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Square one: Economic diversification in the CNMI




Live From Saipan By Zaldy Dandan

Saipan — Elected officials and concerned citizens say there is a need to “diversify” the tourism-based local economy. How? The proponents of diversification will usually mention “new industries” like they’re saying abracadabra.


The last time the Northern Mariana Islands diversified its economy was in 1983 when the first garment factory opened on Saipan. The garment industry, however, became too successful for its own good, and created powerful enemies in the U.S., including Congress and the White House. Saipan’s last garment factory shut down in 2009.


Prior to garment manufacturing, the NMI had a small tourism industry, and prior to that, there was big government. As a federally commissioned economic development plan — a.k.a. the Nathan report — pointed out in 1966: “[The] entire economy of [the NMI and other Trust Territory islands] is dominated by the activities of the Trust Territory government. About 90 percent of the total money income received by [islanders] is derived either directly or indirectly from government spending. Almost one-half of the [islanders] who are employed for money wages are on the Trust Territory government payroll.”


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According to the late NMI economist William H. Stewart, the Trust Territory government would hire local residents “and they’ll sit at a desk, won’t be very much to do, but we just can’t have them going out sitting under a coconut tree somewhere. They’re going to have to sit there eight hours a day and do the typing or push the paper or whatever it was that had to be done in order to justify this pay.”


But even back then, the experts were already pointing out the islands’ potential as a tourism destination. “Perhaps the most promising natural resource of [the islands],” the Nathan report stated, “is the appeal of the area as an attraction to tourists. Although the full potential of the tourist industry over the next two decades is impossible to forecast, it is clear that tourism development holds real promise for [islands]…. [However, the] public and private capital to support the potential developments will need to be assembled. The need for hotel, restaurant, beach, entertainment and other facilities for tourism is quite apparent…. Although there are many serious impediments, development opportunities do exist in [the islands].”


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Stewart said prior to 1973, “there was little hope for a tourist industry as the Japanese government, preoccupied with their own recovery, had placed currency restrictions on foreign exchange, which limited the amount of money a Japanese citizen or firm could take out of the country to the equivalent of only $742 a year. By 1981, with the exception of a small but growing tourism sector, the [local] economy had experienced little development.”


What changed?


Japan’s great boom period from 1985 to 1991. Stewart said it fueled the NMI’s economic growth. “Throughout the last half of the ‘80s, Japan registered huge annual trade surpluses, had an ever-strengthening currency and one of the lowest interest rates in the industrialized world. Japanese banks overflowed with money, much more than they could accommodate by re-lending in Japan itself. It was this money that went abroad and around the world to finance a myriad of projects. Millions were invested in the Northern Marianas to launch the islands’ important tourism sector.”


And then Japan’s economic bubble burst. Then the Asian currency crisis reached the shores of the NMI. Then 9/11. SARS. Bird flu. The exit of the garment industry. The loss of local control over immigration and minimum wage. Natural disasters. Covid-19.


In the spring of 1999, the NMI hosted a two-day (federally funded) economic planning conference. The NMI government and business community were having a hard time coping with a rapidly declining economy, but several of the conference participants, which included U.S. economists, were cautiously optimistic. Then and now, moreover, economic diversification was the “buzzword.”


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Everyone was for it. Among the new investment proposals mentioned during the conference: the private establishment of an international high-security prison in one of the Northern Islands, and the legalization…of prostitution.


However, as one of the presenters noted during the conference, new industries “will take time to develop, and in most cases, several years. Thus, they will not provide the ‘quick fix’ that may be needed in the near term to mitigate the economic difficulties that the CNMI is facing.” Economics professor David McClain was more blunt. “There’s no such thing as overnight diversification.” He added, “Diversification is really hard and, as a result, you cannot expect very much promise very quickly. To actually diversify will take 10 or 20 years.”


Today, the NMI tourism industry, which shriveled during the pandemic years, has barely recovered. Big government, once again, is the islands’ main “industry.”


Zaldy Dandan, the editor of Marianas Variety, is a recipient of the Best Editorial Writer Award of the Society of Professional Journalists, and the CNMI Humanities Award for Outstanding Contributions to Journalism. His fourth book, “If He Isn’t Insane Then He Should Be: Stories & Poems from Saipan,” is available on amazon.com


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