The Week in Europe
By David Jessop

Ten of the world's largest stock exchanges have begun discussions aimed at
establishing a basis for an alliance. Their plans, if achieved, will over
time revolutionise the world's capital markets, which provide the principal
means to channel funds for investment. If agreed it will open a further
front on which the Caribbean must compete if it is not to be left behind by
the ever-accelerating pace of globalisation.

The idea is simple. If successful it may well lead to a global merger. Ten
stock exchanges, based in New York, Tokyo, Amsterdam, Hong Kong, Toronto,
Sao Paulo, Australia, Toronto, Paris and Mexico, will each retain their own
identity but begin to trade the shares of the world's largest corporations
around the clock. The announcement, which comes hard on the heels of a more
fundamental decision to merge the London and Frankfurt stock exchanges, may
well lead to one or another exchange grouping seeking global dominance. It
will also suck up international capital and increase dramatically the
ability of companies registered on both exchange groupings to raise capital
for further development and acquisition. 

The new ten-nation exchange alliance, which according to reports has been
provisionally named the Global Exchange Market, will utilise a common
technology to mobilise international capital for major markets. Although far
from perfect, the concept is a first step towards the creation of an
integrated global capital market based in a limited number of centres linked
electronically.

For much of the Caribbean this is yet another signal that the pace of
globalisation and integration is accelerating and threatens to leave behind
utterly any region without free movement of capital and a single stock
exchange.

The Caribbean region has a mix of both stock and call exchanges. While the
number of shares traded in recent years has dramatically increased, much of
the activity has been speculative and largely of a domestic nature. It
remains extremely difficult for investors in one Caribbean nation let alone
external investors to trade across the region. 

As a result there is a trend, out of Trinidad and Jamaica in particular, for
very large companies mainly in financial services but to a lesser extent
manufacturing, to acquire directly companies throughout the region. The
objective of some of these companies is to try to enhance their own value in
order to obtain eventually quotations on international exchanges, free
themselves of the constraints of local capital markets or expensive
commercial borrowings and move out into the wider world.

This is a startling but real development that may give rise to a few
Caribbean companies becoming more powerful than the nations in which they
are located. It also suggests the advent of a small number of Caribbean
transnational companies operating across borders with high levels of
influence over governments or policies in both their parent and host
countries. It is an alternative but worrying process of integration to that
envisaged but so far not delivered by governments. Without a basis for
creating a more broadly based share ownership may create a range of hitherto
unseen problems.

But is there any longer any realistic basis to believe that the idea of a
socially led government-based approach to regional integration is
achievable?

In early May, Barbados' Prime Minister, Owen Arthur, delivered an address
which at its heart questioned the pace of Caribbean integration. He
suggested that the region would soon be left trailing disastrously in the
wake of the process of globalisation because of Governments' inability to
recognise that the only way in which to survive the process of economic
globalisation is to integrate. His remarks, suggested that what was required
was "a process of harmonised liberalisation which is greater and more all
encompassing than that undertaken by any sub-set of states in the whole
history of mankind". Prime Minister Arthur's argument was that the Caribbean
integration process was already ten years overdue. If the region could not
create a single market in which fiscal, monetary, exchange rate and trade
policies were harmonised, the Caribbean will, he suggested, fail to
participate in the globalisation process and by extension fail to transit
from an older economy to one based on the ability to compete in the new
world.

The speech, which was sombre and at times unusually direct about the
failings of neighbours and those outside the region who seek to play a role
in the Caribbean's future, seemed to mark a turning point in regional
analysis. For the first time it appeared that one of the Caribbean's better
regarded leaders was appearing to suggest that much of the region was more
likely to fail than succeed. The sense of the Prime Minister's remarks was
that the region was on the edge of an abyss if it was unable to coalesce
around a rapidly delivered and practical integration process.

Prime Minister Arthur's remarks reflect a number of paradoxes. Some
Governments are stuck in time; oblivious to the finite nature of the
economic adjustments required to survive, while others believe they have
found the way forward. The same holds true of business. Some of the region's
larger companies are rapidly consolidating their position and power in a
practical demonstration of economic integration but with objectives that
understandably have little social content. Others seem content to carry on
unaware of the threat of e. commerce believing that there is a future in
commodities or commission-oriented business. 

Outside of the region the situation is just as contradictory. The principal
players in North America and Europe recognise the role of integration in
resolving economic problems but politically find value in the United Nations
and elsewhere in a region with numerous small sovereignties. To complicate
matters the same nations seek compliance with World Trade Organisation rules
while as development partners largely ignore the region's problems and
concentrate instead on trying to resolve the problems of the world's poorest
nations.

Owen Arthur's remarks suggest that the dream of a unified single Caribbean
region is a long way off. Developments in international capital markets
suggest further marginalisation of the region. A genuine and effective
regional stock exchange would not solve the problems facing regional
economies, but it would be an important step in both the direction of
regional integration and the global economy.
 
David Jessop is the Executive Director of the Caribbean Council for Europe.
June 9th, 2000



%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%