A new start for the economy

It is worth remembering that the unbridled economic growth experienced in the mid-eighties was generally a result of external forces over which the NMI played no part in creating. It was a case of the islands being in the right place at the right time and the direct result of legislation passed by the U.S. Congress, namely Headnote 3(a), which stimulated the growth of the garment industry and its exports to the American market. Almost concurrently the dollar was devalued in relation to the yen and other currencies at the Plaza Accords in New York in 1986. This action provided the impetus to jump start the hotel and tourism sector, largely financed by Japanese investment. It was a fortuitous time for the islands and such luck is not likely to ever happen again.

To achieve any measurable growth from here on out, this means that the islands must now resort to their own creative devices, hopefully with a little help from that ol’ much maligned, paternalistic, meddlesome “sugar daddy” who picks up the tab for most of the infrastructure bills

It means it’s time to stop longing for the old days and get to work on bringing about new days of prosperity. A great deal of the effort will depend upon a state of mind and positive attitudes as well as a willingness to cooperate by putting politics aside for the good of the community and the economy (Can that ever be possible?).

The islands need new investment—about that there is no doubt—and investment needs stability and a government and societal commitment that the infrastructure needed to sustain that investment and assist its continued growth will be available and reliable. It’s a two-way street. Ask yourself what some potential investors must think when they learn about CUC’s problems or the fact that for 35 years there hasn’t been 24-hour potable water available islandwide.

Those are striking and disturbing deficiencies in view of the fact that millions of dollars have been available to solve the problems and provide adequate infrastructure, if only the money had been planned and managed properly. Who’s kidding whom here? The islands had a more reliable water and power supply when it was under the Trust Territory Government than it has today.

For those new to the island the T.T. period was the time when the single local bank in the Marianas had only 4,016 accounts with aggregate savings of $562,000. The private sector consisted of only 55 licensed businesses with total assets estimated at slightly less than $2 million. Only 957 privately owned vehicles were registered. The single credit union had a membership of 277 with total assets of $19,700. The 1,056 employed indigenous workers in the Marianas had wages that totaled $1.5 million annually and the resident population stood at 10,486 people. The Trust Territory Government, with its large expatriate payroll, was the major employer.

By the late summer of 1970 the island was almost devoid of the amenities of the 20th century. There was one black and white television channel available, broadcasting only a few hours each evening; only three food stores of any size with a very limited inventory; one cargo vessel a month called at the port; the airport was an open-air tin shack and there were no recreational craft in the lagoon. There were only two hotels, the 56-room Royal Taga Hotel where the World Resort Hotel now stands in Susupe and the Hafa Adai Hotel in Garapan, which then consisted of 10 plywood bungalows. The number of island restaurants could be counted on one hand. There were very few automobiles on the island and those consisted mostly of secondhand, rusted pickups. The Fire Department had a single red jeep and there was only one stop sign on Saipan’s roadways. To make an overseas telephone call one had to drive to the RCA office in Susupe. The economy was minuscule and stayed that way until the mid-’80s—then everything changed as foreign investment flowed into the islands.

During the period 1986 to 2004 (the period for which I have records) the CNMI government’s internally generated revenue was $3.07 billion. That’s one million dollars multiplied more than 3,000 times. During this period the total expenditures on capital improvement projects in the Commonwealth as generated by the island’s own internal revenue sources was a meager 3.2 percent ($78.4 million). Over the above period, other government expenditures were wages and salaries, $1.6 billion (64 percent), and all other expenditures of $807.5 million (32.8 percent). The vast majority of the total expenditures made on capital improvement infrastructure projects resulted not from locally generated revenues but largely as a result of more than 25 years of U.S. financial assistance in the form of program grants. The CNMI’s locally generated revenue has been largely directed toward supporting an increased payroll, as everyone knows.

Add to the above local revenue the sum of $586 million in Covenant funds plus the multimillions provided by the U.S. government in the form of a myriad of program grants ranging from road, air and seaport improvements, hospital and medical facilities, etc., and one might legitimately pose the question: “What went wrong that we can’t drink the water or enjoy life without power outages?”

If there was ever truth in the old expression “the chickens have come home to roost,” it is certainly applicable to the NMI and its longtime, inexcusable neglect in providing reliable power and potable water necessary to assist the critical tourism component of the economy. Frankly, it’s nothing short of disgraceful—and that’s being polite.

You can’t tell me that when potential investors look at the millions in revenue that has been available to the government in years past and compare it with the decrepit condition of power, water and other infrastructure they don’t wonder, “What kind of a spendthrift government is this? When they run out of money will they increase my taxes?” If you think this doesn’t cross their mind, I have a whole lot of stuff covered in weeds out in the back yard I want to sell you.

And here’s another personal observation from one who is basically an adherent of the philosophy of laissez faire (i.e., “hands off”—let private investment thrive without being choked and smothered with excessive government regulations and oversight): With too few exceptions, many local people who should have been introduced or otherwise encouraged to become entrepreneurs or merchants within the tourist sector did not rise to take advantage of the many opportunities at the time of the “economic boom.” For whatever reason, many remained non-participants for too long. Even to the extent of permitting large numbers of non-U.S. citizens (non-voters) to take over the smaller, low investment, “mom-and-pop” neighborhood stores, gift shops and other small, minimum investment, “entry-type” businesses. The impact of the local multiplier effect aside, for the most part these are not export-oriented endeavors and thus such businesses generally do not generate “new” money into the economy; they only re-circulate money that’s already there.

I have often wondered if the non-participation of so many local people in business and their apparent indifference to the infrastructure deficiency so vital to a dynamic economy resulted in a smaller indigenous constituency to actively advocate, sympathize and support the needs of private business. If there had been more local people and their number been greater—when there was still time—they might have otherwise strongly voiced their concern over infrastructure deficiencies within the halls of government where water and power requirements should be realized, planned and adequately budgeted and implemented. The “squeaky wheel” syndrome, so to speak.

If self-government in the NMI has been a learning experience, it sure as hell has taken a long time. As things now stand the NMI is America’s only underdeveloped economy, aside from possibly an Indian reservation, but even they have power and water. How’s that for a reputation?

The islands are a nice place but they are not the center of the universe—there are many other places an investor can select to do business.

Could the government learn a modified lesson from Pogo? “We have identified the problem and it is us.” For some, and this economist included, it seems the government has lost its way. Hopefully, some of the thoughts and observations advanced in this series will help in charting a new course with a compass heading for better days.

I hope my calling a “spade a spade” as I see it has not offended anyone. My unsolicited advice to the community and the government is—if asked—”Get busy and dust off the welcome mat with new incentives to lure investors and forget the blame game—there has been enough of that.”

The concluding article will offer several thoughts on generating increased foreign investment.