Some factors for 2012

Now that 2012 is just around the corner, let’s note some factors:

Factor No. 1 is one we’ve already experienced: The CNMI’s tip to being a government-based economy. Government spending is now the majority of the local economy. This money ultimately comes from the federal government, though it gets counted and categorized in various ways, flowing this way and that, and the local patronage system is a large component of the allocation mechanism.

So if you’re looking for some certainty in an uncertain world, the CNMI is it. It has reached a point of stability. This was the future the Commonwealth had been aiming for all these years, so at least this long and winding economic chapter in Pacific history has drawn to a close. And what a chapter it was!

But, still, it can be misunderstood. An economy based on consumption and no (or very little) production, like this one, is zero-sum; it can’t grow itself, but will merely expand and contract as a function of how much aid it receives. I think that’s why some people in the CNMI are feeling a bit confused these days; they’re reflexively thinking in structural terms that no longer apply.

For example, in a tourism economy, just as a coconut tree grows toward the sun, the industry, and hence the overall economy, expands toward greater scale and profits. Hotels are built, rooms are filled, airlines increase capacity, hotels build more rooms, and those rooms are filled, so more airline seats are filled, and so on. It’s positive-sum, everything that grows makes everything else grow, too. And I’ll note that Asia’s industrial economies pump so many package tourists into the pipeline that the big job is digesting them all.

But package tourism is hard work. I should know, I’ve worked in every level of it in the Commonwealth, from sales, to marketing, to conducting tours, to management, to international consulting.

Package tourism is extremely competitive. It’s largely fungible, it’s marketing-intensive, it’s price-sensitive, it’s low-margin, and, overall, it’s essentially a commoditized industry. Customers buy their vacations from catalogs in much the same way I buy laser printers or car parts. Looking for glamour? Not easy to find. Looking for easy money? Not in this racket, my friend. Anyway, for a lot of reasons we need not worry about today, tourism simply didn’t seem like an easy fit for Saipan’s preferences.

However, a little bit of tourism seems OK with everyone, as long as it’s relegated to a distant orbit of the local patronage structure. And that’s just where the tourism sector is. So, once again, it looks like we’re at a point of peaceful stability, where the major forces have settled into equilibrium.

I’m not saying that everyone is happy with the CNMI’s economic structure, but without a doubt the majority of the local electorate is. And that’s the conventional benchmark for community preferences.

As for equilibrium, that’s where we are. Finally. It’s the holy grail of macroeconomics. So as long as the federal fiscal situation remains OK, the CNMI is going to be OK, too.

So the local economic situation is now so isolated from Asia’s economies that it’s probably esoteric to even glance at the outside world. But let’s glance around anyway.

Which brings us to Factor No. 2: My habitual and nervous look at the large, and growing, mountains of debt being amassed by just about any large economy you care to name. Well, those of you who care about this stuff are already well-acquainted with it. And those of you who don’t care about it would just be bored by it. And, frankly, I’ve been watching it for so long that I’m bored by it, too, in sort of a worn-out, nervous, tormented way, so I’ll just leave it at that.

As for Factor No. 3, it’s also been with us for a few years: The slow boil in the regional strategic situation. The sparks are going to fly on this eventually, either by design or just the plain random realities of having more fingers on more triggers. Many Saipan Tribune readers are from the Philippines, China, South Korea, Taiwan, and Russia, and all of these venues are part of the equation. I feel lucky to write for such a readership, and luckier still when I get e-mail from you.

Oh, yikes, I almost forgot to mention Japan. How could I do that? Well, Japan has been very quiet on the military front. Right? Well, yeah, right. Except for this week, when it made headlines by loosening up on its formerly tight restrictions on arms exports. Has Japan been an overlooked factor in the strategic situation? I’m trying to figure that out.

And as for Factor No. 4, I’m out of space here; I’ll pick up this trail sometime in January.

I’ve enjoyed spending 2011 writing for you. We covered a lot of ground. And I’m looking forward to enjoying 2012 with you as well. Happy New Year!

Visit Ed Stephens Jr. at TropicalEd.com. Ed is a pilot, economist, and writer. He holds a degree in economics from UCLA and is a former U.S. naval officer. His column runs every Friday.