Wednesday, May 15, 2013

Guam's Growth Strategy, Part I: Why Guam is Not Ireland

I have recently reviewed a technical report of the Pacific Center for Economic Initiatives out of the University of Guam called "The Making of the Pacific Tiger: Lessons from the Celtic Tiger", which is available online. I know and like the author and co-authors of the paper and there are many elements of the paper which I think are on-point, but there are others with which I tend to disagree (although I am overall supportive of the basic strategy which is endorsed in the paper).

The paper is essentially a search for an appropriate growth strategy for Guam's economy, to deliver the type of robust, sustained growth that were achieved by the "tiger economies", like Singapore, Taiwan, Hong Kong, South Korea or Ireland. The authors conclude that Ireland presents the most appropriate model for Guam to follow. I fundamentally disagree with the comparison with Ireland which, although there are some points of similarity, there are some glaring differences, including geography, structure of the economy and the homogeneity of the populations. 


Geography

First, although both Guam and Ireland are islands, the distances between each and economic centers in the regions are very different. Dublin, Ireland, which is not on the coast, is about 285 miles from London, England, about 470 miles from Amsterdam, Netherlands, about 485 miles from Paris, France and about 665 miles from Hamburg, Germany, all major commercial centers of Europe. Guam, on the other hand, is about 1,560 miles from Tokyo, Japan, about 1,595 miles from Manila, Philippines, about 1,710 miles from Taipei, Taiwan and about 1,790 miles from Busan, South Korea. Consider, additionally, that Ireland is located close to many of the richest countries in the world by per capita income, while the only countries in the region that come close are Japan (definitely is), Taiwan and South Korea, all of which are about 3 times further from Guam than similar markets in Europe are from Ireland.

Comparison between Guam and Ireland's Proximity to Wealthy Countries
Ireland’s Neighboring Countries
Guam’s Neighboring Countries
Country
Distance
P/C GDP
Country
Distance
P/C GDP
United Kingdom
285
36,941
NMI
130
13,599
Netherlands
470
42,194
Palau
515
13,758
Belgium
480
37,883
FSM
815
7,346
France
485
35,548
Japan
1,560
36,266
Germany
665
39,028
Philippines
1,595
4,119
Denmark
770
37,657
Taiwan
1,710
38,749
Norway
785
55,009
South Korea
1,790
32,272
Spain
900
30,557
Marshalls
1,850
8,683


Why does this matter? Because if the basic strategy to be employed is an export-oriented growth model, then proximity to wealthy (potential) trading partners is a major advantage. The three countries within 1,000 miles from Guam have per capita incomes of less than half any of the more than eight countries within 1,000 miles of Ireland. This is a significant difference, which could have major impacts on the success of any export-oriented growth strategy.


Structure of Guam's Economy

Second, the similarities between Guam and Ireland's societies are not very much in evidence, when you compare the primary bases of each's prior relative economic success.  As the authors pointed out, Ireland's economy was "a non-diversified economy during the pre-Celtic Tiger years, with strong focus on agriculture and a large rural population," whereas Guam's economy is a "non-diversified economy relying heavily on tourism, and to a lesser extent, on the military presence on the island."  After the "Celtic Tiger" years, the main exports of Ireland are pharmaceuticals, machinery of different types, medical equipment and foodstuff.  Guam's main exports are transshipments of goods manufactured elsewhere and, more importantly, tourism[1].  Neither the pre-Celtic Tiger Irish economy nor the post-Celtic Tiger Irish economy bears much resemblance to Guam.



Multicultural Society

Third, as the authors point out, Guam is a multicultural society and assert that Ireland has become more multicultural.  Maybe that's true, but the idea that there might be a point of similarity here seems incorrect.  Note that, in Guam, there is no ethnic group which is a majority, but note the distribution of ethnicities in Ireland represented in the following chart:



This is a much less diverse population.  Less than 10% of the population is non-caucasian.  Although this probably does not have much weight as to the choice of a growth strategy, the existence of various minority groups in Guam could have positive impacts for the development of more favorable trade relations with relatively close countries.



What, if not Ireland?

It may be debatable whether I have proven that Ireland is not the appropriate growth model for Guam, but I think laying out an alternative model could be a better demonstration.  If I were to choose a state to emulate in terms of a growth model, I would find an argument more compelling if the state chosen were Singapore.  Here are a number of features that I believe make Guam and Singapore better points of comparison:

  • Singapore and Guam have very few natural resources to give them a leg-up, except their labor forces.
  • Singapore had to draw upon the resources of the surrounding region and was mainly a transshipment hub for Southeast Asia and, although the scale is smaller, Guam is a transshipment hub for the islands of Micronesia.
  • Singapore was not surrounded by wealthy nations, as Guam generally is not, either.
  • Singapore is very diverse, as is Guam.
  • Significant minorities in Singapore are ethnic Malay or Indonesian, the primary ethnicities in neighboring countries, while some of Guam's Chamorros have ties to the Northern Mariana Islands and there are significant minority populations of Filipinos, Japanese, Koreans Chinese, Palauans, Micronesians and Marshallese.
  • Singapore was colonized by the United Kingdom and remained a member of the Sterling area until 1972, during which time its currency was pegged to the Pound Sterling, then was briefly pegged to the U.S. dollar and after which it had been pegged to a basket of undisclosed currencies until 1985, all of which made the monetary policy of Singapore dependent upon other nations' policies. Singapore still operates a similar system, but with a more flexible band of values for the peg. Guam uses the U.S. currency, which gives it no monetary flexibility.
  • Singapore is a center of banking in Southeast Asia. Guam is a center of banking within the Micronesian region.
While I think there are more similarities between Singapore and Guam than Ireland and Guam, I recognize that there are still significant differences between Singapore and Guam that would make emulating their performance challenging. Particularly, I would note that immigration of Chinese into Singapore during the earlier stages of Singapore's development may play a large role in the success of Singapore's model.

I believe in a more eclectic approach to developing a growth strategy. I will discuss more areas of agreement and disagreement with the authors of the paper in terms of actual strategy in my next post.

[1] Tourism is considered an export in gross domestic product because of the cross-border flow of funds.

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