STATEMENT
"Getting in the Way of Prosperity:Â The Seven Deadly Sins"
Keynote Address by David B. Cohen,
Deputy Assistant Secretary of the Interior,
before the Annual Conference of the Island Government Finance Officers’ Association
Honolulu, Hawaii
December 4, 2007
[Acknowledgements]
Thank you for inviting me to speak. As always, it is an honor to be
here with you. Ever since I took this job in June 2002, we have been
consistent in expressing the top two priorities for the Office of Insular Affairs. Priority
1 is helping the insular areas promote private sector economic development. Priority
1-A is promoting accountability, particularly for the Federal financial assistance
that we provide for the islands. Normally, when I speak before this group,
I speak about Priority 1-A. There is an obvious relationship between
Priority 1-A—promoting accountability—and your jobs as government
finance officers. Today I would like to speak about Priority 1, because
I believe that there is also an important relationship between your jobs and
the urgent need to promote private sector economic development in the islands.
Why have we made private sector economic development Priority 1? The
reason is that in most of the insular area economies, there is an unsustainable
imbalance between the public and private sectors. In a healthy economy,
a strong private sector creates jobs and generates income and wealth, which
can be taxed at a reasonable rate to fund essential services for the public. The
private sector dominates the economy. In many island economies, this
model is turned on its head: The economy is dominated by the public sector. Since
the public sector generally is a consumer and not a producer of wealth, this
type of economy can only be sustained with outside subsidy. I have referred
to these island economies as being “upside down in the middle of the
ocean”. These economies will have to get right side up in order
to get their heads above water.
Many island economies have evolved in this manner for several reasons. For
one thing, island communities—and small island communities in particular—face
unique barriers to private sector economic development. These communities
tend to have small populations, few resources and remote locations. That
means that they are heavily dependent upon transportation systems to bring
people and goods to and from their islands, and that transportation is likely
to be significantly more expensive than it is in more populated areas. This,
in turn, tends to make everything else on the island more expensive. The
cost of doing business is therefore high.
Many island communities are subject to destructive weather patterns, and in
the salty ocean air, the climate often corrodes what it does not destroy.
There are cultural and historical forces in play here as well. Pacific
cultures, for example, are sharing cultures. The philosophy is “what
we have today, we share today”. Pacific cultures do not have the
selfish gene that triggers the generation of wealth in a free market economy. Sharing
is a virtue and selfishness a vice, but enlightened self-interest has proven
to a useful tool to enable societies to achieve a comfortable standard of living.
Ironically, the Pacific virtue of sharing, when combined with outside financial
assistance, has helped to create the bloated public sectors that we see today
in many island communities. The island instinct is to share financial
assistance from donors in much the same way that food is shared. Since
donors generally do not allow island governments to allocate their aid to people
in the form of cash, they tend to allocate the aid in the form of public sector
jobs. More aid tends to result in more government jobs. Since the
Department of the Interior’s Office of Insular Affairs provides more
aid to the Pacific islands than any other U.S. agency by far, we have been,
inadvertently, the greatest U.S. contributor to this phenomenon.
The result is not only an oversized public sector, but also a public sector
mindset where government jobs are deemed to be provided for the benefit of
the recipients rather than for the benefit of the public. The public
sector budget is not oriented to provide public service, but rather to provide
public jobs. This means that the public as a whole tends not to receive
good value for public expenditures, and donors tend to get frustrated when
we attempt to measure the performance of our assistance.
In many island communities, outside subsidies and other distortive policies
tend to make government jobs significantly higher paying than private sector
jobs. This tends to encourage the islands’ best and brightest to
aspire to public sector employment and look down on private sector employment. In
some islands communities, the overwhelming majority of the indigenous workforce
is employed by the local government and the lower-paying private sector jobs
are filled almost exclusively by foreigners. These communities become
two-tiered societies where a largely unproductive local government workforce
is kept afloat by outside subsidies and outside labor. This type of
arrangement, besides being economically unsustainable, can create tension within
the society and give rise to a sense of dependence and helplessness in the
indigenous population.
These problems tend to exacerbate themselves in a vicious cycle. A society
that cannot sustain itself without outside subsidy generally cannot afford
to invest in education, health, infrastructure and other essential building
blocks of a strong and prosperous society. This lack of essential investment
tends to weaken the private sector, sending the most talented locals overseas
in search of opportunity and making the community more and more dependent on
imported labor willing to work for lower wages.
These problems do not exist only in the islands. Small island communities
are particularly vulnerable to them, however. These problems can be overcome
by intelligent policy, strong leadership and a commitment to good governance. Overcoming
these problems requires the development and maintenance of a business climate
that enables business to create jobs, to foster prosperity and to assume its
natural role as the engine that drives the economy.
That is where all of you come in. All of you are responsible for executing
policy, and as any sports fan knows, good execution typically is the difference
between success and failure. However, most of you also have sufficient
stature within your local governments to have an important influence on the
formulation of policy, and not merely its execution. When your respective
governments consider reforms designed to improve the business climate, you
are likely to be involved in the discussion. You might even be the driving
force behind the discussion. With so many things beyond your control,
it is all the more important for you as government leaders in small island
societies to act with wisdom and political courage to address the things that
you can control. Small island societies can successfully transcend their
limitations, but there is little room for error.
One of the problems that I have observed with the relationship between the
public and private sector in insular area economies is an inability of the
public sector to get out of the way. That does not mean that island governments
should abandon their duty to regulate business in a reasonable manner. It
simply means that in some cases, government actions and failures to act needlessly
obstruct economic progress. I have come up with a list of Seven Deadly
Sins that could cause island governments needlessly to get in the way of the
economic advancement of their own societies.
I will introduce the First Deadly Sin by noting something that most of us
love about the islands: the unhurried pace. I remember overhearing
a Samoan man and a Mexican man talking to each other about their respective
cultures. The Mexican man said, “Mexicans are a hard-working people. New
immigrants come to the U.S. and take jobs that Americans won’t take. In
successive generations, they work themselves up from the working class to the
middle class and beyond. Still, with some of my people some of the time,
there’s this culture of ‘mañana’—tomorrow. What
needs to get done can wait until tomorrow.”
The Samoan guy said, “Yeah, I think I know what you mean. In the islands,
we always say ‘fai fai lemu’.”
The Mexican guy asked: “What’s that?”
The Samoan guy responded: “Well, I think it’s like your ‘mañana’,
except without the sense of urgency.”
I remember hearing Willie Kostka, a Pohnpeian who heads a conservation NGO
in Micronesia, poke good-natured at his fellow islanders. He said, “Haoles
come to the islands and they see young men standing around and they think that
islanders are lazy. We’re not lazy. We’re
just patient.”
Well, the First Deadly Sin on my list of seven what I will politely call the
Sin of Patience. Patience is indeed a virtue, unless one becomes excessively
and discourteously patient with other people’s time. In business,
time is money, and when government officials fail to act responsively in a
timely fashion, it can drive away potential investment. Businesses greatly
value a bureaucracy’s ability to process permits and licenses expeditiously
and to respond quickly to inquiries and requests.
The Second Deadly Sin is the Sin of Complication. Needlessly complicated,
protracted, redundant and even contradictory permitting, licensing and other
regulatory procedures discourage the formation and retention of businesses.
The Third Deadly Sin is the Sin of Competitiveness. This sin occurs
when the government sees a private company succeeding in a new type of business
and decides that jumping into that business would be a good way to support
its bloated public payroll. This is likely to result in both the private
company and the government ultimately failing at the business. The private
company is likely to fail because the government will not compete fairly. The
government will fail because governments are notoriously bad at running businesses. The
best way for a government to generate revenue from a profitable business is
for it to get out of its way and tax it—reasonably.
The Fourth Deadly Sin is the Sin of Opaqueness. Government procedures
should be transparent in order to inspire the confidence and full participation
of the private sector. If good companies cannot be satisfied that they
will be competing on a level playing field, they will stay away and the community
will miss out on the capital, technology, know-how and economic activity that
good companies can bring to the islands.
The Fifth Deadly Sin is the Sin of Favoritism. Favoritism comes in many
varieties, including nepotism, where one favors one’s family; cronyism,
where one favors one’s friends; xenophobia, where one favors one’s
countrymen, and self-dealing, where one favors oneself. By creating an
uneven playing field, it scares away businesses that can bring good things
to the islands.
The Sixth Deadly Sin is the Sin of Fickleness. Businesses value consistency
more than anything else. There is nothing more frustrating than policies
that constantly lurch back and forth, to and fro, with the political wind.
The Seventh Deadly Sin is the Sin of Arbitrariness. Decisions made by
government officials should be based upon objective standards applied consistently. Government
leaders who retain too much discretionary power are in a position to benefit
themselves at the expense of their constituents. It is best not to leave
government leaders with too much discretionary power, as it is a strong invitation
to abuse.
These sins are committed by government officials all around the world, not
merely in the islands. They are certainly committed all across the United
States by Republicans and Democrats alike. As I noted earlier, however,
small island communities have a very narrow margin of error, and hence it is
all the more imperative to avoid these sins. Those who commit the sins
of Lust, Gluttony, Greed, Sloth, Wrath, Envy and Pride should seek forgiveness
from God. Government officials who commit the sins of Patience, Complication,
Competitiveness, Opaqueness, Favoritism, Fickleness and Arbitrariness should
seek forgiveness from their own people.
We all know that island communities face many challenges. It is important
to remember that these challenges can be overcome. They can only be
overcome, however, if government leaders do everything in their power to discharge
their duties with the highest degree of skill, judgment, integrity and vision. Given
everything that is at stake for the people of the islands, to do anything less
than that would be a sin.
Thank you.
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