In Dire Straights

In a World that Favours Large Industrial Economies, are the Cook Islands Viable
Listener 19 October, 1996

Keywords Globalisation & Trade

Take the 18,000 odd population of one of the smaller New Zealand district councils. Scatter them across an ocean larger than the New Zealand landmass in 18 islands and atolls, and add the responsibilities of national governance. Except for location – they are three flying hours north of New Zealand – you have the Cook Islands.

Cook Islanders are proud of their independence. But political independence since 1965 is one thing. What about economic viability? This has been a preoccupation since the 1950s of the few New Zealand economists who have thought about it. Ultimately the answer is that the Islands must produce enough for sale to the world to pay for the imports that they require to maintain an adequate standard of living. Not that the inhabitants are poor by the standards of other Pacific Islands. Their estimated per capita GDP is double that of those in Fiji, treble that of Tongans and Vanuatans, four times that Papua New Guineans, and seven times that of Western Samoans and those on the Solomon Islands. Yet the Cook Islanders produce only between a quarter and a fifth of the New Zealand per capita GDP. (Their standard of living measured by what they spend is probably higher because of aid and emigrant remittances.)

Since the 1950s there has been a constant seeking of viable industries. Many have failed. Your “raro” orange juice is unlikely to have come from Raratonga, although it did once. The Cooks had a nice line supplying clothing to New Zealand in the 1980s, but when we dismantled our border protection they too were overwhelmed by Asian imports – with the following key difference. When a factory closes here, the redundant became eligible for social security benefits and other central government support. The Cook Island redundant had no such protection.

More successful have been selling stamp and coins, nice earners but not big ones. The biggest physical export is black pearls, but total commodity exports amount to less than 5 percent of GDP, while commodity imports are 105 percent. The gap is covered by aid, remittances, and service exports. Tourism is the big one, but it has been under pressure, in part because the Cooks are tied to the New Zealand dollar and our over-valued exchange rate makes them seem expensive.

Some of the nutty things which happen in the Cooks reflect a desperation to find other sources of funds or economic activities. The tax haven and letters of credit come to mind, but in the same category was Milan Brych’s cancer therapy. Sheer desperation committed the government to activities for which it has not the necessary expertise.

A sad story is the incomplete Sheraton hotel, to be built and financed by an Italian consortium. Work stopped three years ago, and it stands there half built, employing but a groundsman. Its debt, after capitalizing interest, comes to 60 percent of GDP, making our think big projects look minuscule in comparison. It seems likely that the costs will not be charged to the government, although there is much litigation to go. The real cost is the loss of jobs and foreign exchange earnings, for an economy which desperately needs both.

New industries are being sought. I am told their pawpaw are world class. Another export earner may be bananas. Perhaps more value can be added to tourism, offering visitors more to get them to buy more. Deep sea commercial fishing appears underdeveloped. There are valuable manganese nodules on the sea bed. Given the climate, one wonders whether there might be opportunities in retirement villas for the New Zealand elderly (although that would take a more relaxed immigration law, which has just been tightened, and some agreement from the New Zealand government over residential rules for National Superannuitants).

And yet the uneasy message that the economics suggests is the Cook economy may not be viable at its current population size. Indeed numbers have been almost stagnant since the late 1950s. No, this is nothing to do with a handful of economists getting interested about that time. Rather there has been major outmigration. For every Cook Island Maori living at home there are three overseas, mainly in New Zealand. Perhaps the diaspora is telling us something about the viability of the economy.

Perhaps the Cooks’ problem is no different in principle from one of our small local authorities, who have many of their folk living outside their region. But they attract others, and get central government support to assist adjustment, whereas the Cooks has to fund a national government too, while being in an inferior location.

There is no natural law which says that a region must retain its population. The Cooks outer islands have experienced substantial depopulation, as their people have moved on to Raratonga, and thence to New Zealand. Perhaps the Cook Island Maori will become a people with a land, but with hardly anyone living there. And if the Cook Islands are not viable in a world which seems to favour large industrial economies, is Samoa? Is New Zealand?