-
19. Lessons for Development from Pacific Island Countries
- ISEAS–Yusof Ishak Institute
- Chapter
- Additional Information
It is rare to have the opportunity to contribute to the design of the policy settings of a new nation. The primary objective of such design is to accelerate the pace of development. Often the resource constraints faced at this initial stage of development are severe, allowing only a handful of interventions; the challenge is to choose the critical factors that will bring about output growth and alleviate poverty. Getting the settings ‘right’ has the potential to deliver large and ongoing benefits, but mistakes made at this stage could have catastrophic consequences for the welfare of current and future generations. This is because initial conditions determine levels of future prosperity and, once put in place, are hard to dismantle. For long, the economics profession has been debating the circumstances that are most conducive to a society’s growth in income. Cross-country experiences over the six decades since World War II have many lessons to offer. But, given the extent of repetition of mistakes in policy formulation, one clear lesson from history is that we seldom if ever learn from it. East Timor could be different; indeed that is the hope and aim of this volume. In this chapter we draw on the experiences of 14 Pacific Island countries, many of them very similar to East Timor, in arriving at lessons for development that could be relevant to the country. The 14 nations that comprise the countries of the South Pacific have sufficient diversity to accommodate most of the attributes of East Timor. A listing of these countries, together with data on some basic indicators, is provided in Table 19.1. East Timor, with a population of 840,000 people, is comparable in size to Fiji, which has 825,000 people. Per capita GDP, at $300, is much lower than in the Pacific Island countries; Kiribati, with per capita GDP of approximately $600, comes closest to East Timor on this count. Life expectancy in the 14 countries ranges from a low of 58.2 years in Papua New Guinea to 73 years 306 19 Lessons for Development from Pacific Island Countries Satish Chand East Timor/final 29/7/01 6:23 PM Page 306 in Fiji. Aid flows also vary, from $4,814 per capita in Palau (around 75 per cent of per capita GDP) to $46 per capita in Fiji (2 per cent of GDP). The comparable statistics for life expectancy and aid in East Timor would be within these bounds. Geographically, and perhaps culturally as well, East Timor has much in common with the Pacific Island countries. Therefore, the issues facing East Timor can readily be put in perspective by considering at least one of the 14 island states in the South Pacific. This chapter draws on three lessons drawn from the recent experiences of the island nations of the South Pacific with relevance for East Timor. First, property rights are essential to induce investment, which, in turn, is necessary for growth. Second, public sector participation needs to be limited to regulation and the funding of public services, with minimal active participation in commerce by the state. Third, the institutions of a civil society must be created, cultivated and protected, to provide the environment of competition and entrepreneurial activity that is essential for delivering quality growth (Rodrik 1999). Particular attention must be paid to ensuring that an independent, effective and credible judiciary is maintained at all times. Achieving the last is particularly difficult in small societies and where enclave social groupings are common. The chapter is organized as follows. We first consider the many similarities and few differences between East Timor and the Pacific Island nations. We then provide a framework to illustrate the role of institutions in development. The fourth section draws on experiences from the region as corroborating evidence in support of the propositions made in the previous section. The fifth section draws specific policy lessons for East Timor. SIMILARITIES AND DIFFERENCES BETWEEN EAST TIMOR AND THE PACIFIC ISLAND COUNTRIES The Pacific Island countries differ from each other in several respects, but not in terms of their poor economic performance. Annual per capita growth in GDP, taken over the 14-year period from 1982 to 1996 for which consistent data from the World Bank are available, has ranged from a maximum of 2 per cent in Papua New Guinea to less than 1 per cent in Fiji, Samoa and Vanuatu. Furthermore , the growth rates have fluctuated wildly from year to year, in part because of weather...