THE governor said his request to “repurpose” federal pandemic unemployment assistance funds aims to allocate $231 million for “economic recovery” and $120 million for “strengthening economic services.”
This reminds me of yet another excellent analysis written by scholar, educator and author Father Fran Hezel, SJ, this time about the consequences of U.S. funding assistance to the Federated States of Micronesia and the Republic of the Marshall Islands. Both are independent nations with Compacts of Free Association with the U.S.
In a 2006 monograph titled “Is That the Best You Can Do? A Tale of Two Micronesian Economies,” Hezel quoted a U.S. official as saying that “too much [U.S.] funding [for the FSM and RMI] has created a ‘lotus-eating society’ in which there is no incentive to grow a private sector.’ ” For many U.S. officials, the Compact funds to the FSM and the RMI were “poorly spent, if not wasted outright, and the attempt to promote economic self-reliance [was] a failed enterprise.”
In 2004, Hezel said, a U.S. Interior official noted that the “first economic assistance package under the Compact of Free Association provided over $1.5 billion to the FSM since 1986….” That amount is worth about $2.87 billion today. In 1986, the FSM population was around 92,000.
Take a moment to let those numbers sink in.
According to the U.S. Interior official, “Most of that $1.5 billion, over $890 million, was spent on the day-to-day operation of the FSM State and National governments. No less than $334 million was spent on the ‘capital account’ for capital improvement projects and economic development….” And yet, the “use of Compact funding did not achieve the social gains or as much economic growth as all had expected in 1986. After 17 years of Compact assistance, levels of academic achievement and health care, the effectiveness of government services, the condition of the schools and hospitals, roads and ports, water and sewer, and even electrical services are not what the FSM’s founders or any of us present today had hoped.”
When the U.S. took over the Pacific Islands formerly administered by Japan — the Northern Marianas, Palau, the Marshalls, and what is now the FSM — officials were optimistic that these Trust Territory islands could achieve self-sufficiency. This belief, Hezel wrote in 1968, “was sustained in part by the impressive record of Japanese accomplishments in these islands prior to World War II. With the help of imported labor from Okinawa, the Japanese had succeeded in making Micronesia an entirely self-supporting colony with a favorable balance of trade.” Hezel said this “was again to be the goal of the U.S. trusteeship, but with certain qualifications.” However, it never materialized. From the start, the U.S. failed to provide adequate funding for the islands.
In the early 1960s, during the Kennedy administration, Hezel said the U.S. decided to “fast-track” the development of the islands. The U.S. had to acknowledge complaints that it had allowed the TT economy to remain static for too long. In that Cold War era, Hezel said, how could the U.S. expect to gain the confidence of developing nations if it could not even properly manage its own Pacific territory? Funding for the TT was doubled. Not surprisingly, the “administrative structure of the government grew in size…as the number of those employed by the [TT] government doubled by 1966, and then quadrupled by the end of the decade. This growth created thousands of new jobs that were filled by [island residents], but it also gave rise to the bloated bureaucracy that became a standard feature of island governments for years afterwards. The rapid growth of the government workforce also generated a service economy in the private sector — restaurants, stores, bars, movie theaters, and the like — that has ever afterward relied on government spending to fuel it.”
In 1982, Hezel wrote that as the Micronesian educational system “continues to turn out thousands more potentially valuable employees, the government is forced to expand to absorb as many as possible into the administrative structure. Many others it simply cannot employ. The payroll grows longer, while the cost of providing for the growing social services threatens to devour an ever greater percentage of public funds. It has been observed already that the cost of social services is rapidly outstripping the capacity of the economy to afford them…. Such a pattern is not terribly unsettling, provided there is a rich uncle around to collect the bills. But if a self-supporting economy is still the goal of both the administering authority and the territory, then the trend must be reversed and proper emphasis given to economic development needs.”
Question: How can an island economy be “self-reliant” or “resilient” when it is premised on U.S. funding and other forms of assistance? To paraphrase Hezel, if island jurisdictions “could not make more headway despite the generous funding and broad latitude they had to use [U.S.] funding,” is it realistic to hope they will finally become self-reliant if given more U.S. funding?
Hezel said every economic report on the FSM and the RMI had noted the following:
“Poorly developed private sector, compared to bloated government sector, which is large not only in terms of employees, but also a salary scale that is disproportionate to both the private sector and the output of work by employees.
“Inhospitable environment for investment, stemming from absence of secure land tenure, unnecessarily difficult procedures for obtaining foreign investment licenses, and lack of transparency and impartiality in government.
“Heavy dependence on overseas aid, accompanied by reduced urgency to generate internal economic growth.”
Heard them before?
Here in the CNMI, the governor said by “repurposing” over $400 million in federal funds, the government will “stimulate economic recovery…and support the transition to a more resilient economy….”
The CNMI government cannot even revive our only industry — tourism — yet it claims it can achieve economic recovery and build a resilient economy by spending Uncle Sam’s money.
Makes perfect sense.
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