilege.

In Puerto Rico, the oversight fiscal board has withdrawn any kind of horizontality that was

left between the island and the United States. The removal of Chapter 9 from the Bankruptcy Law

in 1984 was already a powerful statement from the United States implying an unequal treatment

to its Commonwealth. Puerto Rico will have no control over its fiscal policy until the entire public

debt is repaid. Debt accumulation leads to a situation where debt management becomes the main

objective of economic policy. All other objectives are rendered captive to debt management. In

particular, this entails the separation of government from its traditional functions such as the

provision of public goods and services. The creation of a fiscal policy that focuses on debt payment

and not on economic development will never create positive economic outcomes of the economy.

A recent IMF report (Ostry, Ghosh, & Espinoza, 2015) states that for developing countries, the

cost of bringing down their public level outweighs the benefits. Additionally, according to the

economist Joseph Stiglitz, the Financial Oversight and Management Board of Puerto Rico lacks

“any understanding of basic economics and democratic accountability”. It mainly focuses on debt

service leading to a predicted 16.2% decline in GNP for the next fiscal years with a further decline

expected. The proposed plans that step to enhance economic growth and not repayment should be

at center of a viable plan to solve the crisis.

c. Analysis Overview

Both economic sectors that have been explored in this research have delivered very similar

economic outcomes. The unofficial political status of neo-colonialism causes heterogeneous

56

effects on the economic development of these territories. What causes the heterogenous results is

the existence or the absence of certain neo-colonial institutional mechanisms that shape the market

structure and the fiscal policy of the case studies. In the market structure, both Guadeloupe and

Puerto Rico have neo-colonial institutional mechanisms that contribute to the development of

serious burdens to their economies such as the rise of prices and the lack of market competition.

Meanwhile, Curaçao shows a better performance in the market structure due to the absence of the

neo-colonialism institutional mechanisms. In the fiscal policy, both Puerto Rico and Curaçao have

been used as tax havens. This has contributed greatly to the accumulation of massive public debts

and the implementation of fiscal boards for the metropoles to oversight the neo-colonies’ finances.

The neo-colonial institutional mechanisms alter the performance of the metropoles’ “high-quality

institutions” and deliver negative outcomes to the economy. While the “high-quality institutions”

of the metropoles deliver positive economic performance, long term growth and promote inclusive

institutions. Additionally, they sustain and reinforce a hierarchical rather than horizonal

relationship between the metropoles and its territories. These neo-colonial institutional

mechanisms do not encourage a positive economic performance, deliver short term growth and

promote the formation of extractive institutions.

57

VI. Final Conclusion The end of colonialism was not completely materialized, it only transformed into a new

version, neo-colonialism. After the decolonization movement, certain countries around the world

stayed in a political limbo, under colonial doctrines covered by embellished new official names.

Despite the tendency from governments and international organizations to deny the existence of

the asymmetrical political and economic performance of neo-colonialism, academics have been in

charge of providing knowledge on the main mechanisms of this ambiguous and controversial

political status. This research project has taken the initiative to explore the unofficial political

status of neo-colonialism as a major factor of the influence on economic and political institutions

and therefore, on economic development. Due to the lack of studies elaborated on the presence of

neo-colonialism in the Caribbean region, this research has measured the effects of neo-colonialism

in economic development by analyzing three semi-sovereign states with different official names

but similar neo-colonial characteristics. These are the Overseas Department of Guadeloupe, the

Commonwealth of Puerto Rico and the country of Curaçao within the Kingdom of the Netherlands.

This research project has analyzed the institutional mechanisms and economic effects of neo-

colonialism in the market structure and fiscal policy of the three case studies mentioned above.

The extensive analysis has provided the following findings:

Neo-colonialism has heterogeneous effects on the economic development of semi-

sovereign territories. After the analysis of the market structure and fiscal policy on the selected

cases, this research project concludes that the institutional jurisdiction of the metropoles does not

deliver homogeneous effects in the neo-colonies. The effects are not the same, they vary from case

to case. However, the analysis proves that there exist certain institutional mechanisms within the

neo-colonial relation that affect negatively the economic performance of the semi-sovereign

territories. The analysis has revealed that the economic effects varies depending on the presence

or absence of these specific neo-colonial institutional mechanisms in the territories’ economic

sectors. The neo-colonial laws or neo-colonial institutional mechanisms in the market structure of

Guadeloupe and Puerto Rico have influenced the increase of prices of goods and have contributed

to the lack of market competition. On the other hand, Curaçao has not been subjected to the above-

mentioned neo-colonial institutional mechanisms and the economic consequences do not show the

same detrimental performance as the other two case studies. Meanwhile, the jurisdiction of neo-

colonial institutional mechanisms in the fiscal policy of Puerto Rico and Curaçao that converted

58

them in tax havens has contributed to the accumulation of debt and to the implementation of strict

fiscal supervision. Guadeloupe does not have a record of accumulated public debt; this is partly

due to the fact that the island was never used as an Offshore Financial Center by its metropolitan

power.

While the neo-colonies are ruled by the same institutions as the metropoles, there exist

certain institutional mechanisms that are only characteristic of the neo-colonial relationship. These

neo-colonial institutional mechanisms reflect an asymmetrical relation between the metropoles and

territories and create or have created direct and indirect negative impact on the economic

performance of the neo-colonies. The neo-colonial institutional mechanisms change the main

outcomes of the metropoles’ “high-quality institutions” in a negative manner. While metropoles’

“high-quality institutions” promote economic development, deliver long-term economic growth

and inclusiveness, the neo-colonial institutional mechanisms have contributed to the detrimental

economic growth, have only been able to deliver short-term growth and have encouraged the

formation of extractive institutions. The metropoles have proven to not be able to deliver a steady

positive and competent economic performance to their territories due to these neo-colonial

institutional mechanisms.

These neo-colonial laws or neo-colonial institutional mechanisms establish and maintain

the principle of a total absence of horizontality. These neo-colonial institutional mechanisms

reinforce the asymmetrical power relation between metropoles and territories. Decolonization was

conducted to avoid exercise hierarchical power; nonetheless, the existence of these institutional

mechanisms violates the main principles of decolonization and additionally, contribute to the

detrimental economic performance of neo-colonies. To solve the issue of development will entail

an institutional reform, involving the symmetrical relation of power and abolishing these neo-

colonial institutional mechanisms. Unfortunately, there is still a long path ahead, since the

intentional blindness of political entities does not seem to change any time soon and the word

“neo-colonialism” is still very far from the minds of the leaders that rule the world.

59

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