Privately owned, profit making enterprises the key to economic development

Indigenous procurement parity can spearhead a move from not-for profit, centrally controlled economies to individually owned, for-profit ventures.

by Nyunggai Warren Mundine

Last month marked 30 years since the handback of Uluru to the Anangu people. At ceremonies to mark the occasion, many observed the promised economic benefits haven’t eventuated. Anangu communities still have high unemployment and few locally owned businesses, as is the case on most Indigenous lands.

Over that same 30 years, 1 billion people globally were lifted out of extreme poverty, mostly through economic development. So why hasn’t Australia been able to generate economic development for a few hundred thousand people during that same period?

It’s not about a shortage of money or assets. Indigenous Australians have valuable assets, including land and other rights over land. For those dispossessed of land and native title rights, there are large compensation funds – hundreds of millions of dollars – held by Land Councils and other bodies to foster Indigenous self-management, economic self-sufficiency and economic development.

Invariably, Indigenous people and communities – and the people who develop policies to help them – look to government or government-funded statutory bodies like Land Councils to generate economic development.

But governments and statutory bodies don’t create jobs, build businesses or generate economic growth. They can create an environment that fosters entrepreneurism & commercial activities. But it’s not their role to be the entrepreneurs or pick commercial winners. History is littered with examples where they’ve tried and failed.

Yet today we continue to see statutory bodies holding assets and operating businesses throughout Australia for the benefit of Indigenous people as the prevailing approach to economic development.

It doesn’t work.

Economic development thrives under systems that uphold private property rights, foster level playing fields, free markets and competition and encourage investment in infrastructure and skills. Economic development is about individuals providing goods and services to meet the needs of other individuals. And making a profit from doing so.

When statutory bodies hold assets and operate businesses, it’s in their interests to promote them over competitors. This flies in the face of what’s needed for economic development.

And since they are not-for-profit organisations they can only use profits to carry on more operations and invest in more assets. Individual Indigenous people (except the ones employed by the organisation itself) don’t benefit directly and don’t participate in the real economy as a result.

This needs to change.

The Federal government’s Indigenous Procurement Policy could spearhead this change. Under the policy, 3% of government contracts will be awarded to Indigenous-owned businesses annually. Some contracts, including those delivered in remote areas, can only go to tender if there’s no Indigenous business capable of performing it competitively.

In Indigenous communities most services are funded by government; everything from skilled jobs in health, building and infrastructure management to lower-skilled jobs like cleaning and labouring. So if government engages Indigenous-owned businesses to provide these goods and services, either directly or as part of a bigger supply chain, local Indigenous people have a way to earn a genuine living by meeting the needs of the community.

Some people think empowerment and self-determination means the “community” being responsible for local services. I don’t agree.

For example, local councils across Australia are responsible for waste management, typically engaging contractors to do it.  Shifting control of waste management in Indigenous communities from local government to an Aboriginal Land Council is hardly empowering. It’s just a municipal function every council in Australia has to perform.

And if the Land Council engages a contractor from outside the community to provide the service it makes no difference to the community whatsoever. This actually signals a community lacking in self-determination. But this is what generally happens – contractors come from outside the community because no-one locally has the skills or equipment to do it. Real self-determination means people are part of a real economy where locals can do what’s necessary to sustain their community and meet the needs of people in it. Real empowerment would be locals winning some of these government contracts.

Starting small is the key: individuals in jobs, sole traders, micro businesses and small businesses. And statutory bodies like Land Councils, Indigenous Shire Councils and Aboriginal housing authorities should commit to procurement parity too.

Finally, Indigenous economic activity needs to move away from community owned not-for-profit organisations to individually owned, for-profit ventures.

It can be difficult for people living under a centrally controlled economy to adjust to free market and private sector driven activities. Government departments and statutory bodies may not grasp the adjustment required, particularly if their staff don’t have business experience.

The private sector therefore has a critical role as a catalyst for this adjustment. By partnering with Indigenous-owned businesses when bidding for government contracts, established companies can offer Indigenous-owned businesses an operational base and skills transfer and help them transition to the free market so they too can realise the economic benefits that are already within their reach. 

Nyunggai Warren Mundine is the Executive Chairman of the Australian Indigenous Chamber of Commerce. This article first appeared in the Australian Financial Review on 9 November 2015.

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