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Marianas Miracle: Free Markets Can Flourish in America

June 1, 1997
By Clint Bolick

"This is America," remarks a character in Jonathan Kellerman's best-selling novel, The Web, about the Northern Mariana Islands, "even though no one in America knows [expletive] about this place.

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"This is America," remarks a character in Jonathan Kellerman's best-selling novel, The Web, about the Northern Mariana Islands, "even though no one in America knows [expletive] about this place."

Americans should discover this island chain in the western Pacific--not just because it's a tropical paradise, but because it boasts perhaps the most vibrant economy in the United States. The secret: largely unregulated markets that in two decades have created out of almost nothing head-spinning economic growth, productivity, and prosperity.

The Northern Marianas--Saipan, Tinian, Rota, and 11 other mostly uninhabited islands that together comprise only 176.5 square miles--were captured by the Americans in World War II and used as a launching base against Japan. In 1976, the islands' electorate approved permanent U.S. commonwealth status by a 78 percent vote.

The quid pro quo was exemption from three federal laws: taxation, immigration, and minimum wage. During the 1980s, the commonwealth (CNMI) took advantage of its freedom to slash income taxes by 90 percent; cut the capital gains tax; and import low-wage guest workers, mostly from China, the Philippines, and Korea.

The results would have been predictable by the likes of Milton Friedman, but a complete epiphany to Washington bureaucrats. The number of businesses grew from 55 in 1970 to more than 5,000 today. Despite an indigenous population of only 29,000--smaller than most U.S. cities--the islands export more than $792 million in goods, up from $122 million only a decade ago.

The per-capita gross island product has quadrupled since 1980, from $2,500 to $10,000, while unemployment declined from 15 to 4 percent. In the past 10 years, gross business revenues have increased 605 percent, and the islands must supplement their local labor force with another 26,000 guest workers to fill all the jobs.

The principal industry is high-quality apparel, manufactured mostly by immigrant workers who make the CNMI minimum wage of $3.05 per hour--less than the $4.68 federal minimum wage, but as much as six times more than wages in their native countries.

With dramatically increased revenues--$194 million in 1995, compared to $5 million in 1978--the government has improved the islands' physical infrastructure, nearly retired a hefty public debt, and weaned itself from all federal financial support except capital improvement funds.

The islands have experienced growing pains. Abuses of immigrant workers have prompted labor reform measures. Meanwhile, government employment among islanders is too high, leading Governor Frolian Tenorio, a pro-free market Democrat, to launch a privatization drive. Responding to the poor quality of public education, Gov. Tenorio has called for a sweeping school voucher program that would position CNMI at the cutting-edge of American education reform. Despite these challenges, progress has been swift and future prospects are bright.

The Marianas' greatest blessing seems to be its enormous distance--10,000 miles--from Washington. But maybe not far enough: the Clinton administration and members of Congress are pushing to take away the very freedoms that have fueled the Marianas miracle. Proposed legislation would federalize the minimum wage, destroying in one fell swoop the islands' garment industry and imperiling the tourist industry; take away local control over immigration, thereby drying up the islands' labor supply; and double the capital gains tax.

Tenorio proposes a deal: "Leave us with control over immigration, taxation, and minimum wage"--and in return the islands will forego their $27 million capital improvement funds, severing entirely their dependency on Washington. Conversely, if Congress eliminates the Marianas' exemptions from federal laws, it likely will have to restore subsidies.

"Despite its willingness to lecture others, Washington hasn't exactly done a brilliant job of running its own affairs," quips the Cato Institute's Doug Bandow. "It can ill-afford to scorn, much less shut down, CNMI's experimental laboratory of liberty."

Now that the era of big government is over, maybe in the millenium the "truly" new Democrats will nominate a real dream team of Tenorio and Rosello. More realistically, maybe we on the mainland can learn something about freedom from our far-flung island commonwealths, and begin providing greater flexibility to states and local governments to compete by using market incentives.

But at the very least, we ought to leave the Marianas with the freedoms they shrewdly negotiated 20 years ago. Imagine: an island paradise where newcomers are welcomed and enterprise flourishes.

It sounds like it could be America. Maybe because it is.

Clint Bolick is a co-founder of the Washington, D.C.-based Institute for Justice, which litigates nationwide in support of economic liberty.