PUBLIC AFFAIRS: Economic, social impact of tourism
Published: Sunday | January 4, 2009
Jamaica is primarily a 'sun, sea and sand' destination and, therefore, the primary recreational activities of visitors include sun and sea bathing on the beaches. Tourists who visit Jamaica are, therefore, primarily involved in activities such as going to the beach, snorkelling, scuba diving and glass-bottom boating.
Jamaica's tourism product is dependent on the coral reefs and their associated ecosystems such as seagrass beds and mangroves. These ecosystems are, however, threatened by natural causes and human behaviour such as coastal pollution, rapid coastal development, over-fishing and global warming.
All parties involved (the citizens, the tourism industry and the visitors) have a vested interest in the management of the environmental resource base and an obligation to do their part to support this management. If the environment is degraded all parties stand to lose - visitors will fail to come (or will be willing to pay less) and the countries will lose an important source of economic benefit. In other words the environment will produce reduced economic, ecological, and amenity benefits.
Microeconomic theory is essentially the study of the equitable distribution of scarce goods or benefits. In this example the scarce benefit is the Jamaican beach tourism product. The economic theory provides approaches to making the demand and supply of these scarce benefits more efficient. Demand of the 'good' in this case is the 'beach-lust' (sun, sand, sea) tourism of Jamaica. This is in contrast to the 'wonder-lust tourism' such as safaris, mountain climbing, cultural and heritage tourism that is observed in other parts of the world. The 'good' is supplied at a cost which would include the traditional costs of, labour and capital etc. However when the cost of the provision of the good does not take into account negative externalities such as environmental damage, this results in market failure. If this market failure is not corrected it will result in a loss in social welfare (dead-weight loss).
Jamaica's current tourism model is based on the construction of mega super inclusive resorts, which often require engineering solutions such as dredging, groyne construction and limestone blasting in order to create swimming beaches, and construct buildings a few meters away from the high water mark. Construction and operation of tourist facilities such as hotels and other attractions also result in significant alterations to the terrestrial environment, trees, insects, birds etc. Operation of these entities also results in the diversion of resources such as water and electricity which could have been used elsewhere in the society.
Increased construction activity in the coast provides relatively short term and low-skilled employment. The intermittent demand for this pool of labour often results in the proliferation of unplanned settlements and squatter communities that are established close to the resort areas. These settlements are typically located in the hills and mountains above the coast. The creation of these communities results in the destruction of the watershed in these areas as well as inadequate sewage treatment and solid waste management. All of which contribute to reduced environmental quality; for example, reduced water quality as a result of increased nutrients and turbidity in the coastal waters.
The simple economic analysis of Jamaica's tourism model outlined above suggests that market failure exists. The fundamental reason for the market failure associated with Jamaica's tourism model is the fact that the economic 'rent' associated with the natural environment is not captured by the people of Jamaica.
'Economic rent' is an excess return on an asset, a profit above normal market rates of return. Rents usually arise from assets that are scarce and fixed in supply. Beachfront property is a very good example of the type of assets that will yield economic rent. Or another example is the higher property costs in Coopers Hill or Beverly Hills when compared to Havendale or Mona, the economic rent (or value added) in this case being a view of the city. It can be argued that economic rents such as the beauty and natural environment should accrue to the people of Jamaica and not to foreign tourists or tourism operators. Rents are essentially a type of payment for the use of the resource. So the first reason for market failure is that there is no real capture of economic rents.
A second example of market failure is that these tourism entities that are currently gaining all of the rents are also not accounting for the negative externalities of their activities. For example, hotels do not pay for the true costs of pollution and negative impacts associated with the use and operation of their facilities. However the problem of market failure does not stop here. As with several other Caribbean nations, the development of the tourism industry is heavily subsidised by the Jamaican government. Hotels and attractions are given tax holidays (e.g. no taxes for 10, 15, 20 years), duty is waived on imports of construction materials among other things.
Additionally, the Government's facilitation such as fast-tracking permit requirements and their suspected role in circumventing environmental and planning regulations can reduce costs to investors and also be viewed as a subsidy. So in addition to the non-capture of rent and ignoring negative externalities, government subsidies to the tourism industry through tax holidays and other waivers also exacerbate the problem of market failure. This in turn means that the welfare of the society i.e. the Jamaican people is even more reduced.
As was highlighted above correcting market failures can be achieved through the implementation of taxes. In the case of Jamaica's coastal tourism this would mean that investors are forced to internalise environmental costs. This would theoretically lead to better environmental management and sustainable development of the tourism industry. However, given the current political climate in Jamaica and the influence of the tourism industry players this suggestion is likely to be received with hostility.
Given this fact a more feasible way of capturing some of the economic rent is to capture a small portion of the benefits that accrue to the visitors to the island. This would be through the use of the existing system of arrivals taxes from cruise and stopover visitors to the island. However, unlike the current system where the charges are often hidden in room surcharges or airline tickets the additional environmental tax should be explicitly identified.
There are, of course, wider questions of the true economic contribution of tourism. Clearly tourism is very important to Jamaica's economic sustainability. The Jamaican tourism industry accounts for 32 per cent of total employment and 36 per cent of the country's GDP according to many studies. However, based on some of the market failures described above, are there more costs that are not being considered? Tourism has many hidden costs, which can have unfavourable economic effects on host countries such as Jamaica.
The direct income for a country is the amount of tourist expenditure that remains after taxes, profits, and wages are paid and after imports are purchased; these subtracted amounts are called leakage.
For the all-inclusive tourism model, studies show that about 80 per cent of travellers' expenditures go to the airlines, hotels and other international companies, and not to local businesses or workers. In addition, significant amounts of income actually retained at the destination level can leave again through leakage. For example, the profits gained by foreign-owned tour operators, airlines, hotels, are repatriated to their home countries. Estimates made for Third World countries range from 80 per cent in the Caribbean to 40 per cent in India. In layman's term, on average, of each US$100 spent on a vacation tour by a tourist from a developed country, only about US$5 actually stays in the developing-country destination's economy.
The current tensions between local craft vendors, restaurants and other service industries and large resort chains are all too common and point to the problem of leakage. Super inclusive hotels do not encourage guests to venture outside the walls of the hotel and so most of the tourist's experience is limited to the entertainment as well as the sun, sea and sand activities available at that location. One could say that Jamaica the country is not the destination, it is actually the 'resort' that is the destination. More comprehensive studies on this issue are urgently required by our academic institutions in the region. Caribbean researchers have a responsibility to provide balanced information that can enrich the discourse between all the relevant stakeholders. Much of the discourse is driven by short sightedness and politics on one side and passionate advocacy on the other. Too often the arguments of the contending parties (developers versus environmental advocates) are not supported by balanced information.
It is my opinion that Jamaica's current tourism model has an overall negative impact on the island. It is inherently unsustainable because the negative externalities associated with the industry are not internalised by the main actors. The current market failure and the inability to truly integrate local tourism into the overall package will continue to result in a reduction of social welfare of Jamaicans. Many solutions abound and there is no need to reinvent the wheel. There is sustainable tourism master plan that has some limitations but can be used as a template for the diversification of the nation's tourism product.
Peter E.T. Edwards is a marine scientists and environmental economist who has worked as an environmental consultant and coral reef scientist at UWI, Mona. He is now a PhD candidate at the Marine Policy College of Earth and Marine Studies, University of Delaware, USA.