You can’t correct a problem if you don’t see one, n’est-ce pas?

By WILLIAM H. STEWART
Special to the Saipan Tribune

Last of two parts

As mentioned in the previous article, if young people are to remain at home on the islands with their families they must have satisfying employment opportunities. In my judgment this should be the single, overriding goal of the government—well paying jobs for local people within the private sector.

One has the impression that many in the Commonwealth consider the phrase “economic development” to be almost entirely confined to government income distribution and government job creation. Little serious attention has been given to private sector development.

Some sage once said, “We ought not be careless and indifferent about the future. In prosperity prepare for change.” While this is not the best of times for the CNMI, it is not the worst of times either, so use these days to prepare the island business environment for the type of community the majority of the residents desire.

Changing conditions demand changing methods. If the people of the CNMI hope to see a return to even moderate levels of increased annual economic growth outside the tourism sector, a more aggressive development program must be undertaken. While recent CNMI trade and investment promotion missions were designed to generate increased foreign investor interest, very few of the private participants in the effort had prepared specific, documented project investment proposals to introduce to a potential investor.

The Commonwealth must take steps to improve its promotional efforts if it is to compete effectively in the future with Palau, Guam, Vietnam and other locations for the foreign businessman’s confidence and investment capital.

Lack of land use zoning and the pathetic attempt to implement the operation of a Free Trade Zone, which has been languishing in a state of financial and management limbo for the past six or seven years, is stark testimony to the lack of seriousness the government displays in attempting to overcome and arrest the current economic decline.

In the past the Commonwealth government has mostly reacted toward investment proposals brought to it from the outside. In other words, and with several exceptions such as the various government trade mission efforts to Korea, Japan and Taiwan, the effort has been somewhat passive as opposed to being aggressive in seeking out new investors, particularly those from the mainland United States.

Unfortunately, there was little follow-up with advertising in appropriate business journals or “call-backs” with those contacted.

The drafters of legislation effecting either existing or potentially new businesses must realistically examine the situation from the investor’s viewpoint. In order to do this, one must recognize a factor basic to the issue. Given the fierce competition for foreign investment among countries around the Pacific Rim, the islands should abandon the attitude that they are doing a potential investor of large project a favor by letting him do business in the area. It is actually the other way around, the businessman making a large capital investment does the area a great service by investing within its borders.

As previously pointed out in this column, it is worthwhile considering that development itself can not be “legislated” as is so commonly thought in the islands. Only the legal environment known as the “business climate” under which such investment is expected to thrive can be established by an area’s legislative body and even then there is no guarantee investment will result, but such legislation is, in a real sense, a “welcome mat.”

Some indigenous people purport to embrace many of the tenets of the free enterprise system but also strive to maintain a largely “circumscribed” relationship with the U.S. within the potentially confining framework of the Covenant when in reality they profess to want to be a part of—but separate from—the United States and many of its laws. Why does it appear, at least to this observer, that the Commonwealth seems to have more difficulty managing the affairs of government, infrastructure improvement, foreign investment, etc., than does Guam? Is it possible that the structure of the Covenant, or those “vocal interpreters” of the agreement may be partly responsible? Too often the agreement appears to be a “shield” to hide behind for fear of unwelcome federal infringement on so-called and perceived “local issues.”

Turning out attention to land, for many landowners and their families the “boom years” of the early ’80s saw “easy money” resulting from Japanese land leases. Fortunes were acquired with little effort expended and without any particular skill or educational attainment. This may have served to distort the perspective of many and mislead some into thinking that little effort is required to obtain (and sustain) wealth.

One might ask: What is the basis for the above observations? Look around and observe the small number of indigenous people in business. There appears to be a lack of interest on the part of many local islanders in entering and managing their own business. In many instances the entrepreneurial spirit appears to be absent. This no doubt partially explains the apparent “disconnect” some people display with respect to the needs of a private sector economy.

There is the widespread impression that foreign investment exploits the island and its indigenous inhabitants. There’s an almost universal belief among many islanders that they are doing the investor a favor by permitting such investment—when actually the opposite is true in terms of enhancing the tax base.

There is little understanding of the need to protect the island’s reputation as being a political and economic environment within which to do business; major problems seem to be continuously avoided in reaching long-term permanent solutions (as opposed to “quick-fix”, inadequate “band-aid” remedies).

By not being permitted to own land in fee simple, foreign investors are deprived of gains resulting from appreciation in land values. In fact, the more the lease term length is eroded the less the residual value to the lessee. Prudent foreign investors must strive to make up this “shadow loss” by increased long-term net earnings and certainly by an amount sufficient to compensate for what otherwise could have been alternatively earned in an interest bearing account plus compensation for the loss in purchasing power resulting from inflation.

It might also be stated that many elderly people on the islands lack the experience and exposure which might otherwise allow critical comparison of the CNMI’s economy, its political maturity, the infrastructure deficiencies, etc., with that of more advanced and efficiently administrated self-governed areas. They appear to simply “don’t know” or “don’t care” how much the island situation resembles that of “Third World” areas from the political and economic standpoint.

(Editor’s Note: The author was formerly associated with the U.S. State Department’s program to implement President Kennedy’s foreign policy of assisting the emerging nations of the ’60s in Africa and Asia with their respective economic development efforts. He is a 35-year observer of the NMI economy, having served as senior economist with the Trust Territory Government and the CNMI government.)