Lessons of Compact One

Francis X. Hezel, S.J.

As the Federated States of Micronesia and the Republic of the Marshall Islands stand at the threshold of Compact II, their new 20-year financial relationship with the United States, we all might take a look backward and reflect on what lessons we all should have learned from Compact I.

Lesson One:

Geopolitics counts more than anything else in determining Compact funding.

Twenty-five or 30 years ago, when FSM, RMI and Palau were still negotiating Compact I with Washington, the Island nations all held high cards. The RMI had an ace in the Kwajalein missile range, while the others were playing with a few kings, queens and jacks.

With the Cold War still dominant on the world scene, the U.S. was prepared to pay well for strategic denial and access to ports and airfields in case of need. The readiness of the Freely Associated States to make concessions that would help the U.S. neutralize communist-bloc nations overrode whatever other concerns Washington might have had with Island economic and social policy.

Now that the Cold War is a fading memory, the terms of the new Compact are looking very different. The U.S. has room to insist on other issues that might have never made it on the table during the negotiations prior to Compact I.

With the FSM and RMI hands weakened considerably, the U.S. is in a position to dictate the terms for the aid that it is giving.

Lesson Two:

Economic development should not be government-driven.

Forty percent of the general grant funds in Compact I were allocated for development purposes. It's true that this money could be, and was, used for infrastructure development: roads, airfields, dockside facilities, and whatever else had been overlooked during the U.S.-funded infrastructure development thrust of the 1970s. But those Compact I funds were also used as seed money for economic development projects. They built reefers for storing fish and purchased purse seiners, not to mention bankrolling locally owned fishing corporations.

The success rate of these government-sponsored ventures was something less than spectacular. One project after another-fishing companies, airlines, coconut soap factories-failed or went badly into debt.

Conventional economic wisdom-as revised in the last decade, at least-holds that government would do well to stay out of economic development ventures. Its role should be limited to creating a favorable climate for development, theory has it, an in the case of both RMI and FSM, the theory is supported by abundant evidence. Has a government-supported industry ever turned a profit in any Micronesian nation?

The lesson appears to have been learned, at least by the U.S. Compact II has no funds earmarked for development, thus sparing island governments the temptation to lead the charge toward economic development rather than follow.

Lesson Three:

Economic development requires more than investment capital and good will.

By design, the level of U.S. aid under Compact I dropped sharply at the end of each five-year period. The supposition was that revenue generated by new industries would make up for the shortfall in U.S. funds. After all, the intention was to have local funding gradually replace American aid as the new nations sped their way to self-reliance.

What happened instead, especially at the second financial step-down in 1996, was a jolt that rattled every sector of society. Job growth came to a standstill for the first time in 40 years, the quality of government service tumbled, private businesses suffered, and the emigration rates in FSM and RMI doubled over what they were during the early years of the Compact.

Why didn't the expected economic development take place? There are many reasons-serious mistakes by FSM and RMI in investments, the drop in the global price of tuna, economic woes in Asia, to name just a few. The fact is that, even with sufficient capital and all the good intentions in the world, FSM and RMI probably could not have achieved significant economic development. At least not during the last 15 years and at a scale that would allow these countries to make up for the loss in U.S. aid.

There is no quick fix for the development problems of these nations. A sharp and sudden drop in outside aid will only nudge them toward the type of desperate, get-rich- quick schemes that were tried at times during Compact I.

Lesson Four:

People have new alternatives.

Since Compact I went into effect, an estimated 35,000 citizens of FSM and RMI have left home to seek their livelihood and make their life abroad. The portals to the U.S., unlocked through the provisions of Compact I, remain open. Thousands of others will follow unless they find what they're looking for at home. Citizens of these island nations have options they never enjoyed before 1986.

The attractions of life abroad are more than simply jobs. They include dependable health care and better schools for their children. As people consider whether to remain at home or leave, they are unconsciously registering their expectations. In doing this, they are also setting new and higher standards for the social services that they demand of their Island nations.

Sooner or later, their vote by foot will also register in the ballot box.

Lesson Five:

U.S. funding won't continue forever.

For nearly 60 years the U.S. has been providing financial assistance to the Freely Associated States. Although the point may have escaped notice during Compact I, it is now clear that Washington would like to see its aid come to an end.

The U.S. finds itself in the position of a father, with hands on hips, standing over a son who has become a young adult. The father asks whether his son thinks he might be old enough to move out of the house and find himself a job. His fear is that his son, who has come to enjoy the comforts of home where all his needs are met, is growing more indolent with each passing day.

But here's the lesson, one perhaps not yet learned. If you want to send off a son who's overstayed his time at home, you need not send him packing in a chauffeured limousine. But if you want him out of the house, at least make sure that he has enough bus fare.