A new start for the economy

[B][I]Part 1 of a 4-part series[/I][/B]

The refreshing request for economic stimulus ideas, by Rep. Tina Sablan, is the first elected legislator to my knowledge who has ever requested such input from the citizenry beyond the confines of formal legislative hearings.

I have several observations and thoughts which I have been harboring for a number of years which I would now like to offer under the heading of “whatever they are worth” in keeping with her invitation for comments. These frank comments are made in an attempt to be helpful to the reader to possibly see the island’s investment climate as a potential investor might view it—especially during these trying times. Indeed, some local readers might interpret my comments as being haughty or a self professed “know-it-all attitude.” I hope not—my message is not intended to be so.

Before advancing my thoughts, I want to state a belief I have tried to follow, which is a basic tenet of the famous Dale Carnegie instruction which holds, “One must have earned the right to address a group and thus occupy their time and attention”—meaning, of course, one must have something to offer so as not to waste people’s valuable time. Along that vein—and as a preface in defending my right to hold an opinion for those who care to read it—I offer a brief background for evaluation prior to advancing several thoughts for those interested which I believe currently serve to inhibit foreign investment in the islands in any substantial amount. This belief is related to my entry long ago into the field of foreign investment promotion as one method to assist in the growth of developing economies. There may be a lesson somewhere for those in the islands interested in stimulating such growth and in correcting some deficiencies which I believe inhibit such investment at this time. Whether the thoughts which follow are of any value, the reader must judge.

As a bit of background, when Kennedy became President he was aware that many of the newly emerging nations—most of them economically underdeveloped and all former colonies of France, England, Belgium, etc., had gained their independence and were becoming members of the United Nations (where, of course, they could vote). Many of these new nations were flirting with socialism and communism as an economic philosophy with the heavy hand of government influencing economic growth. Kennedy decided that as a part of his foreign policy he would require the State Department to instigate programs, supported by U.S. financial assistance, to encourage the concept of capitalism and private enterprise as an alternative and counter the stifling bureaucratic inefficiency of socialism and communism on economic growth and private initiative. This was the period at the height of intense competition on all fronts of the Cold War. In part it was the adversarial relationship with the former Soviet Union and mainland China which played a role in the United States offering the NMI a closer relationship which eventually evolved into the Commonwealth as we know it today.

It was during the Cold War era I became affiliated with the State Department’s Office of Private Enterprise and the program of providing economic and technical assistance to newly emerging nations. I very soon became a crusader for private enterprise and joint venture foreign investment in participation with local people. It’s almost a religion with me—that’s why I feel so strongly about the effort. I learned some of the tools used to bring such investment about such as various business incentives, the preparation of project financial feasibility documentation as investment prospectuses, etc., as well as some things not to do. Some of these will be discussed in Part 4 of this series.

That stated, I’ll advance my personal opinion over the next few days as to what I believe is necessary to improve the economy of the NMI, an area in which I have more than three decades of experience starting long before the birth of the Commonwealth.

Sometime economists use a line of reasoning to the effect—when working toward the solution of a problem, it is helpful if you know the answer you want, providing of course you know there is a problem. Here’s my take on the CNMI’s problems, at least as related to encouraging foreign investment as a vehicle to stimulate economic growth. Some of what I point out in the articles which follow will not be pleasant for some to read—but it has to be said. It’s bitter medicine.

First, realize nepotism and protectionism are killing the economy. Not SARS, not 9 -11 and not the feds.

Secondly, projects on Tinian aside, the CNMI must establish a reputation for welcoming foreign investment on Saipan and in doing so embark upon a program to convince foreign capital that the islands are profitable locations in which to prosper. This will require creative investment incentives, cutting bureaucratic red tape, assigning the responsibility and accountability for encouraging foreign investment to a particular group with an adequate budget and then both branches of government, the administration and Legislature, must get out of the way and let the office do its work. No micromanaging, no political witch hunts. Like it or not, this will require adapting to the new policies of federalization.

At this point some might ask: Why encourage foreign investment? Why indeed? If the community doesn’t want additional foreign investment, then keep doing what you are doing and maintain the status quo in terms of attitudes. But do recall that, with few notable exceptions, a number of former indigenous people who tried their hand in business haven’t demonstrated a sustained track record in the investment and management of tourism and manufacturing oriented enterprises. How many businesses can you recall that started out as being locally owned, only to have them fold up or sell out after a short period of time? I can name dozens. Also, for the most part, and at the present time, most local people have only a limited amount of venture risk capital that would permit them to participate in large scale projects. Some simply don’t possess the entrepreneurial drive, spirit or interest.

There are certainly many astute Chamorro and Carolinian businessmen and women active in the economy and a great many are my long time friends and acquaintances—and I certainly don’t mean to disparage their valuable contribution over the years. I’m simply saying there should have been more such people. Certainly the youth of today should demand a reserved place at the business table of the future and opportunities must be made available to them.

That doesn’t mean there shouldn’t be a place for foreign investment on Saipan. However, it’s time to realize that in the eyes of many potential investors the NMI has damaged its reputation for outside investment which must be overcome and improved upon and the adverse causes either eliminated or mitigated as much as possible. Not much can be done to change nature’s climate—but a lot can be done to improve the area’s business climate.

Realize that any potential investor who might even remotely be considering the islands as an investment location will conduct a through analysis of the island’s past and present investment climate, its rules, regulations and laws—of which there is a prodigious number—all in English and thus largely unknown to many potential foreign investors.

Currently, chances are they will discover situations and attitudes that will not be all that complimentary to the islands, at least from their viewpoint. I believe—truth be known— that much of the recent Japanese bailout was a result of deteriorating conditions ranging from government waste, red tape, crime, kickbacks, etc., and a general indifference on the part of the government toward their (Japanese) investment and infrastructure needs. It’s a suspicion I have. Oh, the Japanese will never tell you that; they are too polite. But based upon my instinct I will advance the opinion that it is true—if only partially.

Those potential investors who will look deep enough and pierce the veil will discover that among some who have served in the Legislature and the administration there will appear to be little recognition of what investment capital really is—and from what it is derived. Investment capital is risk, venture money. Nothing in business is certain and one enters a venture (perhaps adventure is a better word) and takes the risk that the endeavor will be successful and that the investor will be rewarded. The reward for taking the risk is the profit earned. The money which is put at risk is itself a product of thrift, prudence, planning, management and, in some cases, sacrifice. It is extremely rare for such money to flow into areas where these traits are not respected. It is quite another matter, however, in an area which has yet to establish its long-term record of stability in dealing in a positive way with foreign investment with the result that a degree of uncertainty is likely to be present.

[B][I]To be continued. [/I][/B] [I]Editor’s note: Bill Stewart, an economic historian, is the author of the Business Reference and Investment Guide to Northern Mariana Islands; Introducing The Northern Mariana Islands—An American Doorstep To Asia; Tourism Investment Opportunities in the NMI and more that 275 published essays on the history, geography, economy and social issues in the NMI many of which have been translated into Japanese and Chinese.[/I]