Report: Depression under federalization

Wednesday, 12 November 2008 00:00 By Junhan B. Todeno - Variety News Staff

UNDER a federalized immigration system, the CNMI economy will lose approximately 44 percent of its real gross domestic product, 60 percent of its jobs, and 45 percent of its real personal income by 2015, according to a report commissioned by the governor.

“Unequivocally, this is a depression of great magnitude. It is equivalent to turning back the clock for the CNMI economy to 1985,” stated the report which was funded by a grant from the Office of Insular Affairs of the U.S. Department of the Interior.

Malcolm D. McPhee & Associates and Dick Conway, an economic development and research services based in Sequin, Washington, submitted the report on Oct. 31 to Gov. Benigno R. Fitial and to U.S. Interior Secretary Dirk Kempthorne.

Fitial has sued the federal government to prevent the implementation of the federalization law in June 2009.

Garment factories

According to the report, the demise of the local garment industry, which cannot compete with China’s cheap labor, resulted in the lost of more than 11,000 jobs in the CNMI.

In 2007, total employment fell by 35.6 percent drop from 2004.

In a short span of three years, the CNMI lost one-third of its economy, one that took more than 20 years to build, the report said.

Federalization, the report added, will compound the CNMI’s economic woes.

“The immigration measure could prove troublesome for the visitor industry, now the CNMI’s only driving force is the economy, because about 70 percent of its workers are non-U.S. citizens,” the report added.

“The outlook for the CNMI economy is bleak.”

According to the report, the last garment factory is expected to close in 2009, and the visitor industry, after one or two good years, will have to grapple with a declining workforce as foreign workers are forced to leave the islands under the federalization law.

“Even if local residents are willing to take the low wage jobs in hotels, restaurants, and retail stores — an assumption with little basis in past experience — the visitor industry will face a labor shortage,” the report said.

Recommendation

The report recommends the repeal of the federal statutes extending the U.S. minimum wage and immigration laws to the CNMI.

The CNMI, it added, should also seek federal assistance to small investors, and consider amending its Covenant with the U.S.

The CNMI, the report said, needs a law that recognizes the realities of its current economic situation and provides the necessary tools for recovery.

Future scenarios

The report said under the best of circumstances, business revenue and employment in the visitor industry will likely decline by 20 percent between 2010 and 2015.

Short of spending tens of millions of dollars to shore up education, healthcare, and other government functions, there is little that can be done to improve the local economy, the report stated.

Federalization, it added, will drive up production cost and cap the supply of labor in the CNMI economy — this will preclude any meaningful economic development in the future.

In contrast, the report stated, the return of reasonable local control over immigration and the minimum wage will allow the visitor industry to expand, making up for some of the jobs lost during the downturn of the apparel industry.

Labor mobility is just as essential to economic development and growth as is the mobility of capital, goods and services, and technology, the report stated.

“It might be said that the quicker way to ruin a small isolated island economy and prevent any real chance of recovery is to cut off its supply of labor,” the report added.