GOVERNANCE ISSUES IN THE PACIFIC ISLAND STATES

GOVERNANCE ISSUES IN THE PACIFIC ISLAND STATES By Mahendra Reddy,Associate Professor of Economics,and Associate Dean (Research and Graduate Affairs) University of the South Pacific

Introduction • The performance of the Pacific Island economies over the last decade has been sluggish. • The structure and performance of an economy are determined by economic, political, legal and institutional frameworks and processes. • These components of the overall framework are affected by the overall governance practice. • Recent examination of the difference in growth rates of countries similar in resource endowments and macroeconomic polices have been attributed to the prevalence of bad governance. • Poor governance practices which involves lack of improvement in capacity, lack of accountability and increased corruption can sabotage the full impact of reforms on the economy. • The international aid community also view governance as being key to development and to improving the investment climate.

Introduction cont.. • The governance practice in many small island developing states (SIDS) has been not very promising. • Similarly, governance in PICs have also been of concern given the poor economic performance over the last two decades. • Therefore, the objectives of this paper examines the determinants of bad governance practices in the PICs. • Often studies examine the impact of bad governance. However, too improve governances, we need to examine the causes of bad governance practices.

Economic Performance of PICs • In most of the Pacific island countries (PICs), average per capita incomes have shown little change since independence. • In most of these countries, population growth rates are still high as they have not yet entered the post-demographic transition stage, and total fertility rates are around 4. • Hence, with population growth rates of 2.5 per cent or higher, the economies have had to average GDP growth of around 2.5 per cent just to maintain average per capita incomes.

Economic Performance of PICs • The economic performance of the PICs in the second half of the 1990s and the first half of the 2000s varied considerably from country to country. • Cook Islands, Fiji, Kiribati, Samoa, Tonga, and Tuvalu all had positive per capita GDP growth during this period, while Republic of the Marshall Islands (RMI), the Federated States of Micronesia (FSM), Solomon Islands, and Vanuatu experienced negative per capita GDP growth, on average. • The average 1995–2003 per capita GDP growth rates of the Low Income (3.2 per cent) and Lower Middle Income (3.6 per cent) countries are higher than that of the PICs (0.7 per cent average for 1995–2004), which suggests the PICs are not doing as well as many other developing countries.

Economic Performance of PICs • For the 12 Caribbean countries for which World Bank per capita GDP data are available, the average per capita GDP growth rate for the period 1970–2003 was 2.8 per cent. • For the ten PICs for which these data are available, the average per capita GDP growth rate was 1 per cent. • For the period 1995–2003, the average for the Caribbean countries was 1.6 per cent, compared to the 0.7 per cent average for the PICs for the 1995–2004 period.

Governance and Governance Issues in Pacific Island Countries • Public sector Governance is fundamentally a decision-making and resource allocation process that would contribute towards macroeconomic stability, economic growth and development of a country. • Implicitly implied in this definition are issues of corruption control. • Poor governance in the Pacific region is often seen to be a key factor for the relatively poor economic performance of the Pacific island nations.

Media, Ethics and Governance • Ethical standards have a direct implication on governance practices. • Those countries found to have high ethical standards will certainly engage in practices that conform to stated rules and procedures. • Ethical standards are built on to a person by their family members, the education system and media presentations. • Media is a very powerful tool influences ethics and values in two ways. • Directly, its presentations are emulated by children in particular.

Media, Ethics and Governance cont.. • Therefore, media content and quality must conform to the ethics and value systems of the society. • Secondly, a number of public sector institutions are run by people on whom taxpayers bestow their trust. • Taxpayers have no way of knowing if these people on whom trust is bestowed are carrying out their duties properly. • Therefore, media is seen as an important protector of public interest by highlighting if the those in positions of trust act in the best interest of the public.

Institutions and Governance • Institutions guide policy change for growth and development. • One of the distinctive feature of PICs economies is the lack of appropriate institutions or the inefficiency of institutions that underpin growth and development. • An ADB study n 2004 point out that the kinds of governance institutions so critical for producing equitable and effective development have not had time to develop fully. • Furthermore, the report states that these governance institutions often are, or appear to be, at odds with traditional political and cultural systems and process, and these island states have not had time to work thorough the complex and complicated integration of old and new systems.

Smallness and Governance • There exist a large body of literature on how smallness restricts growth and development of a country. • These body of literature have in general tend to overlook the impact of smallness on growth and development via bad governance. • Literature have pointed out a distinctive pattern of bad governance in the Pacific Islands. • The authors attribute some but not all of those differences to smallness in population and land area. • The authors argue that smallness generates particular risks of corruption, for example in offshore activities.

Smallness and Governance cont… • The pattern of bad governance that is not yet present in its full form in PICs, but could emerge in future given the smallness and the concentration of capital in the hands of few is the phenomenon of “state capture”. • It is defined as “the undue and illicit influence of the elite in shaping the laws, policies and regulations of the state. • When the institutions of the state are ‘captured’ by vested interests in this way, entrenched elites in a country can benefit from a worsening status quo of misgovernance and can successfully resist demands for change even as incomes rise.

Smallness and Governance cont.. • The issue of state capture is quite evident in countries like Fiji and PNG when the annual national budget is tabled in the parliament. • One of the reasons of the Military takeover in Fiji was that the government over the years, though elected via democratic means, was not working in the best interest of all the people. • Smallness also implies people are connected with each other and thus creates supply evenues of bad governance practices: • It is easy for people to engage in bad governance practices when people are connected and thus assist each other in creating rent and extracting rent; • Connectedness also implies absence of whistleblowers…thus the prevalence of a culture of silence.

Lack of Demand Measures • Small economies are often preoccupied with addressing the supply side measures to curb bad governance practices. • However, demand side issues are ignored; • Issues such as low income, poverty and lack of will and resources to prosecute people found to be involved in bad governance practices create demand for bad governance practices.

Private/Corporate Sector and Supply Dimension of Bad Governance • The private sector and civil society plays an important role in a country growth agenda. • The private sector’s role is significant in the harnessing and distribution of resources for wealth creation and sustainable development. • Wealth creation is largely dependent on trade and investment. However, even here, good governance is of major importance since a stable and predictable environment in which the private sector, households and investors can expand the activities is critical.

Private/Corporate Sector and Supply Dimension of Bad Governance cont.. • The expanded activity will also provide increasing resources to government to carry out its role in providing infrastructure, security, education, health and effective judiciary. • This in turn will further boost private sectors activities thus expanding growth further. When bureaucracy and red tape are high, it forces private/corporate sector to demand for corrupt practices. • Similarly, when rents are high (supply dimension), then private/corporate sector will engage in corrupt practices. Sometimes, corrupt practices tend to reduce transaction costs and/or also raise profits. Corrupt practices always results in loss of consumer surplus and also loss in government revenue.

Security and Governance • Security and governance has an important implication on investor confidence and thus economic growth. • Insecurity affects economy directly via loss of surplus created. • In the medium to longer run, it will also discourage future investors and the surplus that they may create not be safe. • Indirectly, with insecurity, there will be lot of cases of bad governance as all institutions will either not be able to function and become weak. In this situation: • There will be law and order problem thus creating space for rent seekers to seek rent; • People rights will be violated; • People will take advantage of exiting institutions to gain special favours.

Security and Governance cont.. • The rise in security threats to a number of Pacific island countries over the last two decades has become a major threat to good governance and orderly economic growth. • The Australian conflict with PNG on the Julian Moti affair, the conflict with Solomons over RAMSI’s mission and the December, 2006 overthorough of the democratically elected government in Fiji clearly demonstrates that PICs security is quite weak and thus we have a weak government. • Weak governments are always related to large government expenditure and poor public finance practice, high corruption and low growth

Gender and Governance • The gender dimension of governance is fairly recent. • “without the active participation of women and the incorporation of women’s perspectives in all levels of decision-making, the goals of equality, development and peace cannot be achieved. • While we put in growth and distributive policies to move the country forward, we have half of the population whose voices are not that well heard, we will always have a situation where proper and effective governance will not be as smooth as it should be.

Gender and Governance cont…. • Women’s active participation in governing institutions as politicians, local leaders, civil servants and within civil society are important channels for entrenching gender equality, advancing women’s concerns and deepening gender mainstreaming strategies. • The PICs societies are quite strong and traditional, and thus have a strong belief in the private-public divide. The PICs societies believe that a women’s place in the private domain associated with household reproductive work and femininity. • The public domain is associated with political authority, public decision-making, productive work and masculinity. These beliefs have always hindered women’s efforts to enter into active work in public domain.

Courts System and Governance • The effectiveness and impartiality of the court system has an important bearing the on enforcement of rights and thus good governance. • Courts governance is important because it involves the relationship between the judicial and executive branches of the government. • As such judicial independence is very important. The provision of fair, competent, thorough and impartial judicial decision-making, it is said, depends heavily on the strength, financial security and organizational professionalism of the judiciary as an institution (King, 1994). • During periods of political instability and crisis, the courts are always targeted for control. • Recent case where the Chief Justice in Fiji was suspended following the Military takeover is a case in point.

Electoral System and Governance • The electoral system of PICs have evolved over time taking into account communal nature of the PICs societies. For some countries, indigenous forms of authority provided the basis for the post-colonial order (Samoa and Tonga). • In other cases, customary leadership was incorporated by way of establishment of bicameral legislatures (Marshall Islands, Fiji). • However, over time, as the PICs have experienced a number of problems, the appropriateness of these systems have often been questioned. • For the Melanesian countries, the Westminster system has been deemed to be unsuitable for the governance of the country.

Electoral System and Governance cont… • Some writers have even argued that these electrol systems are in part responsible for the weak, divided and inefficient governments of the PICs. • For example, Fiji’s first-past-the-post voting system allowed for voting along communal lines and thus the parliament was divided along communal lines. • The parliamentary debates centred on ethnic issues led to further polarization of the community along ethnic lines. • During the review of Fiji’s 1990 constitution, the constitutional Review Commission suggested that post independence electrol institutions possessed a ‘divisive effect’ and thus a more progressive system would be the Alternative Vote system (AV). • While the AV system did see some degree of harmonization of party platforms, the multi-party cabinet went through a number of problems.

Electoral System and Governance cont… • In 2001, when the SDL government won the election, the refused to invite the Indian dominated Fiji Labour party into the cabinet. There was a long drawn out battle in the courts thus further dividing the communities along ethnic lines. • PNG also used the Westminister system and unlike Fiji where parties are based on ethnic lines, here parties align themselves to clans. • Tonga has a monarchial system in which the King appoints 12 members of parliament, 33 nobles select 9 representatives while 9 are elected by a common suffrage. • This system has long been protested and recently, there was a major civil unrest in Nulualofa in protest of the system. Shops and business house were burnt down by protestors. • Samoa’s electoral system also had several restrictions in place on voting. Following independence in early 1960s, only matai could vote and matai’s could stand for parliament.

Electoral System and Governance cont… • However, this has been changed where all reaching the voting age could vote but only matai’s can stand. • The Solomon Islands also has a first-past-the-post electoral system which has been linked to the social unrest experienced in the country during 1998-2003. Roughan (2004:1) notes that “…the electoral weakness as well as a grossly unprepared electorate, corrupt practice at the highest levels of government and serious ineptness throughout the public service that allowed leaders who, perhaps influential and capable at village and local level politics, proved incompetent and unable to cope at the provincial, national and international levels”. • Any long lasting electrol system must evolve over time taking into account PICs specific factors.

Chiefly System, Communal Culture and Governance • Most of the political systems in the PICs has been modified to suit the political as well as the traditional authority. • Conflict: Traditional Structures and Government Authority • However, over time, there has been cases the traditional system has been categorized as one which is outdated and thus not conforming to changes in the market scenario. • The traditional system has a decision making structure the flows from the top most authoritative person in the society such the chief (Ratu) in Fiji or the Matai in Samoa or the “Big Man” in some of the Melanesian societies. • The traditional authority structure of the PICs remains important, with village or clan “chiefs” or “big men” playing a major role in the government of the people. • Often, there is considerable tension between the national governments established following independence and the traditional authorities. These tensions create loyalty conflicts within the minds of the people. • The traditional authority structures are less participatory than what is seen as desirable in the conception of democratic governance.

Chiefly System, Communal Culture and Governance cont… Traditional Structure, Big Government and Rent Seeking • However, there is an acceptance of the authoritarian nature of the traditional governance structures and this acceptance appears to fit comfortably with acceptance of the predominant role of central governments in economic life. • These big governments are seen to provide excessive rents for rent seeking behavior to occur; • The communal system, with its strong clan loyalties, does present difficulties for the establishment of a market economy because markets depend heavily upon transactions between parties that do not know each other. • The close clan ties on the one hand and the long-standing distrust of other groups on the other hand mean that there is little of the kind of trust (social capital) that is needed in a market economy. • Increasingly there is healthy questioning of the deference expected for traditional leaders’ decisions, as well as of the manner in which elected political leaders hide behind “tradition” in response to criticisms of their actions.

Chiefly System, Communal Culture and Governance cont.. • Urbanisation and Future Role of Traditional Structures • In the Melanesian countries, where the large majority are rural dwellers, increasing the role of traditional authorities in governmental structures in rural areas may well be necessary for achieving improved government performance, despite the fact that traditional authority structures may not meet expectations of non-discriminatory community participation in political decisions. • However, the increasing urbanisation of Pacific island countries, especially the smaller Polynesian and Micronesian countries, raises questions about the role of traditional authorities in these situations. The rapid growth of urban centres, often with rapidly increasing numbers of squatters, is presenting local governments with severe problems in respect of the provision of basic services.

Summary: Changing the status quo-Pacific Experience • => Over the longer run period, the attitudes of the Pacific community must change. • This is only possible via education. Educating the public about possible costs of bad governance practices, poor and inefficient institutions will also help. • This approach will allow ownership of decision and policy making by the locals. • Decision making and change must be led by the locals themselves and not by the donor agencies or donor country experts. Otherwise, genuine ownership of any changes or reforms will not occur. • Local change agents must also be wary of powerful interest groups who often play upon the fears and uncertainties of people to build resistance to reforms. • The only way to counteract such resistance is to back change quest with relevant research and education.

Summary cont… • Over the longer run period, the attitudes of the Pacific community must change. • This is only possible via education. Educating the public about possible costs of bad governance practices, poor and inefficient institutions will also help. • This approach will allow ownership of decision and policy making by the locals. • Decision making and change must be led by the locals themselves and not by the donor agencies or donor country experts. Otherwise, genuine ownership of any changes or reforms will not occur. • Local change agents must also be wary of powerful interest groups who often play upon the fears and uncertainties of people to build resistance to reforms. • The only way to counteract such resistance is to back change quest with relevant research and education.

GOVERNANCE ISSUES IN THE PACIFIC ISLAND STATES