Thursday 26 Nov 2020 | 00:49 | SYDNEY
Thursday 26 Nov 2020 | 00:49 | SYDNEY

Capitalism and aid


Jenny Hayward-Jones


3 March 2008 09:26

Tim Wilson’s argument that the best way to promote development is the spread of capitalism is a sound one and supported by most of the Pacific. A thriving free market economy creates employment, raises family incomes and creates demand for better services and better governance, thus reducing the need for aid.  However, positive GDP growth rates in Papua New Guinea, Solomon Islands and Vanuatu for the last five years — with all three achieving growth rates of around 5 per cent in 2007 if IMF forecasts are correct — have not led to improvements in living standards for their rural majorities.  Many of PNG’s social indicators have declined and economic opportunities for the 85 per cent of the population involved in subsistence or semi-subsistence agriculture have not improved.  Urban migration continues to rise and law and order problems constrain business development.

Australia’s approach has been that it is not the role of donors to drive private sector development but rather to assist in improving the enabling environment to allow the private sector to flourish.  The range of obstacles to doing business identified by the World Bank suggest there is still much work to be done by Pacific governments, with the help of donors and the private sector itself to improve their enabling environments.  But good legislation alone has not, and will not, fix the geographic and infrastructural impediments to Tim’s spread of capitalism, nor will it create markets where they do not exist. AusAID has acknowledged this in part with the creation of the Enterprise Challenge Fund.  I’m not advocating that more aid is the answer but more creative ideas are needed to provide genuine economic opportunities for the rural majorities of Pacific Islands.