Islands must act or face up to disaster

The triangular tiff that has engulfed the Pacific Forum has far greater implications for the Pacific than the headlines care to suggest. All the broil and strife over the Julian Moti case threatens to stymie serious discussion of one of the Forum’s core agenda items: the implementation of the Pacific Plan.

The Plan’s notion of regional integration, predicated on a flawed ‘top-down’ interventionist approach, is not likely to lead to greater growth rates as argued and could well increase instability and poverty in the region.

Following the formation of the European Union, regional economic integration has been sought as path to rapid development by several groups of developing countries. With the Pacific Plan, the Pacific Forum has now joined Caribbean, Latin American and African countries groupings in turning to mutual rather than global trade to put behind it three decades of stagnation in the Pacific.

But the European Union was created in unique economic and political circumstances and the experience of developing country regional integration groupings is sobering. Despite enormous administrative efforts, few have managed to put integration plans into practice. Those that did paid dearly in stalled growth and most eventually disintegrated.

A valuable lesson can be learnt by Pacific nations from Mauritius, an island about the size of Fiji, that has been growing rapidly for 30 years. By developing labour intensive exports Mauritius’s income per capita moved from half to twice Fiji’s, from 1975 to 2005.

The South Pacific’s markets should be in Japan, the United States, booming Asia and Australasia. The inter-island trade in the South Pacific that the Pacific Plan is premised on is negligible and has a very small potential. That is not because of high barriers to trade but because of the limited and similar range of exports.

The Pacific islands’ comparative advantages are in agricultural, mineral and marine products, and tourism. Specialising and finding niches in large industrial and industrialising markets like Mauritius and other successful developing countries did is therefore more rational than trading with each other. Moreover, the South Pacific’s market of some 7.5 million people is too small to yield economies of scale for the diversified manufactures that Pacific islands import.

Australasian, European and North American preferential trade schemes, notably in sugar and clothing manufacturing, were meant to give South Pacific industries time to prepare for global competition. They have failed. Protected from the harsh global competition, the islands’ industries had no incentive to develop their competitiveness. When protection fell in the industrial countries, the Pacific producers could not compete in global markets, with a consequent brake on their economic growth.

Regional organisations in the South Pacific are spending a significant share of the considerable aid received in the region on duplicative endeavours, notably in the form of meetings, report writing and unrealistic planning of integration. These activities employ many expatriates at high salaries, take up the time of scarce South Pacific professionals and serve to deflect attention from unemployment and underemployment and their social consequences that are disrupting Pacific societies.

The South Pacific urgently needs to pay attention to not to integration but cooperation in transport—airlines and shipping—and telecommunication linkages. Tourism could then be significantly expanded. Lagging economic growth can only be tackled by economic reforms in each island to increase agricultural production and create private sector jobs.

Without rising productive employment, rising incomes and greatly improved social conditions, the Pacific is not only in great danger of further instability, but it risks becoming a locus for international crime, drug and arms trafficking.

These critical issues are in danger of being lost in a smokescreen of personal attacks and threats and counter-threats. Maturity needs to be shown on all sides so that the impending malaise in the Pacific can be properly addressed. And a frank and open dialogue about the reality of the Pacific Plan should be first on the agenda.

Stephan Freitag is Adjunct Scholar at The Centre for Independent Studies. He is also a research assistant and PhD student at the Institute for Economic Policy at Leipzig University, Germany. He spent six months researching regional integration in the South Pacific while a research intern at The Centre for Independent Studies after he had graduated in economics from Bremen University, Germany. This article is based on his report Vision or fiction? Prospects of regional integration in the South Pacific.