Economic lessons and repercussions in a ‘nutshell’

Since the beginning of self-government and the political association with the United States the islands have had, as some might say, the luxury of having their cake and eating it as well.” In the past the islands have not had to offer land for fee-simple purchase to non-indigenous entities to generate their investment interest; have not had to levy a tax on real estate; have not had to retain 100 percent of all income tax levied (by offering rebates); have not had to impose a sales tax; have obtained the services of non-resident labor at costs lower than elsewhere under the American flag; have had the privilege of exporting qualified products to the U.S. market largely duty free—and been the recipient of millions of dollars from the U.S. treasury.

All the while controlling its own customs and immigration service and minimum wage structure and, as such, the only United States affiliated entity in the Pacific area to do so.

Still, with all these advantages and resources, the islands have not been able to operate a fiscally prudent government. Simply put—during the good times the CNMI failed to prepare for the bad times.

What happened to bring the islands to the point of bankruptcy?

Certainly, the economy has experienced a lot of bad breaks: the Asian financial crisis; the threat of SARS; terrorism threats against the U.S.; JAL’s pullout; the slow decline of the garment industry as a result of WTO; competition from other less expensive competing tourist destinations; rising fuel costs for airlines which has made tourist travel more expensive and other factors beyond the control and influence of the islands.

However, the CNMI has not been alone in the Pacific in having to weather economic difficulties—other island entities faced some (not all) of the same conditions and are over-coming them.

In my opinion there are instances where the Commonwealth aided and abetted the economic decline now being experienced—even if unintentional at the time.

In short, the NMI failed to feed the goose while it collected the golden eggs during the “boom” period. It failed to take care of business in its “economic store.”

I do not like to generalize with explanations applied with a “broad brush” but it is sometimes necessary to do so in order to obtain even a small degree of perspective in an attempt to describe complex, interconnected issues. The commentary that follows are necessarily generalizations by the very nature of the subjects addressed. They are generalizations of complicated issues believed by this observer to exercise unfavorable influence on future private foreign investment in the Northern Mariana Islands. The problems must be acknowledged before they can be corrected.

Some of the causes that this 35 year observer of the area’s economic history has witnessed which have slowly and inexorably damaged the islands’ business investment climate and contributed to the decline now being observed as many foreign investors “bail-out” of the economy include:

* Frequent changes in the laws and regulations governing business and often “inadequate legislative band-aid” remedies;

* A confusing, complicated, time consuming and expensive bureaucratic maze of regulations governing foreign investment and the recruitment of non resident workers;

* Unkempt promises to provide 24 hour, island-wide potable water;

* Inadequate provision of reliable electric power;

* Failure to undertake tort reform which occasionally has resulted in “windfall” jury awards;

* Negative attitudes toward foreign investment once described by a prominent indigenous writer who deplored the attitude of some islanders who (and I paraphrase), appear to have been adversely influenced by “protectionist policies” of the local legislature which, according to the writer, fueled the poison of “disdain or hatred” toward those not of the island who established themselves in the Marianas (Saipan Tribune – 4/13 /‚01);

* Lagoon pollution and “red flaged” beaches;

* Crimes against tourists and graffiti defaced historical monuments;

* Adverse Article XII publicity “hang-over.” For example, the articles that appeared in the press throughout Asia and North America under headlines such as: Indian Givers?, Guam Business News, (July,‚91); Northern Marianas, Land Alienation, Guam Business Almanac, (Œ92); Paradise Postponed, Guam Business News, (July,Œ92); Saipan: Land of Disenchantment, Building Industry, (May Œ93); Gambling, Gangs and the Sleepy Marianas, Far East Economic Review, (July 15, Œ93); CNMI: Paradise for Gangsters, Lawyers, Pacific Daily News, (August 16,Œ93); Asian Developers Bypassing Saipan, Marianas Variety, (8/23/93), and other negative banners;

* Burdensome and restrictive environment laws;

* Government fiscal irresponsibility;

* Stagnant Free Trade Zone;

* Occasional preoccupation with short term, self serving temporary gain at the expense of long-range permanent benefits to the community.

* Absence of a coordinated, comprehensive plan to encourage and direct investment both domestic and foreign. As an example of this need the firm of Bridgecreek planned to invest from $8 to $10 million on Pagan in a project to mine pozzolan. The project became the subject of confusion and dissension among islanders and the firm backed out with the statement that they “will not return until CNMI determines what it really want.” (Variety 5/24/06);

Many of the above add up to increasing the cost of doing business in one form or the other—some of which leave the impression of instability thus making long-range business planning difficult.

It must appear to some potential investors that too many of the Commonwealth‚s regulatory agencies have conflicting agendas, each with an abundance of time consuming and expensive compliance procedures. In the past it appears little appreciation was exhibited for the needs and requirements for increased economic growth and the private financial agents that can bring it about. There was no overall comprehensive plan to direct future private investment. No specific investment priorities were established. Aside from the tax rebate provisions there are no real incentives to encourage additional investment at this time.

The above are issues that influence foreign investment decisions and the perception of many investors of the islands’ business climate.

Correct some of the above, strive to mitigate the adverse effects of others, and modify the business climate to really make the island’s investor friendly and you are on the way to recovery.

The above represents a difficult task—don’t expect change overnight —or perhaps even within the next few years. An entirely new economic strategy must be put in place and functioning. It‚s going to take a long time and a lot of hard work lies ahead and it will take teamwork. (William Stewart)