What next for Timor?

With the present situation slowly heading for political resolution, time has come to consider the next steps for the fledgling government of Australia’s newest neighbour.

Many theorists and commentators argue development in Timor is inexorably linked to GNP growth. This argument stresses successful development will not occur without increases in income levels, leaving us wondering how Timor can have a hope of pulling an economic rabbit out of the development hat. With the ongoing debacle that is the Timor Sea agreement, increases in real income will take time to trickle down, if they do at all: time that Timor does not have if it is to avoid a return to the recent unrest.

How can this be achieved in a country arguably verging on being penniless? The Timorese parliament is in the process of passing a US$415 million budget, which to use the words of former Foreign Minister Jose Ramos-Horta equates to being “the budget of a university or a small town in Australia”.

Nobel Prize winning economist Amartya Sen offers the first steps to a solution in his 1998 book Development as Freedom. Using what is described as a support-led process to deliver “social opportunities” - health care and basic education - Sen argues there is no need to wait for dramatic increases in real incomes.

In relation to Timor, the primary aim should be to improve the quality of life for a populace subsisting on approximately US$1 a day. According to conventional development wisdom, this requires money and resources, and this very fact supports the argument that incomes must rise before these essential services can be delivered to the people. Quite often, this argument is extended, with theorists advocating a complete postponement until capital becomes available for governmental social investment. Chicken first, egg follows.

At this point it seems an insuperable problem. What about the economics of relative costs? By their very nature, social services such as those the Timorese desperately need are labour intensive in their provision. In a country with an average wage of less than a dollar, these services are relatively inexpensive to provide.

There might be less money, but existing wage levels mean Timor doesn’t need as much money to provide such labour intensive services. Simply put, it costs a great deal less than delivering similar services in the developed world of trade unions and “living wages”. Ergo, there’s no need to wait.

With support-led initiatives laying the foundation for the more popular income-led growth, this approach should be given serious consideration. Other income and business-led initiatives have not fared particularly well. Take coffee as an example.

Fairtrade, Oxfam, Community Aid Abroad and even USAID and CNN have trumpeted the delights of Timorese coffee far and wide, with cafes charging us a premium to savour the deliciously sweet taste. More than a few pundits have argued coffee, along with oil and gas will lead to Timorese economic regeneration. Oil and gas aside, to date coffee has failed to deliver. It’s time we recognised the failure of coffee to save the day is for sound economic reasons.

Coffee is not scarce. Paraphrasing economist Tim Harford, coffee is grown all over the world and requires hard work but little skill to produce. Further complicating matters is trade in raw coffee is relatively free of economic barriers, subjecting it to unadulterated free-market forces. The lack of tariff or subsidy protection also makes it unattractive to farmers in developed countries, leaving coffee and other commodities like rice to the world’s poor to cultivate.

Coffee is also an easy business to get into, and initiatives like Fairtrade only make it more attractive to poor people looking to feed themselves. Such initiatives warm the hearts of developed world philanthropists and ethical consumers, but only benefit a small group of coffee producers.

The point is the existence of Fairtrade and like initiatives does not alter a very important fact - globally, too much coffee is being produced. As much as we all like the stuff, it is quite clear that on these facts alone successful Timorese economic development on the husk of a coffee bean is about as likely as them qualifying for the next World Cup.