Eonomic integration of Pacific Islands

How do these economies main­tain their equi­lib­ri­um in this imbal­ance (not all of them are…some are going back­wards)? Pret­ty sim­ple: there are only three ways to do that:

  1. Improve trade (export) performance
  2. Min­i­mize the trade imbal­ance by attract­ing investment
  3. Max­i­mize un-rec­i­p­ro­cat­ed trans­fers (aid and tech­ni­cal assis­tance or work­ers’ remittances)

So what are the options? 

First: There is no call for tech­no­log­i­cal or com­mer­cial pes­simism (lam­en­ta­bly com­mon in the NGO sec­tor). There are many ways to improve trade per­for­mance that are with­in the grasp of the Island gov­ern­ments. But all of them call for more com­pet­i­tive mar­ket envi­ron­ments where entre­pre­neurs can thrive.

Most of the 14 Pacif­ic Forum islands have a nar­row resource base, but it is a unique base: from pre­cious met­als and mate­ri­als (gold), and forestry (if their gov­ern­ments would stop trash­ing their forests), rich vol­canic soils, unpar­al­leled fish­eries and pris­tine pro­duc­tion envi­ron­ments, to nat­ur­al beau­ty, iso­la­tion and exot­ic bio­log­i­cal resources. 

To make greater com­mer­cial use of that resource base they must have have open, com­pet­i­tive economies. Their iso­la­tion and small size is a nat­ur­al bar­ri­er to com­pet­i­tive local sup­ply of labor, cap­i­tal and tech­nol­o­gy and to com­pet­i­tive export. Gov­ern­ments must be vig­i­lant not to allow reg­u­la­tion to cre­ate bar­ri­ers to doing busi­ness—espe­cial­ly to doing busi­ness across bor­ders—for their own sake, not for the sake of Aus­tralia and New Zealand. Yet Pacif­ic islands typ­i­cal­ly have inad­e­quate, over-sized, unpro­duc­tive bureau­cra­cies (com­bined with unso­phis­ti­cat­ed, rent-seek­ing polit­i­cal lead­er­ship), very poor pub­lic-pri­vate com­mu­ni­ca­tions, poor eco­nom­ic and social data col­lec­tions and an out-dat­ed, nar­row rev­enue-base reliant on tar­iff col­lec­tions which are among the most regres­sive (anti-poor) forms of tax. In fifty years (for­ev­er, in the case of Ton­ga) of post-colo­nial self-rule qual­i­ty of the Islands’ eco­nom­ic man­age­ment has gen­er­al­ly not improved. While oth­er small and dis­tant states (Mau­ri­tius, Mal­dives, Mada­gas­car) have lift­ed them­selves out of pover­ty and depen­dence, much of the Pacif­ic has gone back­wards. That is not some­thing they can blame on Aus­tralia and New Zealand.

Sec­ond: The Islands must depend on invest­ment and trade to lift their pro­duc­tive and tech­no­log­i­cal capac­i­ty. It is unrea­son­able to expect them to do this for them­selves. It must be clear to the Pacif­ic Island gov­ern­ments them­selves by now—it is cer­tain­ly appar­ent to their busi­ness and aca­d­e­m­ic leadership—that it is not fea­si­ble (or smart) rely on ‘devel­op­ment assis­tance’ to do this. 

The trade data strong­ly sug­gests that Aus­tralia and New Zealand will derive zero trade vol­ume ben­e­fit from pref­er­en­tial access to the Pacif­ic Island mar­kets, because they’re already prin­ci­pal sup­pli­ers of most goods and ser­vices that it is com­mer­cial­ly fea­si­ble to sup­ply there. The only real ben­e­fi­cia­ries of ‘free trade’ will be goods and ser­vices pro­duc­ers in the Pacif­ic Islands who want low­er cost and more diverse sup­plies and to the tech­nol­o­gy win­dow that only inter­na­tion­al trade holds open. A more open, com­pet­i­tive econ­o­my will be more attrac­tive to investors, too. Espe­cial­ly local investors but also for­eign investors who are look­ing for more assur­ance sta­ble eco­nom­ic con­di­tions and reduced threat of gov­ern­ment lever­age on their business.

Third: Remit­tences are a source of income that grad­u­al­ly dries up once an econ­o­my becomes depen­dent. Work­ers who don’t plan to return or main­tain eco­nom­ic links with the econ­o­my stop send­ing the mon­ey back. To main­tain the flow, the Pacif­ic Islands have to main­tain expa­tri­ates’ inter­est in locat­ing their sav­ings at home. If the econ­o­my remains in slow decline, they’ll pre­fer to hold onto their mon­ey (and let the fam­i­ly oblig­a­tions sort them­selves out).

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