The cold fact is that most income is not distributed,’ says the American economist Thomas Sowell, ‘it is earned.’ Although there are concerns over ‘who’ will benefit from Papua New Guinea’s record economic growth, it should be unsurprising that most of this wealth will continue to levitate toward resource companies.
To boldly assert that fortune should be ‘distributed’ is to misunderstand the nature of wealth in a free market and capitalist economy. PNG’s unprecedented economic growth over the past decade is expected to continue and even increase in the coming decades.
It’s worth recalling that nearly all of this is growth is driven by resources and the private sector. If PNG made microprocessors – a product in global demand – then the nation’s wealth would pivot around this. But PNG has resources, and this demand is serviced by companies putting forward capital and resources to pull minerals – mainly gold, copper, nickel and gas – out of the ground. This is performed not with tax but private sector money.
Therefore, as a general principle, wealth flows to the areas of society where goods and services are traded. It is clearly difficult to attract wealth where few goods and services are traded – a bitter fact that many poorer Papua New Guineans are well aware of.
While these points are mundane and obvious, they are simple principles that need revisiting in discussions of wealth creation in PNG. It’s common, for example, to hear outrage that resource companies make money, are greedy and produce no benefit to everyday people. But the unspoken reality is that resource companies compete to make money, just like any small business or individual operating within the law.
And it’s not just proximity to economic activity that builds affluence. The message of wealth creation, which has circulated for centuries in successful economies, is to find ways to produce things that people value. This simple lesson – find ways to produce value – should be constantly taught to schoolchildren in PNG as the nation grows over the next decade.
As many examples show, value can be produced in even the most challenging and commercially difficult environments. One great example is of AG Gaston – a black American entrepreneur who started a funeral service in the American South at a time of divisive segregation. When asked about how he created wealth when ‘simply being black took away every opportunity,’ Gaston replied, ‘Not every opportunity. That’s part of my philosophy. First I saw a need. When I felt the deep-seated concern that people have about how they are going to bury themselves and their loved ones, I decided to do something about it.’ This is a key lesson of wealth creation that applies anywhere.
To simply expect money because of unearned privilege, which is common in the PNG resources sector, is to seek the benefits of capitalism in the absence of its disciplines. There is no central authority in a free market pulling strings and distributing wealth on ideas of ‘fairness’ – a concept that is always contestable from person to person.
It seems that most people in PNG appreciate this, which is why the majority of resource projects are welcomed – because of the dynamism and wealth stimulation they can provide. A sterile economy, by contrast, services little opportunity. The broad appetite to re-open Bougainville’s copper to the global economy, despite the province’s tortured history, is just one current example.
Over the next few years PNG’s growth is expected to narrow toward the mining and petroleum sectors. Corruption will increase, as many attest, but this is not the fault of free market capitalism – it is more to do with poor representative government (an article, perhaps, for another time).
If there is a vision of the PNG economy in the coming years it is for as many Papua New Guineans as possible, regardless of their backgrounds or incomes, to be making sense of free market capitalism and treading a path toward creating value.
Stella Magazine, Issue 11, October 2014