The high price of protectionism

Local legislators have recently renewed their efforts to enact protectionist policies on behalf of indigenous businesses and local employees. The proposal to grant local businesses preferential treatment in government bidding contracts is a clear case in point. The government’s adamant refusal to overturn the Foreign Investment Act despite the damage caused by its unreasonable $100,000 security deposit is yet another outrageous example. In both of these cases, the government is seriously damaging local businesses in a severely misguided attempt to help and protect them.

The local protectionists argue that they are enacting protectionist legislation merely to keep money circulating in the local economy. They say that they want foreign businesses to be invested in the local community. Yet if they persist in pursuing such heavy-handed local protectionism, they will only succeed in alienating foreign investors and prompting a capital flight. In other words, they will drive money out of our local economy and keep new money from freely flowing in into our communities.

The amount of money circulating in the local economy is limited. The amount of capital held by local businessmen is also limited. The amount of money growing and circulating throughout the global economy, however, is virtually unlimited: free markets constantly keep money growing.

Remove all of the foreign businesses from the CNMI and our economy will shrink. There will be less capital, fewer employees and consumers, less business activity, fewer commercial transactions, a smaller tax base–in short, a much smaller local economy supported only by local businesses with extremely limited resources. In other words, Saipan back in 1982.

Local businesses were certainly “protected” in 1982. The CNMI had extremely restrictive regulations. Then the floodgates were finally opened–and unprecedented economic growth and prosperity flowed in.

Joeten Enterprises, for example, was much better off after massive foreign investment was allowed to further develop our local economy. In fact, virtually all local businesses benefited from the influx of foreign investors, as more money flowed in to create greater economic opportunity and a bigger economic pie for all concerned.

Now the CNMI’s leaders want to turn back the clock and destroy everything that has separated the CNMI from Truk, Palau and the rest of Micronesia: a willingness to employ free market policies and offer enticing economic incentives to foreign investors.