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Variations | Diversification!

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THE gradual establishment of the local tourism industry — which is about as old as this newspaper — diversified the NMI economy.

Let me explain. 

Following World War II, and under the U.S. administration, the local economy was basically a “one-industry” economy: government. As a federally commissioned economic development plan — a.k.a. the Nathan report —  pointed out in 1966:

“Conditions in the [Northern] Marianas during the immediate post-war period, as in so many instances in their whole history, differed greatly from the other islands of Micronesia. All the…civilians were transported to Saipan and concentrated in temporary quarters. They were severely restricted, poorly fed, and assigned jobs by the [U.S.] military commanders. These people did not know the status of their real property and owed little other than the old clothes which they wore. They had no way of fully supporting themselves. Their pre-war sources of income and goods had vanished, and although they were paid for their work as laborers and domestics, the wages were low and many goods were either not available or were priced beyond their power to buy. Most foodstuffs were ‘issued’ [by the U.S. military] and consisted mainly of rice, flour, sugar, salt, and canned meats. Clothing, utensils, tools, livestock were unobtainable. [Northern] Mariana Islanders had no choice but to look to the American administrators for their rehabilitation and future development….

“[Today, 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.”

But it wasn’t all gloom and doom. “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 [the 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]….”

According to the late great NMI economist William H. Stewart, “ 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. A lot more has happened since then. And on top of all that we’re now in the midst of a global pandemic that has ravaged what is left of the local economy.

But 21 years ago, in the spring of 1999, the Commonwealth was dealing with the dire consequences of the Asian currency crisis only.  During the two-day (federally funded) NMI economic planning conference held at the Hyatt,  several of the participants, which included U.S. economists, were still cautiously optimistic.

Then and now, economic diversification was the “buzzword.” Everyone was for it. Among the new investment proposals mentioned during the summit: the private establishment of an international high-security prison in one of the Northern Islands and (drum roll please) 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.”

No wonder they call economics the “dismal science.” Most folks prefer fairy tales which almost always end happily. And by fairy tales we, of course, mean politics.

 

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