A Lesson From Pisa

A Lesson From Pisa

“The Economic Base of the Commonwealth’s Leaning Tower” For what ever it’s worth I would like to share an observation I made many years ago which I call the “Leaning Tower of Pisa Syndrome.” Before doing so I would like to pose the question, “at what age did you first become aware that there was such a tower?” I would imagine that it was an early age, perhaps as a result of a photograph in a first grade primer. I once lived in a suburb of Pisa, Italy and had many occasions to visit this wonderful structure completed in the 14th century.

Like millions of others I had always known that it leaned precipitously. But one does not really get the full impact of its height and awkward slant unless it is actually witnessed in person. Approaching the piazza where it stands, the area is reached by walking down an avenue where, at street level, the imbalanced structure is shielded from view by three and four story buildings even though a municipal ordinance decrees that nothing may built higher than the tower. Turning the corner for an unencumbered, clear view, the magnificent ancient edifice of 58.4 meters (192 feet) comes into full and sudden view.

Moving closer your instinct tells you not to stand beneath the side that first began to tilt during construction in the 12th century. Positioned at the corner of the street at the point of the pedestrian turn is a typical Italian outdoor cafe. Sitting there watching virtually every nationality in the world walk to the corner and turn where the tower looms into full view with an overpowering presence, every one of the visitors speaking excitingly in their native language invariably exclaims, “It really does lean.” Sitting there and hearing the same expression of astonishment over and over in a multitude of foreign languages among people who already knew the tower leaned by virtue of the reason for their visit and who – one would think – be insulated from the sudden visual shock, prompted me to coin the phrase, “the leaning tower of Pisa syndrome.” For me this poignant example illustrates that we human beings can be aware of something – or some event – but, in reality, not know it. I am reminded of another encounter I once had with an heiress of the Time Magazine fortune.

This lady was attempting to provide some desirable service for the people of a Micronesian island but was experiencing some difficulty in implementing her project. She asked me, “can you tell me what the problem might be because I don’t want to be in a situation where I don’t know -and don’t know that I don’t know.” Think about that elegant thought for a moment. What does the above story have to do with the Commonwealth? It’s all a matter of awareness. As an observer of the economy for many years it has occurred to me that some law makers simply fail to comprehend the unanticipated, unintended consequences of many laws and their potential adverse effect on the health of the private sector as well as the fact that it is only the well being of profit generating private enterprise that is capable of producing tax revenues.

They have been told by many in the business community that the base of the Commonwealth’s “economic tower” leans as a result of some of the laws governing various elements of business activity but some don’t really seem to comprehend the interlocking elements unless, of course, they have been in business for themselves, had to meet a payroll on time and in general operate at a profit to stay alive. If you don’t have a healthy private sector – you don’t have an economy. Without a vibrant economy there are reduced tax revenues and thus fewer government services and employment opportunities. Does the tower have to crumble before anyone realizes it was in danger all the time? If so, by then, it may be too late to take corrective measures. What might these measures and actions be? “Strengthening The Economic Base of the CNMI’s Leaning Tower”

An analogy with the leaning Tower of Pisa has been used with that of the condition of the Commonwealth’s current economy. Similarly, the base of our economic tower is also leaning which prompted me to think of ways to stabilize, if not strengthen our economic foundation. A list consisting of several suggestions follows, none of which are prioritized and none as yet sanctioned by any agency or organization. For consideration – they are: (#1) – Offer a guarantee against an increase in taxes for a specified period and offer tax incentives for new investment, (a tax holiday). Some stimuli are necessary to encourage increased private investment within the potential productive sectors of the economy and, to the extent possible, direct investment away from consumption oriented enterprises. In a society where any local investor is free to enter any legitimate business, some inducements may be necessary to convince businessmen to take the risk in implementing new productive endeavors particularly those the government desires to see undertaken.

In this regard the government should also indicate a willingness to assist in sharing the risk as well. This could take the form of a tax holiday for "approved" projects. Perhaps consideration could be given to enacting laws designed to offer tax relief for a period of several years for those undertaking new projects. Of course, care must be taken to avoid prejudice against those already in business even though they may be of a smaller scale than the government desires. A number of formulae could be devised. For example, for every additional 5 acres of commercial farm land brought under cultivation the law might permit two years relief from the business gross revenue tax. The tax relief could be applied to all new project investment activities such as agri-business, food processing, production of fruits and vegetables, horticulture, animal husbandry, etc. Many different crops have long been identified for possible production. Additional support for agriculture could be provided with a crop insurance program. The same legislation could be extended to fishing, fish processing, and mariculture. All of which are capable of either substituting imports or producing export oriented commodities. The key words are "new projects" which might also include an expansion of an existing endeavor. The tax holiday would remain in effect for only a specified period. (#2) – Explore U. S. tax advantages for potential businesses operating from the CNMI.

There must be many United States’ firms unaware that businesses registered in the Northern Marianas and engaged in export sales can enjoy significant tax relief from their IRS tax obligation by establishing offices within the CNMI since a portion of the income generated by foreign sales may be exempt from U.S. tax. This is another opportunity to attempt to diversify the economy. (#3) – The Northern Marianas has to be sold as a location from which to do business along with the area’s business investment incentives. One possibility which might interest firms that produce computer software which should be explored concerns promoting the islands as a location for such largely cerebral work. It’s a high value, clean industry. People who earn their living by mental creativity work best in an environment such as the CNMI can provide.

While the passage of local laws offering investment incentives is one thing, such incentives still have to be made known outside the area and recognized by potential investors as business opportunities in which they may be interested. In short, potential projects must be packaged, advertised and the initial inquires adequately and successfully serviced by the government. An office could be established and tasked with the responsibility of preparing documented market and financial feasibility analyses of potential projects for implementation consideration by private investors. These investment prospectus or, “tools”, should be used to introduce the Commonwealth’s investment opportunities to interested parties. This process must actively involve several of the government’s operating departments and agencies which must begin to view themselves as partners to business and render all available assistance to the program. Being in proximity to the vast Asian markets the Commonwealth’s geography might also be promoted as branch sales office locations for American export oriented firms who recognize the advantage of being situated under the stability provided by the American flag, the U. S. judicial and banking systems along with U. S. copyright, patient and trademark laws while benefiting from the CNMI’s lucrative tax rebate advantages and resort atmosphere. Other investment opportunities include encouraging: retirement subdivisions, time share condominiums and health spas, an automobile ferry between islands, the manufacture of pharmaceutical products, toys, beach wear, Hafa Adai shirts and dresses similar to the Hawaiian “mu mu,” commercial fishing, cut flowers (which have high value in relation to bulk and can thus be flown to Asian markets), bottled water on Rota, fishing vessel repair facility to service Asian fleets operating in the western Pacific, shrimp mariculture and perhaps even culturing pearls in the Northern Islands. Nothing should be so small as to be overlooked remembering that any grand plan is but the sum of its smallest elements. And it’s the smaller projects where the local people have the financial capacity to participate either as 100 percent owners or as joint venture partners. (#4) -Undertake a publicity campaign to mitigate the adverse publicity in Asia and the U. S. media which resulted some years ago from Article XII lawsuits. (#5) – A possible new opportunity for Asian educational institutions could be a tropical marine biological laboratory on Rota or one of the Northern Islands in association with a Japanese or other university as an extension of their campus in cooperation with our own college.

This would permit foreign and U. S. students of marine science to study and gain actual experience in the field. Such activities contribute to diversifying the economic base. (#6) – Offer new and creative investment incentives. One of the measures of how badly an area wants foreign investment may be gleaned from the incentives it offers. These can take various forms, several of which follow as examples found in various states on the mainland. Train U. S. citizen employees for private sector positions in new, high tech. positions at government expense, (i.e., free or at reduced tuition at the college. U. S. grants are available for this purpose). Provide access roads to business site locations not presently located adjacent to a public highway. Provide utility lines (water, power, sewer) to the business property line when such sites are not located along such lines. Assist with the construction of shell buildings for either lease, lease with an option to buy or out-right purchase for up to 55 years. Duty free importation of raw materials equipment and supplies (when not for resale within the area). Establish “free trade zones” at the airport and seaport to accommodate light, export oriented manufacturing, bonded warehouses, etc. Suspend, at least, temporarily all developer impact fees.” (#7) – More attractions are required for the tourism sector such as: an aquarium, a cultural and performing arts center, an aerial cable tram to the Marpi cliffs or Mt. Tapotchau with a revolving restaurant and gift shops, a glass observation elevator up the face of Suicide Cliff and a sound & light show (ancient Chamorro culture). (#8) – The Commonwealth is a western oriented society situated in the eastern hemisphere and should build upon and promote that difference in our Asian tourist markets just as Guam appears to be doing. Enhance the appearance of our over-all tourist plant, make Hotel Street a walking mall, establish regulations governing outdoor advertising signs, add a few circulating water fountains, etc., – in short improve beautification efforts. (#9) – Review U. S. laws and regulations as may be related to potential investment in the CNMI. Undertake a through analysis of suitable industries that could benefit from Headnote 3 (a), and the duty free entry privileges of qualified products into the United States. It is doubtful that anyone on island has ever reviewed the entire list of more than 2,500 eligible products for the few that might possibly benefit from an island production location. This effort should be undertaken to determine those selected enterprises that might “fit” into a CNMI location. Of course, not all products on the duty free list are suitable – but some will fit. In terms of economic diversification, the CNMI must do everything possible to protect its ability to export qualified manufactured products duty free to the U. S. mainland market before U. S. trade barriers against many countries drop in the next century as a result of World Trade Organization, (WTO), agreements.

This means resisting all pressure from members of the U. S. Congress who threaten to withdraw or modify Headnote 3 (a) benefits within the U. S. harmonized custom tariff schedule. Unfortunately the U. S. Alien Entrepreneur Program does not apply in the Commonwealth. It could possibly – if the U. S. law were modified. This law relates to citizens of other countries seeking permanent resident visas in the United States. These people may apply for such status in one of the fifty states but currently not in the Commonwealth since the Northern Marianas administers it own immigration laws. This program is administered by the U. S. Immigration and Naturalization Service for those individuals that can qualify by investing at least $1 million in a new or existing business that will employ at least ten people. The requirement is only $500,000 if the business is located in a rural or economically distressed area in the United States mainland or Hawaii. It may be that the CNMI could obtain a wavier and qualify should the program be deemed to be of interest. (#10) – Support a long range, comprehensive master development plan to encompass all facets of economic development as well as the needed physical infrastructure required to support the economy.

Tools for implementation are, zoning, building codes and the budget process. (#11) – Take advantage of the Jones Act. This U. S. legislation prohibits a foreign flag surface vessel from picking up or discharging passengers or cargo between two U.S. ports, as for example, between the U. S. west coast or Honolulu and – or Honolulu and Guam. The Jones Act has had significant adverse impact on both Hawaii and Guam particularly during strikes by longshoremen on the U.S. west coast during which time no American flag vessels and no foreign flag vessels service the islands direct from a U. S. port. Additionally, U. S. vessels operating on this route have allegedly charged exorbitant freight rates. This portion of the law does not apply to the Northern Marianas with the result that cargo can be picked up at any mainland U. S. port or Hawaii – by any foreign flag vessel – and transported to the Northern Marianas. The above are just a few ideas of efforts that could be undertaken. However, none are a “quick fix.”