Is Capitalism a Problem for PNG’s Economy?

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This question was recently raised in a WeChat discussion group that I am a member of. While there was no extensive debate, I took the opportunity to share my perspective based on my political science background and research on China’s economic reforms. Given the complexities of capitalism and its impact on Papua New Guinea (PNG), I believe it is important to explore whether the system itself is the problem or if the issue lies in how it is managed.

Capitalism and PNG’s Traditional Economy

Capitalism, at its core, is a system driven by trade, private ownership, and market competition. Interestingly, PNG’s traditional barter system shares some similarities with capitalism. Trade was, and still is, influenced by supply and demand—just as Adam Smith’s theory of the "invisible hand" suggests.

However, a key difference lies in decision-making and wealth distribution. PNG’s traditional economy was more communal, whereas Western capitalism emphasizes individual wealth accumulation. The Hiri trade, where men sailed in groups to exchange clay pots for sago, illustrates a collective approach to commerce. In contrast, capitalism often encourages competition rather than cooperation.

Lessons from China’s Economic Reform

To better understand capitalism’s impact, we can look at China’s transformation. Under Mao Zedong, China had a strict command economy where the government controlled all economic activity. However, realizing the limitations of this system, Deng Xiaoping introduced reforms in 1978 that blended capitalist principles with state control, leading to rapid economic growth.

Two key capitalist ideas China embraced were:

  1. Free enterprise – Farmers were allowed to sell surplus goods in markets, introducing a market-driven economy within a socialist framework.
  2. Economic decentralization – Provinces were given economic autonomy, allowing them to drive their own development without waiting for directives from Beijing.

These changes helped China become the second-largest economy in the world. Today, China operates with a communist political system but a hybrid capitalist economic model—a pragmatic approach that PNG can learn from.

A floral shop in Changchun City, Jilin Province.

Is Capitalism the Problem?

Francis Fukuyama argues that capitalism is the final stage of economic evolution due to globalization. PNG operates within a capitalist framework, but with significant government involvement in key sectors.

Unlike China’s decentralized approach, PNG’s provinces do not have economic autonomy to generate wealth independently. Additionally, some industries, such as energy and airlines, remain government monopolies, limiting competition and efficiency.

So, is capitalism the problem? Not necessarily. The real issue lies in how capitalism is managed. If policies fail to foster economic growth, job creation, and private-sector investment, capitalism becomes inefficient. The problem is not capitalism itself, but having the wrong policies that fail to stimulate economic development.

Key Reforms for PNG’s Capitalist System

To make capitalism work better for PNG, we need targeted reforms, such as:

  • Greater provincial economic autonomy, so local governments can generate wealth.
  • A balanced approach to state control, ensuring government intervention does not stifle competition.
  • A more inclusive capitalist system, where policies encourage entrepreneurship and investment in diverse sectors.

Conclusion: Capitalism is Not the Problem—Policy Is

Although the WeChat discussion did not generate much debate, I shared my perspective to highlight the need for a more effective approach to capitalism in PNG. While some may see capitalism as a flawed system, its success or failure largely depends on how it is structured and regulated.

In the case of PNG, the issue is not capitalism itself but inefficient policies that hinder economic growth and development. If PNG adopts pragmatic economic reforms, similar to China’s approach, it can harness capitalism’s benefits while ensuring sustainable and inclusive growth.

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