An outcome of politics in America

As the Republicans and Democrats duke it out in the primary elections and the halls of Congress this year, a small region of America without voting rights may end up a pawn in the larger game of politics. Members of U.S. Congress this year will decide on a series of bills that could collapse the economy of the U.S. Commonwealth of the Northern Mariana Islands (CNMI), and possibly the neighboring islands of Micronesia.

Since the talk of “federalizing” immigration and minimum wage in the Northern Marianas first began in 1993, six congressional hearings and reams of testimony have debated this subject. The islands are fighting to retain local control granted to them by Congress in 1976 under the Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with United States. They’re fighting for good reason: the freedom to make local decisions about immigration, minimum wage, and the trade privileges enjoyed by these islands has enabled this tiny Commonwealth to build the most self-sufficient free market economy of all the American insular areas.

The Northern Marianas has reduced their dependence on federal funds from 85% government reliance in 1980 to just under 12% in annual assistance in 1997, but still the money comes with strings attached: the CNMI is the only area whose local government is required to match federal funds. Another measure of the CNMI’s performance, the ratio of locally-derived government revenue to gross domestic product is higher than that of most other outlying areas, larger than comparable ratios for all levels of government in the U.S., says a study released February 14 by the U.S. General Accounting Office (GAO).

But American unions don’t like the Marianas. Unsuccessful in most efforts to organize CNMI businesses, they see a federal takeover as an easy solution. There have also been allegations of human rights abuses, and recruitment scams that took advantage of local loopholes. While both the private and public sectors have worked diligently on reforms, these have gone unnoticed in Washington D.C. because they don’t fit the Clinton agenda: in May 1997, stating that the CNMI’s economic advantages and employment practices are “inconsistent with American values,” President Bill Clinton wrote to the Governor of the CNMI declaring the Administration’s intention to strip the islands of their unique privileges.

Investors don’t know what to make of it. It was largely as a result of the area’s affiliation with the United States and the American rule of law that sent the signal to the international community that the Commonwealth was a safe place to invest. Now the rules of the game may be changed by federal legislation. For the CNMI, nearly $1 billion in business investments may be in jeopardy.

A federal takeover of immigration would cause the CNMI to lose its current ability to hire the skilled workers needed to staff their only major industries: tourism and garment manufacturing. Many have criticized CNMI businesses, saying they have built an unhealthy reliance on foreign labor. Clearly the island economy would not have grown to the current size without skilled alien workers that have been recruited in virtually every sector, including the government. This is necessary, as the indigenous population is small and the educational system of such a remote group of islands cannot possibly prepare people to work in all of the professions.

The CNMI’s problems have now been compounded by the Asian economic crisis. With a severe local downturn due to regional conditions, over the past two years the CNMI government has had to downsize by nearly 20% and thereby encourage more of its indigenous citizens into the private sector. This was not an easy task since the three principal islands require a tremendous duplication of services: three airports, three medical facilities, three public safety operations, etc. But even if businesses were to hire all 4,800 of the government’s remaining staff, plus the 1,400 or so unemployed, it would not equal the jobs now held by aliens; the GAO says there are only 12,800 resident workers on Saipan, while the islands’ economy employs 43,700.

Without the ability to hire aliens from Asia, CNMI businesses would be forced to turn to the only other potential sources of employees: nearby Guam, the United States mainland, and Micronesia. It is unlikely that residents of Guam would move to the much smaller islands of the Northern Marianas, so recruitment would primarily focus on the other two options.

For employers, the high recruitment cost of traveling 7,000 miles to the mainland for interviews, the cost of airfare and moving expenses for employees would be risky when employees may stay for only a short term. For American employees, the separation from family members and friends, with high expense of returning to the mainland for visits would make adjustment difficult. Then there’s “island fever,” the feeling of being confined to small, remote islands, compounded by a quality of life still considered behind the mainland. For the local government, there is justified concern regarding the potential for many new voters who have no understanding or long-term commitment to the islands and local culture.

The best option for mass recruitment may be Micronesia, but residents claim this source of labor is already greatly depleted. In a 1985 treaty between the U.S. and the Federated States of Micronesia (FSM), The Compact of Free Association provided for an unlimited, open door policy which allows Micronesians to come to the CNMI or any other U.S. jurisdiction. Estimating that the impact of this treaty would be minimal due to small populations, the federal government also made a promise to appropriate funds to pay back the local governments for the impact of migration of Micronesians to more developed islands.
Considered “local” for purposes of hiring, approximately 10% of the total work force in the hotel and garment industries of the Northern Marianas today are Micronesians. If the CNMI loses its immigration control, here are some scenarios of immediate impact:

– Tourism businesses will lose their ability to hire skilled service workers, so employers will be forced into Micronesia to find new recruits. The minimum wages paid to the small number of workers of these islands starts at only 90¢ per hour in Kosrae, to $1.50 in Pohnpei, to a high of $2.50 per hour in the Republic of Palau, so it may be relatively easy to attract people away with higher wages. Businesses of those islands suffer from the loss.

– During the turnover, the quality of service in the CNMI’s tourism industry will decline, a serious problem since more than 76% of the visitors come to the CNMI with high expectations from one of the most advanced countries in the world: Japan.

– The CNMI’s garment industry will be forced to close. The local government will lose approximately 22% of its annual budget or $52 million the garment industry directly contributes each year in taxes, according to the GAO. Additionally, it will put approximately 900 local citizens and 1,500 Micronesians who work in the industry out of jobs.

To put the region in perspective, there are currently 140,000 people living in Micronesia, where the median age is only 17.8. This leaves very few people of legal employment age. The vast majority of Micronesians engage in subsistence living and have no job skills. Mandatory education in the Federated States of Micronesia carries its citizens only through the eighth grade level.

An oversight hearing will be held by U.S. Congress later this year to review how $1 billion in federal subsidy has been used to subsidize the Federated States of Micronesia since the Compact with the U.S. began. It will focus on how these islands could become more economically self-sufficient. Micronesian leaders have stated that they are concerned about the “brain drain” of the best and brightest workers leaving their islands, not only for higher pay in the Northern Marianas, Guam and Hawaii, but also for jobs in the mainland.

If the Northern Marianas are forced to phase out their alien work force and need to recruit nearly 30,000 workers from Micronesia, a regional economic and social crisis will likely occur. Relations between the islands will strain as resentment builds over economic pressures. Islands of Micronesia that are now working toward self-sufficiency will suffer along with the CNMI. More islanders will come to the halls of U.S. Congress — with their hands out.

Lynn A. Knight
President
Saipan Chamber of Commerce