America's Hong Kong
By Ronald Bailey
The Commonwealth of the Northern Mariana Islands (cnmi) is a chain of 14 tiny islands directly north of Guam in the western Pacific. The island of Saipan is home to 90 percent of the commonwealth’s population. For centuries, Spain administered the islands as colonial possessions; then they were sold to Germany and eventually handed over to Japan after World War I.
As the Second World War approached, the Japanese fortified the islands. U.S. troops invaded Saipan on June 15, 1944. It took 25 days of fierce fighting to secure the island at a cost of more than 3,000 dead American soldiers and more than 30,000 dead Japanese defenders. The islands are still littered with the debris of the battles: rotting gun emplacements, Japanese command posts and bunkers, rusting armored vehicles. Of the many war memorials that dot Saipan, the most sobering is at Suicide Cliff. From that precipice, hundreds of Japanese men, women, and children jumped several hundred feet to their deaths rather than surrender to the American invaders.
After the war, the poor and undeveloped islands were administered by the U.S. military, which closed them to outsiders because of a very elaborate, secret cia covert-operations base on Saipan. In the 1970s, this sleepy tropical backwater began to negotiate a new status with the United States. This eventually resulted in a 1975 covenant that established the Commonwealth of the Northern Mariana Islands as a self-governing entity under the sovereignty of the United States. The relationship is made clear on island license plates, which proudly read "cnmi usa."
Essentially, the locals became U.S. citizens, but without the right to vote in presidential elections, and without federal income taxes. Although most federal laws apply, the covenant reserved some crucial areas to the control of the cnmi government, including minimum wage rates, immigration rules, and customs. In 1978, the islands established a democratically elected bicameral legislature with a Senate and a House of Representatives, an executive branch headed by a governor, and an independent judiciary.
Until the covenant, the Mariana Islands were an impoverished ward living off meager federal government handouts. In 1970, the 1,000 or so indigenous people who were employed had annual wages totaling $1.5 million, and the largest employer was the Trust Territory government. In 1970, the total number of hotel rooms in the islands was 83.
Even after the covenant, full economic takeoff had to wait for the conferring of American citizenship on cnmi residents to be finalized by various bureaucrats. But by 1986, three factors—the stability assured by affiliation with the United States; the opening of air service to Japan; and the abandonment of restrictions on foreign investment—converged to create a remarkable economic boom. A tourist flood resulted—the number of hotel rooms rose from 740 accommodating 117,000 visitors who spent $59 million in 1980, to 3,600 rooms for 650,000 tourists who spent $522 million in 1995. The second pillar of the CNMI economic miracle is the garment industry. It rose from essentially nothing in 1985 to a $419 million business in 1995. Total gross commercial revenue in the islands has grown from $244 million in 1985 to $1.5 billion in 1994.
What I found on a recent fact-finding trip to the Marianas was a true free-market success story. The economy grew at 13 percent per year from 1980 to ’90, and per-capita gdp quadrupled from $2,400 to $10,000. Unemployment dropped from 15 percent to 4 percent. In addition, the Commonwealth slashed income taxes by 90 percent, cut capital gains taxes to half the U.S. rate, reduced excise taxes, and eliminated import duties. There are no inheritance, property, or sales taxes on the islands. Meanwhile, cnmi government revenues have increased from $5 million in 1978 to $220 million in 1996, and the U.S. contribution to government operations ended entirely in 1992.
The flood of private investment in the Marianas soon ran up against a limit: There were not enough local people to fill the new jobs being created. The solution was hiring thousands of temporary "guestworkers."
Under the covenant, the cnmi has complete control over immigration. The hotels, garment factories, and construction firms currently employ 29,000 guestworkers, and guestworkers make up nearly half of the islands’ population of 60,000. Some 20,000 of the nonresident workers are Filipinos, while 7,000 are from mainland China.
"If you look at a map, you will see that we are the first tropical beach immediately south of Japan, Korea, Taiwan, and the China coast. This means that we have enormous potential to reap the benefits of our geographic location. But we cannot achieve that potential with our tiny local population alone," says cnmi Governor Froilan Tenorio. "What kind of investment climate do you think we will have if I have to tell a prospective investor, ‘Sorry, we can’t supply enough local manpower, and the federal government won’t let us bring in any more foreign workers?’"
The Governor’s question is not merely a rhetorical one. Pushed by U.S. labor unions—who are upset by the prospect of a laissez-faire, loose wage, low-tax economic model blossoming under American sponsorship—and emboldened by instances of guestworkers being cheated and mistreated, the Clinton administration is threatening to clamp down on this mini-Hong Kong.
Allen Stayman, Director of the Office of Insular Affairs in the U.S. Department of the Interior, has threatened to take control of immigration and wage policy away from the cnmi government. Clinton officials "are firmly convinced that a gradual increase in the cnmi wage rate and the eventual full application of the Fair Labor Standards Act would benefit the economy," testified Stayman this past February in support of a bill that would force up cnmi minimum wages. Governor Tenorio, on the other hand, argued in his own House testimony that all such federal intervention will do "is ruin our economy…and assure that our Commonwealth will remain permanently dependent on federal assistance."
The irony is that these interventions are being proposed just when other Pacific territories are jealously eyeing the cnmi’s humming economy. One hundred twenty miles to the south, Guam is trying to negotiate a covenant with the U.S. similar to the one the cnmi has, in which Guam would gain control over immigration and labor regulations. And even as Clinton administration officials attack the cnmi, they have had a change of heart that leaves them looking favorably at Guam’s request. Why? In February, the Washington Post reported that Guam got the attention of the Clintonites after Governor Carl Gutierrez raised and delivered nearly $900,000 in combined contributions to the Clinton-Gore re-election campaign and the Democratic National Committee. These handsome campaign contributions made the citizens of Guam, who cannot vote in U.S. elections, the biggest donors to the Democratic Party per capita of any part of the U.S. Governor Gutierrez has met with President Clinton in person twice since making the contributions.
Maybe the cnmi missed a bet. If Governor Tenorio had hosted a fundraiser for Clinton, and then flown to the White House for a coffee date, he might not be facing today’s threat to his commonwealth’s right to direct its own economy.
Certainly there are problems in the cnmi. One is a large local bureaucracy. The 1997 budget shows that nearly 4,600 of the 27,500 U.S. citizens on the islands work for the government. The islands’ long period of federal dependency fed cultural attitudes that are found all too often in poor countries around the world today. "Our people were enticed out of the fields and fishing boats and into desk jobs where they were taught that working for the government was the road to riches and that other people would do the dirty work," Governor Tenorio testified at a recent Congressional hearing. "Worse, we were inculcated with a welfare mentality. Uncle Sam paid the bills and cleaned up the messes, and we came to rely on that."
When I suggested to one government official on my recent visit that too many locals were working for the government, he answered: "Well, they’re not trained for anything else. If we didn’t pay them to work for the government, they’d be on welfare." A tourist boat captain joked to me that the traditional Marianas’ greeting, "Hafa Adai," really means "half a day," which is all that an islander wants to work. Several other locals proudly cited the claim that islanders consume more Budweiser per capita than any other people in the world. Anheuser-Busch has twice sent out a vice-president to see what is going on.
There is also little question but that some guestworkers have been mistreated. Government officials do not deny this, and say they are making new efforts to enforce contracts and apply existing labor standards. "Employers and others who abuse our guestworkers are no better than common criminals," testified Tenorio on Capitol Hill. "They are being investigated, prosecuted, and convicted of crimes or administrative violations."
The Governor argues "It would be impossible to understand how [federal agencies] could possibly do a better job in the cnmi than we are now doing." Taking over immigration control and raising minimum wages would only destroy economic opportunities and hurt employees and employers alike. The current minimum in cnmi garment factories, $2.90 per hour, is already more than ten times the average wage in mainland China, which the New York Times has recently reported to be 28 cents per hour. The overwhelming majority of cnmi guest workers request that their labor contracts be renewed upon expiration. Governor Tenorio’s summary plea to Congress is a simple one: "Don’t permit Washington to micro-manage us or impose its policies and theories on us. Don’t send us back to the old cycle of dependency on federal handouts."
Ronald Bailey is a Washington writer and tv producer. This article grows out of research done during his first-ever junket paid for by the government of a tropical paradise.
