IN his very informative presentation at a recent Saipan Chamber of Commerce forum, local economist Matthew O. Deleon Guerrero shared several graphs and other data that should provide level-headed guidance to the new administration and Legislature.
Citing what other economists have said before, he noted that the CNMI economy is service oriented and almost totally dependent on imports. (There was a time when the CNMI was a significant exporter of goods, but that ended when the last garment factory shut down in January 2009.)
Deleon Guerrero asked, “What are we importing?”
Based on 2022 CNMI Department of Commerce data, they are:
• Petroleum, oil, lubricants — 37.2%
• Others (vehicles, tobacco, clothing, heavy equipment and all others) — 30.9%
• Food items — 15.4%
• Construction materials — 7.4%
These are the items that allow remote and tiny islands like the NMI to benefit from the conveniences provided by modernity and progress. In exchange for pieces of green paper — which the feds can print anytime — the NMI obtains fuel to run its power plants and power up homes, offices, businesses, schools, healthcare facilities, ports, public safety agencies, etc. NMI residents, for their part, benefit from the latest technologies available elsewhere: smartphones, laptops, internet connection, telecommunications, etc. And then there are the clothes, food, beverages, medicines, equipment, appliances, vehicles as well as workers and construction materials to build roads, homes and (typhoon-proof) buildings. The list is virtually endless. And the point, which Adam Smith explained in 1776, is this: the real wealth of a nation (or jurisdiction) consists of its goods and services, not its money supply. Sadly, says another great economist, Thomas Sowell, “Too many people have yet to grasp the full implications of that, even in the twenty-first century. If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a ‘deficit’ or a ‘surplus’ in the international balance of trade.” Or as author Sheldon Richman would put it, “In reality…there are no imports and exports. There is only what I make and what everyone else makes. Few people would want to live just on what they themselves could make. [19th century economist] Frédéric Bastiat pointed out that each of us daily uses products we couldn’t make in isolation in a thousand years.”
Anyway.
In his presentation, Deleon Guerrero said airplanes could be considered as the “factories” of the CNMI’s only industry, tourism. Tourists, he said, are the consumers of the CNMI’s product. “The supply chain for the creation of this product are the hotels, restaurants and services…. More factories [planes] equates to a greater number of products sold to consumers.” Alas, “all the factories closed in 2020” with the onset of the global Covid-19 pandemic.
“So where are we getting our money?” Deleon Guerrero asked. From the feds, of course. In 2017, when the local economy was booming once again, total federal direct payments to the CNMI amounted to $25 million. In 2021, with the local economy in a coma, the CNMI received $580 million in mostly Covid-related aid from Uncle Sam.
As for the local private sector, Deleon Guerrero said it has reported a 63% (!) decline in overall estimated business revenue since 2017.
Today, Deleon Guerrero said:
• Federal government spending is declining from 2021 levels
• Tourism arrivals are still beneath 1980 levels
• Business revenue has declined to below 2011 levels
• Population has declined to 1990s levels
• Prices are increasing
• Economic development in the CNMI is hard
Meanwhile, in my opinion, the new administration and Legislature should not increase the cost of doing business in the CNMI. Absolutely no new or higher taxes or fees. Instead, help employers retain their current workforce (by seeking amendments to the CW law, including the repeal of the CW touchback provision, and lobbying for the passage of Kilili’s bill, H.R. 560) while implementing policies that can help expand local workforce through training, apprenticeship and similar programs.
The CNMI should also continue or, if possible, expand ongoing promotions in its key tourism markets: Korea, Japan and China.
In his remarks at the recent chamber of commerce economic forum, Governor Palacios said, “We see tremendous potential in leveraging our relationships and our position in the region, to place the Commonwealth on the road to stability and prosperity.”
If he’s referring to a possible expansion of U.S. military presence in the CNMI, then yes, that is another possible source of economic relief. As an Interior official told U.S. senators in a 2008 public hearing regarding the Guam military buildup, “Roughly, evidence from defense spending history in the United States and Hawaii, which is relevant to Guam, suggests that each dollar of defense spending could generate 75 cents of gross domestic product….”
But then again, not everyone’s a fan of the military buildup in the Marianas.
To quote smart folks like Matthew O. Deleon Guerrero, economic development in the CNMI is hard.
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