Comments

Andrew, I very much enjoyed this well-argued and well-written piece. I find it hard to disagree with nearly everything you say. You are right about Australia’s three comparative advantages. The lone and minor addition I would make to your story is the success of the peace-keeping intervention in Bougainville that Australia and New Zealand jointly led. The six-year window of peace that ended with the departure of the regional peacekeepers in 2003 has stuck to now. And much credit to the peace sticking since the departure of the peacekeepers goes to communities in Bougainville. Agree that Bougainville is not a blue-print for peacekeeping operations but it has lessons for pacification strategies elsewhere.

An excellent piece. It is still unclear who should supercede Grand Chief. In my view there is still no possible replacement of PM. It will take a while for current political leaders to be groomed. NA leadership may face critical challenge given the current tussle over who should repalce Grand Chief, M.T. Somare.

Thanks Peter. That's an excellent comment! And one which deserves a good reply. I'm stuck with terrible internet access at present, but will try and reply as soon as I can (maybe with a post on poverty and poverty measurement). Thanks again Terence

Terence - you've summed up some pretty complex issues very succinctly. The link between economic development and poverty is very contentious. A starting point for a clearer understanding of the link should be to recognise that poverty has many dimensions and cannot be simply summed up by per capita income. As Amartya Sen has repeatedly pointed out, people have a range of needs, many of which are essentially non-economic in nature. This of course puts him at odds with many of his fellow economists, who would like to label such non-economic priorities as irrational and for whom a more complex notion of poverty threatens the relevance of empirical studies correlating economic growth and poverty as measured in terms of per capita income. Economists who take issue with the concept of non-economic priorities may argue that, with money, anything is possible. There is insufficient space here to do justice to this debate. Two examples serve to illustrate that poverty is too complex to allow income levels to serve as a reasonable proxy. First, two households may have similar levels of income but one may have lower access of essential services such as health care, on which you have focused. This may be for a variety of reasons such as location or social class but the result is the same – the two households are not equal in terms of their level of vulnerability or deprivation - i.e. on their real poverty. The second example goes to the heart of the problems of using quantitative measures of poverty. It may be easier to track progress of development through levels of per capita income but this index ignores what might at the same time be happening to the distribution of incomes about the average - the point you make towards the end of your blog. Distribution about the average may be greatly increased as a result of growth, and any amount of rhetoric about "trickle down" or "a rising tide lifts all boats" cannot hide the grim reality that, for the losers in a process of economic development, it can be quite literally a matter of life or death. Additionally, we need to bear in mind that, if we see happiness, dignitity or security as objectives rather than simply "poverty reduction", relative poverty can be as potent a problem as its absolute level. In a society where everyone is poor, there will tend to be less sense of poverty than in a society where there are marked (and potentially increasing) differences. I look forward to your follow-up piece on aid and economic development.

Hi Matt, Thanks for an interesting post and reply. I always enjoy discussion on this topic, and good to see the harm of volatility enter your post! I also would not consider myself an expert by any means, but I just wanted to add that as usual, I was disappointed that the negative effects on - and challenges to - social development (say proxied by health, education, 'other' skills development, civil society, interest groups and weakened institutions, efficient cross-sectoral allocation of all this etc.) were omitted. These are closely related to the TFP declines associated with these booms; when married together, I (persionally) think (only think at this stage - no proof) this is one of the key culprits behind any long-run 'curse' and should all be crucial factors in any discourse in this area. Cheers for encouraging discussion on this and providing all the links, which I'll be sure to look into. Ryan

Interesting development, update much appreciated. One obvious outcome would be the PNG government changing the existing Informal Sector Development and Control Act. That defines the Informal Economy as businesses which are below the tax threshold - microbusiness rather than SME businesses - and not conducting particular activities like gambling. Inflation since 2004 has eroded the size of the group benefitting from protection of that Act. However, like many things PNG there is the form and the substance. One wonders what education activity will exist for the NCDC inspectors armed with iron bars around the proposed reforms, if they eventuate.

Thanks for an interesting comment/question. I must admit that I am not an expert on the Australian economy, but I can reply briefly on the macroeconomic advice and extractive industries transparency for developing countries. Others can perhaps comment on their relevance to Australia's mining boom. First, there is the textbook macroeconomic advise. The IMF provides this to many developing countries on how to manage resource booms. (A more detailed analysis for petroleum booms in Africa can be found <a href="http://www.imf.org/external/pubs/nft/2004/loc/index.htm" rel="nofollow">here</a>.) The IMF advice is to be cautious and transparent, tax rents in the sector, and save windfalls revenues to manage revenue volatility and inflation. I had a quick look at the most recent IMF <a href="http://www.imf.org/external/pubs/cat/longres.aspx?sk=24313.0" rel="nofollow">Article IV report for Australia</a> and it made recommendations along these lines: <blockquote>Staff recommended saving revenue windfalls…this would build a buffer against a sharp fall in commodity prices.. Because of the growing importance of commodity prices for the budget, staff suggested preparing downside scenarios.. The planned introduction of the mineral resources rent tax (MRRT) in 2012 is a step in the right direction.</blockquote> What is interesting, especially for an IMF report, is that there are very few numbers on the mining sector in their 2010 analysis, and this possibly highlights a data availability issue. A second important initiative for developing countries is the <a href="http://eiti.org/" rel="nofollow">Extractive Industries Transparency Initiative</a>--a global standard for information on revenues from oil, gas and mining. EITI also helps resource-rich developing countries improve their systems for publishing details of the revenues that they receive from the mining and petroleum sectors. EITI compliant countries include Norway, Nigeria and Timor-Leste. Australia doesn't implement EITI, and nor does PNG--the other country that you refer to in your comment. Nevertheless PNG does publish data in its annual budget on tax revenues and dividends from the mining and petroleum sectors. Based on this, PNG Treasury officials, with support from Australian counterparts, calculate a base scenario (normal mineral revenues), from which they can calculate the windfall (additional mineral revenues). For further details see the PNG <a href="http://www.treasury.gov.pg/html/publications/files/pub_files/2008/MTFS%202008-2012.pdf" rel="nofollow">Medium Term Fiscal Strategy</a>. I was curious to see if there is data on mining and petroleum revenues in Australia? I had a quick look in the Federal budget but didn't find it. I did find some data on the ABS site, which they get from industry sources and this is summarised in the chart below. (I don't know how comprehensive it is.) <img src="https://devpolicy.org/wp-content/uploads/2016/01/screen-shot-2011-05-19-at-2.41.13-pm.png" alt="" /> If anyone has any better time series data on government revenues from the mining and petroleum sectors, please let me know. First this would give a clearer idea of the volatility of this revenue flow and it's importance to the overall budget. Secondly, it would enable us to calculate the non-mineral balance for the budget--a crude indicator of underlying fiscal sustainability. Thirdly, it would give us an idea of how much revenue that is per person. This could inform some of the policy questions--such as on resource curse, sovereign wealth funds and cash transfers--that you mention in your comment.

I am the first to admit that this is not my area, so really I am asking a question, on an issue that has been troubling me for some time.  And that is related to Australia's mineral boom. In short, there are ideas like those in your post, on marshalling boom financial in-flows for the broadest development good.  In previous booms, various countries have established sovereign wealth funds, to ensure that the short-term (and one-off) gain has long term national benefit (e.g. Norway, Mexico, Kiribati).  We know that the Australian Government is conceptually supportive of sovereign wealth funds for other countries (i.e. PNG), as shown by a recent press release from Richard Marles' office (28 March 2011). So, my question: why is there no debate domestically about establishing a sovereign wealth fund, to similarly ensure that the short-term (and one-off) gain from the current Australian mineral boom has long term national benefit?  To me, the super-profits tax and similar tax initiatives are a distraction, if the tax windfall simply lands in the current account.  Australia should instead be thinking about its long-term fiscal health, by (potentially) establishing something akin to the Norway Oil Fund. Apologies for launching into this!  I just find it amazing that there has been (seemingly) no debate of this option domestically, especially since it is on the agenda for PNG (and elsewhere), and given that the Australian Government is supportive of such an approach internationally.

This is a nicely written article on food prices. However, I would say, we have to increase production by providing higher price for their production. This way the farmers will have incentive to work and who know the one with the golf coast will turn their field in to farm. This way, when we have maximum production, like David said, the free market (invisible hands) will help the food price come down and become affordabe to poor people too. what you say?

Nik, You're quite right about Africa. But the aid budget doesn't provide data on individual African countries. On the Pacific, excluding PNG, there's no increase in aid to the Pacific this budget. Aid in 2010-11 is estimated at $662 million and that will go up only marginally in 2011-12 to $679. This is still an increase from the $419 million allocated in 2005-06, but not an increase of the size we've seen say in Africa, Afghanistan or even, closer to home, in Indonesia. Looking at individual Pacific countries, Vanuatu has certainly been a winner, and justifiably so. It got only $28 million in Australian aid in 2005-06; it got $59 million in 2010-11; and it is budgeted to get $70 million this coming year.

Excellent – concise and to the point. Although Africa is not a country so it would be nice to know how much each region gets and place Africa on that chart. Personally, I would be more interested in how our nearest neighbours the Pacific fared. Also maybe one day somebody can explain what Governance actually entials - as it is certainly not a sector in the traditional sense. There will always be lingering concerns that this is the real “black hole” of the aid program.

Susan, This is an interesting report on why aid to Pakistan is important. As you note in the first sentence 'the World's gaze is on Pakistan' and some, especially in the US, have begun to question whether the West should be providing so much aid. Nancy Birdsall wrote an excellent post on Tuesday, <a href="http://blogs.cgdev.org/mca-monitor/2011/05/friend-or-foe-should-the-united-states-cut-aid-to-pakistan.php" rel="nofollow">Friend or Foe: Should the United States cut aid to Pakistan,</a> which concluded: <blockquote>It took ten years of focused effort, persisting through repeated setbacks, to finally track down Osama bin Laden. That effort, as President Obama put it yesterday, has made the world safer and, “a better place.” A similar long-term commitment is exactly what is needed to put Pakistan on a healthier development path—and to make the world a better, safer place. No, now is not the time to abandon ship by cutting off the development program in Pakistan. Now is the time to right the ship. </blockquote> Thanks again for your timely report.