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:
- Improve trade (export) performance
- Minimize the trade imbalance by attracting investment
- 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).