While the title of this presentation contains two buzzwords, ‘productivity’ and ‘competitiveness’ which may turn off some who have had enough of this kind of thing, it is important that we do not allow cynicism to make us underestimate the urgency of responding to the current HIV/AIDS epidemic in the Caribbean. The truth is that the epidemic seems to have the potential to unravel all development progress gained in this region over the last four decades, and in so doing, to effect such a systematic dismantling of all our key social institutions as to make the prospect of recovery paralyzingly remote. The data provided by UNAIDS put the matter very starkly: it would seem that while in the first decade of its history the epidemic caused about 1.5 million deaths, in the second decade of its visitation upon us it caused around 15 million deaths – ten times the rate of the first decade. The human race is being decimated at an exponential rate. CAREC’s data for the Caribbean portrays a similar pattern – with close to 1300 deaths in the first decade and more than 8000 deaths in the second decade. The obvious question is what are the prospects for the third decade? While, to my knowledge no projections have yet been made for the Caribbean, UNAIDS has estimated that the third decade may be twice as unfortunate as the second since the first five years of the decade are likely to see the same number of deaths as the entire previous decade.

It is important that we begin our discussion on the impact of HIV/AIDS on productivity and competitiveness with this almost alarmist picture because these phenomena are at the heart of any successful modern economic system, and it is precisely the heart of the system that is targeted by HIV/AIDS. At this point it will be useful to summarize the big picture incorporating the countervailing impacts of HIV/AIDS and productivity on development. The diagram illustrates.

The diagram portrays a simple, but frightening, story. The basic story is that it is the quantity and quality of the society’s pool of human resources that will cause the national income or GDP, to grow, creating the potential for economic and human development. When HIV/AIDS makes its present felt it turns out that it is the same resource pool with the potential for development that will be called upon to be in the vanguard of the fight against HIV/AIDS - personnel in education, health personnel, management personnel and similar workers. The diagram reflects the previous statement that HIV/AIDS strikes at the heart of the society’s development. For while HIV/AIDS proceeds to deliver a frontal attack upon the society, the disease is simultaneously undermining the society’s capability for future resistance against it. It is almost as if HIV/AIDS is an "intelligent" epidemic. The broken arrow to the right of the diagram portrays this "intelligence".

With this in mind our discussion can be structured in two parts. We will briefly propose a simple explanation of the main determinants of productivity and competitiveness and follow this with a statement of how each of these factors is affected by HIV/AIDS. We end with a few concluding reflections.

Although much of the credit for our understanding of competitiveness today is given to Michael Porter, following his work on competitive advantage, it was really Arthur Lewis who was among the first economists to argue for the centrality of productivity in our quest for economic development. This is important because productivity is itself the springboard of competitiveness. Lewis was emphatic in his view that the real income of a society is generated not so much from its natural resources but from the way in which goods and services are produced in the system. In particular, Lewis pointed to the application of skilled labour in the production process. Skill embodied in labour is therefore recognized as a key determinant of productivity.

Lewis also argued that development requires a certain type of attitude on the part of those engaged in the production process – managers and workers. This is an attitude which welcomes modern approaches to doing things while paying due respect to traditions which have made the society strong in the past. Building on this argument we can say that the attitude that is conducive to productivity and competitiveness is one which reflects a combination of flexibility and determination – a willingness to make changes that are warranted, while working to the utmost to give existing methods of production their best chance at efficiency. A positive attitude to modernization is therefore a second key determinant of productivity.

Complementing Lewis’ argument about productivity is Robert Solow’s argument about technical change. Solow’s point was that using traditional quantities of existing resources, it is technological improvement that would make for higher volumes of production. Recent work by Vanus James on the plantation economy model makes the point that it is by enabling production processes to be speeded up, that new and appropriate technology makes the society more productive. It is therefore almost axiomatic to state that a steady drive for technological improvement is a third determinant of national productivity.

Closing the productivity loop is a fourth important, albeit often forgotten factor, population health. Work coming out of the HEU (1997) and Robert Barro (1996) makes the point that population health is a key component of the human capital that is required for a productive economic system. It can be argued that in proposing our welfare maximizing models we assume that the economic agents making the key decisions are all in perfect health. Recent research by Thomas ( 1998?) has made the point that the symbiotic relationship between the health system and the economic system is one which has the economic system balancing on a kind of knife edge, with the distinct potential for downward economic spiraling if population health is severely compromised.

In summary, our argument so far is that our literature suggests that for countries like those of the Caribbean, there are four key determinants of productivity. These are Health, Attitude, Technology and Skill. This HATS model can be portrayed in a simple diagram, as shown below. The basic objective is assumed to be the creation of new income and we assume that productivity and competitiveness are the twin sources of this income, with competitiveness itself arising from productivity. What this means is that if we are to understand how HIV/AIDS impacts on productivity we will have to explore how it affects each element of the HATS combination. The presumption is that if any one of these elements is compromised, productivity and hence income generation, will be adversely affected.

We now proceed to a brief discussion of the link between HIV/AIDS and each of the productivity determinants indicated at the top of the diagram. Where appropriate the approach adopted will be to explore both the direct and indirect effects of HIV/AIDS.

The direct effect of HIV/AIDS on population health is obvious. Available data tell the grim story of the age distribution of the disease in the different countries of the Caribbean. The regional picture has been summarized by CAREC on several occasions. We know that the incidence of the disease is highest among the 15-49 age group and that the incidence among young women is on the increase in many countries. If we add to these bare facts the reality of limited access to ARV treatment and limited access to care for opportunistic infections we have a situation where the core of the labour force of the region is under direct attack by this disease. If we add further the concealment bias which is fostered by stigma and discrimination we have a situation where persons contracting the disease will put off making their status known, possibly contributing to the spread of the disease.

The productivity consequence of this direct impact on the health of the population will be seen in increased absenteeism, and possibly a less than vigorous approach by workers to the tasks confronting them, partly because of the physical effect of the illness and partly for psychological reasons. In the most extreme cases the productivity impact will come from the exit of experienced workers from the labour force either through an advanced stage of illness or through death. In both these cases the data from southern Africa – the area of the world most severely hit by the disease to date – make depressing reading. In some cases the expectation is that almost 20% of the labour force will be decimated before 2005 and this number rises to 30% by 2020. Using data from the ILO and the UN Population Division, one study has painted a rather grim picture of labour force losses in a few high-prevalence countries in southern Africa. These are portrayed in the table below

The economic significance of the data in the table is that it would lead to new factor combinations which are not induced by the technology itself or by the cost of the factors. In other words, the basic guidelines for arriving at efficient factor combinations are rendered powerless and HIV/AIDS will mean that production will guided by criteria other than economic efficiency.

So far we have focused on the direct productivity effects of the epidemic. However, we would also expect indirect effects of the disease on population health which will be seen in a few ways. First, we would expect changes in the composition of household consumption, with more emphasis on medication and less on food supplies and other health-protection goods and services. The possible impact on child nutrition is one that could certainly lead to sustained losses across different generations. A second indirect impact of the epidemic on population health would be through the reduction in the time and resources available to look after other sick members of the family. Where inadequate home care means that illnesses will be more severe or more extended, the productivity impact is obvious. Finally there is the indirect impact from the loss of working time which is now absorbed in care giving. A limited study of PLWAs in Trinidad and Tobago has revealed instances where significant adjustments in working arrangements had to be made if loved ones with HIV/AIDS were to be cared for (HEU 2001). The cumulative effect of such adjustments cannot be ignored.

In a workplace context where some colleagues are frequently ill, some frequently absent and others known to have died from HIV/AIDS, it is hardly likely that there will an atmosphere conducive to a positive attitude to the firm’s main objectives – smarter work, more reliable delivery, better product quality, greater value added and a cost lower than its competitors. Where the normal uncertainties of life are replaced by regular attendance at the funerals of former workmates, it is not surprising that worker morale will be at a very low level. The keenness to work and the willingness to keep on the lookout for better ways of doing one’s tasks will be replaced by an impaired work ethic and a loss of motivation which will certainly have a negative impact on productivity. The point has been made that "teamwork and co-ordination, so vital to modern business, are also threatened by AIDS, whether through sympathy for the sick and dying on the one hand, or fear of infection on the other." (Bloom et al., 2001)

It must be noted that the negative impact on workplace productivity is not limited to the reaction of workers alone. In lamenting the absence of an adequate literature on the tangible labour force costs of HIV/AIDS Bloom et al. (2001) make the point that our knowledge about the intangible costs is even less. However, the limited number of studies available seem to "support the intuitive belief that there must be some effect". Reference was made to one study of entrepreneurs where it was found that "HIV/AIDS led to a loss of focus on the business" (ILO, 1999), and another pointed to "poor morale as one factor facing businesses who fail to deal with HIV/AIDS in the workplace" (UNAIDS 1998)

While the picture of gloom and doom which pervades the workplace in some southern African countries has not yet been replicated in the Caribbean, the fact that this region continues to record one of the highest incidences in HIV/AIDS globally, should give us reason to take the urgent measures needed to protect business productivity from the ravages of this pandemic. There is need for much more systematic study of workplace and business reaction to, and readiness for, HIV/AIDS in the Caribbean. It will be important to distinguish between those factors which have traditionally challenged our efforts to be more competitive from those which are certainly related to the emergence of HIV/AIDS. The importance of establishing a seamless fit between workplace/business reactions to HIV/AIDS and the national HIV/AIDS response programmes in the different countries cannot be overemphasized.

Although economists have tended to move away from the early Solow notion that technical change is autonomous, in the Caribbean where such change is probably more one of technological diffusion rather than technical change per se, the impact of HIV/AIDS will most probably be seen in the response of foreign direct investment. Again, in the absence of any Caribbean study investigating this matter we will have to rely on the experience of other countries. In this context there is one study which has pointed to results that are not encouraging. " A BusinessMap investor survey released at end January 2002 found that the spread of HIV/AIDS in South Africa has contributed significantly to the decline in foreign direct investment (FDI)". It is also noteworthy that the US Department of State has itself pointed to African studies which concluded that "Uncertainty caused by HIV/AIDS makes investors reluctant to put money into projects in countries with declining economies,…" .

With the Caribbean now into its third decade of the HIV/AIDS epidemic, there is good reason to believe that a study of the impact of HIV/AIDS on the region’s FDI would be feasible.

Before closing this section we should dispel the myth that Caribbean businesses do not have to worry about HIV/AIDS since in the face of the loss of manpower they have the option of intensifying their adoption of labour-replacing technologies. Apart from the fact that considerations of scale and scope will most probably mean that the new factor ratios will not be cost efficient, this response is unmindful of the fact that with a rising incidence of HIV/AIDS the probability that the few remaining high-skilled workers will contract the disease remains high. It makes economic sense for businesses to put their shoulders to the wheel in the fight against this costly and deadly disease.

Following Lewis, economists have always made the point that it is the accumulation and deployment of skills in the economic system that will enhance productivity and increase income and wealth. It is skill that brings new technologies to life in the workplace. It is therefore no surprise that the countries of the region have all accepted the need to invest in education and training. The hope is that this will take their human capital to a level consistent with sustained economic development. By depleting the pool of skilled workers HIV/AIDS is in fact destroying the very platform upon which countries hope to build their economic development.

In the recent global conference on AIDS in Barcelona, Desmond Cohen asked the question: "How (do you) keep schools functioning, or transport systems functioning, or water supplies functioning, or police services functioning when 20-30 percent of the people you have trained are, in fact, dying of HIV/AIDS?" It was pointed out that in Botswana up to 30 percent of teacher positions were unfilled, largely due to AIDS deaths, and the expectation is that up to 40 percent of health workers could succumb to the disease in the next decade.

There seems to be no doubt that by killing off educationists and health workers who would be in the front line of the fight against the disease, HIV/AIDS is actually clearing tracks for an explosive progression. Moreover, the effect would be cumulative since, as Cohen points out, " a depleted workforce becomes less capable of passing on its knowledge, skills and training to a new generation of workers, creating a further downward spiral in a nation’s ability to improve productivity and expand wealth."

The issue therefore is not simply one of the sunk costs incurred when expensively trained skilled workers are excised from the labour force. The reality is that future income and wealth is permanently foregone - a deadweight loss. Again the concern is not simply that workers who embody future incomes are removed from the economic system but that in many cases, it would have been these lost incomes that were supposed to provide the resources for the education and training of the nation’s children! It is almost as if HIV/AIDS has come with the express intention of arresting and even reversing all human progress. Moreover, by weakening our capacity to respond to it, HIV/AIDS seems to be the kind of phenomenon with the potential to put an end to human history.

For all countries the imperative of a timely and powerful response to the epidemic cannot be overemphasized. This is even more a propos for countries with small populations, where what is needed is an urgent, well-planned and well-orchestrated response. Countries like ours in the Caribbean have no choice but to get the response right, and to get it right now. HIV/AIDS has already killed more than twice as many people as make up the population of the English-speaking Caribbean, and by 2020 it will have killed more persons than now make up the entire population of the wider Caribbean. For a region like ours the possibility of extinction is not some wild speculation. Moreover, while it is true that in the Caribbean we have not yet done all the studies that will enable us to properly fine tune our response to this threat to our survival, we certainly know enough about the epidemic from the experience of other countries – enough to put together an effective fight back, individually, collectively and collaboratively. This is not only necessary, but is clearly the intelligent thing to do.

In collaboration with the World Bank the HEU has estimated that for the region as a whole it would cost annually between 0.5% and 1.25% of the income of the region to mount a meaningful set of programmes to begin to turn back HIV/AIDS.(HEU 2000) It would be hollow and pointless to engage in intense technical exercises to boost productivity and competitiveness in the different sectors of our respective economies, only to have whatever success we achieve relentlessly erased by HIV/AIDS. The time to engage is now and the scale of the engagement must grow progressively over the next few years.

On the individual level each of us needs to make a commitment to proper choices in our sexual behaviour and to be more open to discuss issues relating to risky sexual behaviour with those we come into contact with. On the collective level we must be more open to participating in community and national programmes and to combining our resources with others, since all of us are really vulnerable. On the collaborative level we need to explore ways for our respective institutions and organizations to engage in supportive, complementary efforts in the fight against the disease.