PACIFIC ECONOMIC BULLETIN Reviews Swimming Against the Tide? An sector needs’ (p. 2). None of this is new but assessment of the private sector in the what the authors have added in this very Pacific well written report is the depth of analysis, especially of issues such as the constraints Paul Holden, Malcolm Bale and Sarah Holden, to the development of financial markets and 2004, Asian Development Bank, Manila, 178 pp, ISBN 9 715 61534 1 the arrangements necessary in order for private markets to function effectively. This report is an output of the Pacific The analysis is largely based on the Department in the Asian Development Bank concepts of the New Institutional Economics aimed at developing understanding of the with its focus on transactions costs. The reasons for the poor private sector develop- ways in which existing institutional arrange- ment in the Pacific island countries. The ments lead to high transactions costs facing authors take as a basic assumption that potential investors are highlighted and the development of the private sector is critical ways in which new institutional arrange- to the Pacific island countries’ long-term ments could lower transactions costs are economic growth and reduction of poverty. explored. Further, it is assumed that the private sector The critical question the authors pose is will only flourish when there is a welcoming whether these societies have to modernise environment for investment. Otherwise, and give up their cherished traditions in capital provided by donors and inter- order to promote private sector develop- national finance agencies only finances the ment and its resulting benefits. Their answer flight of private capital from the Pacific is that the societies will have to adopt island countries. modern business practices if they are to It is recognised that the Pacific island prevent even larger proportions of their countries do have economic disadvantages populations falling into poverty and to in the form of geographical remoteness, increase the welfare of all the people. small markets and frequent natural However, the authors believe that such disasters. However, these natural handicaps modernisation can take place without are compounded by weak macroeconomic forgoing tradition. They believe that incentive performance, poor governance, political structures that determine individual instability, extensive government involve- behaviour can be introduced that respect ment in what would otherwise be activities local cultural practices, just as they have in carried out by the private sector, under- other countries that have modernised. developed financial sectors, and a poor However, the authors caution that in legal and investment policy environment order for such institutional change to take for business. place there must be broadly based discussion After examining private sector assess- of the issues in order to have society-wide ments of the Marshall Islands, Papua New ownership of the changes needed for private Guinea, Samoa and Vanuatu, and surveying sector development. opinions around the region, the authors The authors set out a roadmap for the conclude that the prime cause of the poor implementation of such reform. As a first private sector performance is ‘extensive step there must be a public commitment to state involvement in areas better left to the private sector development. However, it private sector, coupled with the state’s must be made very clear to the private sector inability to provide the public goods and that while there will be extensive changes institutions…that a flourishing private to build an investor-friendly environment, 132 PACIFIC ECONOMIC BULLETIN Reviews there will not be any special deals for will be strong resistance from the traditional individual firms or industries. The second élite because of their loss of power. Their step is to carry out detailed studies to existing power essentially stems from the identify the constraints to private sector communal ownership of land and the development, as these will vary from rhetoric about how this form of land country to country. Next, there should be ownership provides a social safety net. consultation with the private sector to The report sets out the principles that prioritise the actions to be taken and to need to be observed to gain the acceptance design the institutions and the policy of the customary landowners. As well, the changes to be implemented. authors suggest the steps that could be Throughout, the authors emphasise, followed to overcome the problems arising bold political leadership will be necessary. in establishing the rightful owners to the This key ingredient is what has so often been land, the boundaries of the land and the missing in past attempts at reform and has allocation of rights to the land. been the main factor in the success of As the authors remark, the steps are economic reforms in Samoa. simple, the process is not. To take but one area of needed reform This report demonstrates the authors’ covered, the authors set out a sensible, non- understanding of the reasons for the poor threatening approach to the changes needed performance of the Pacific island countries, to land tenure in order for private sector and the suggestions they make for over- development to flourish. As they argue, the coming the constraints to private sector fact that most land in the Pacific island development are sensitive to the practical countries is held under customary ownership, and political obstacles standing in the way without a secure form of leasehold available of change. The report is an excellent to individual investors, is the major factor contribution to the discussion of the process inhibiting the development of commercial of economic reform in the Pacific region. credit for most people in the rural sectors. Reading it should be of value to university As a result, private sector investment is sub- students, development assistance optimal and productivity of the land is much professionals and policymakers. lower than it could be. As well as needing ‘ownership’ of the Ronald Duncan idea of creating such individual forms of University of the South Pacific land tenure, the authors note that ‘institutional software’ in the form of land South Pacific Least Developing registries, local courts, survey capacity, Countries: towards positive property valuation and mortgage prepar- independence ation will be necessary in order for a land market to be fully operational. The report Binayak Ray, 2003, Progressive Publishers, Kolkata, 190 pp, ISBN 8 180 64056 6 also details why it is very difficult, if not impossible, to securitise ‘movable assets’ In South Pacific Least Developing Countries, the and what arrangements would be necessary author paints a realistic, though somewhat to have effective registration and enforce- gloomy, picture of what he describes as the ment of such assets so that people could use least developing countries in the Pacific— them as collateral for credit. Kiribati, Samoa, Solomon Islands, Tuvalu The political difficulties of this whole and Vanuatu—following the United Nations process are recognised. In particular, there Development Programme’s characterisation 133 PACIFIC ECONOMIC BULLETIN Reviews of these countries. Although his noble vision community in developing economic and of positive economic and political independ- social policies’. This is important for a ence (that is, ‘not depending on others’ and number of reasons. For instance, the not to be ‘under obligation to others’) for disadvantages (geographical, demographic, these countries is somewhat utopian in this economic and so on) of these countries age of internationalisation and globalisation, ought to be taken into serious consideration it is nonetheless important in that it in an honest assessment of their respective challenges these Pacific island nations to a situations. Some of these disadvantages are more assertive will to become economically clearly not the inventions or creations of the and politically independent. Pacific people themselves. Trade barriers This study is a provocative analysis of and market access are factors beyond these economic, governance and development countries’ control. Geographical isolation is issues in the Pacific island nations the author a function of distance, not the result of some investigates. More than just a descriptive conscious design. Global warming and the account of corruption, instability and other resultant rising sea levels, which threaten to such negative emphases which now submerge Tuvalu and other Pacific countries dominate many studies of the Pacific, this are not the result of over-industrialised study offers a prescriptive analysis of the Pacific societies. And most, if not all, Pacific reasons behind these nations’ socio-political countries are still struggling to make sense and economic problems. The author’s of the socio-political systems inherited from interests include, among other things, the the colonial powers. In fact, many of the proposal for a collective approach among current problems with these countries’ the Pacific island nations to a more effective political systems are debts bequeathed by utilisation of their natural resources, colonialism. These issues are often especially what the author describes as their overlooked or simply ignored in many ‘large exclusive economic zone’. This is an analyses of the Pacific situation. important proposal worthy of further In looking at the issues from the analysis by the Pacific island