To any first-time observer of Papua New Guinea’s economy in 1975, other than the staff of the World Bank and International Monetary Fund (IMF) that have constantly claimed that its public sector was too large, one of the most striking features would have been the very small size of the public sector, especially when measured by the number of employees, the proportion these were of the total population, and the availability of public services in general and public utilities and infrastructure in particular. At independence in 1975 the total number of public servants in the central government was 25,951. In addition there were 4,034 government-funded teachers (in 1971–72) and 6,137 health workers (1972–73). The total number of public servants was 44,981 in June 1973. (Administration of Papua New Guinea 1974, 226–229, 236). The increase to over 70,000 by 2005 is wholly accounted for by the increase in the number of teachers to over 30,000.

Thus public servants amounted to under 2 per cent of the total population of about 2.5 million in 1975. That meant large areas of the country other than the towns were innocent of any form of government presence, apart from some teachers and health workers in the larger rural settlements. The education system enrolled fewer than 250,000 pupils, about half of total school-age children, but with only 371 in Year 12 and 4,374 in Year 10 by 1975 (Curtin 1991, 158).

Such figures confirm Papua New Guinea’s status as a Third World country when it became independent. With total internal revenue of $A93 million in 1973, and grant revenue from Australia of $A83 million, for total recurrent revenue of $A176 million or $A7 per capita, clearly the central government’s resources were limited, while the local government councils were able to raise only $A5.5 million in local taxes, rates, and charges (Administration of Papua New Guinea 1974, 249, 261).

The country’s public enterprise sector was even smaller than the administration, and provided services limited in the main to the towns, of which only three (Port Moresby, Lae, and Rabaul) had populations of more than 25,000 in 1971. For example, there were but 14,596 telephone subscribers in 1973, and electricity production amounted to only 474.3 million KWh in 1972, of which half was attributable to a single user, Bougainville Copper Ltd. (Administration of Papua New Guinea 1974, 226–229, 236, 295, 300). The postal and telecommunications services were provided by a government department until 1982, and there were few statutory authorities carrying on commercial activities, with the exceptions of the Harbours Board and Electricity Commission (Elcom), which had been set up broadly in their present form in 1962, and Air Niugini, set up in 1973 (Whitworth 1993, 4). In addition to such utilities, the new state’s government was a minority shareholder in a few large private sector plantations, such as New Britain Palm Oil Ltd. The government was also directly involved in regulating various primary industries, such as coffee and copra, by the colonial legislation that had set up marketing boards, but was not itself engaged in production or ownership.

The most significant government involvement in private sector enterprises was in the financial sector. In addition to owning the largest commercial banking network (PNGBC), the government retained the Investment Corporation set up by the colonial administration as a unit trust for acquisition of shares in ownership of major foreign investments on behalf of Papua New Guinean subscribers to the Corporation’s capital. The government also retained ownership of the Papua New Guinea Development Bank set up in 1965 (renamed Agriculture Bank and later, Rural Development Bank) that extended loans for agriculture and mainly small-scale industrial and commercial undertakings from resources provided initially by aid donors and later only by the government, without ever becoming a deposit-taking bank.

Thus, even if in 1975 privatization had been a concern of the government — it was not — there was little to privatize. To the contrary, the Allende government’s nationalization program in Chile (including the US copper mining company Kennecott in 1971), and then the overthrowing of Allende by Pinochet, inspired some of the new nation’s leaders, notably John Kaputin (the first national to be minister for Justice), to call in 1974 for expulsion of Kennecott from the Ok Tedi copper and gold prospect (Jackson n.d., 57). The World Bank’s support of an influential report (Overseas Development Group 1973) recommending interventionist economic development policies after independence also stimulated the pre-independence Somare government’s Improvement Programme of 1972 that called for ‘government control and involvement in those sectors of the economy where control is necessary to achieve the desired kind of development’. This statement found its way into the Preamble and the Five National Goals of Papua New Guinea’s constitution in 1975, which in effect retained this equivalent of Clause 4 of the British Labour Party’s manifesto (May 2001, 309–310).^[4]

In any event, shortly before independence the government successfully dislodged Kennecott from its Ok Tedi copper discovery (Jackson n.d., 70). Then, for a time the government in effect became a mining exploration company in its own right, through its wholly-owned Ok Tedi Development Company, which supervised various drilling programs at Tabubil until it finally succeeded in transferring the project to Australia’s BHP in 1980, with retention of a minority equity stake of 20 per cent. ^[5]

After September 1975 the government also embarked on a policy of direct investment in and management of agricultural and industrial production. This was partly a response to the eagerness of many expatriate plantation owners to divest from Papua New Guinea, and the government saw ‘buying back the farm’ as an important tool in its program of redistribution of wealth and income (to which it was committed by the emphasis in the constitution’s Five Goals on the redistribution of income rather than its growth). Apart from its minority equity in foreign oil palm estates and logging operations, the government acquired 100 per cent ownership of sundry normally private sector activities, such as piggeries, abattoirs, a hotel, a marine amusement park, and scattered rubber and cocoa estates. Clearly none of these amounted to the ‘commanding heights’ of the economy, and the only programmed interventions were the acquisitions of plantations, most of which would have ceased production without the government assuming ownership.