A “Civics Lesson” for all of us: The Economy of the FSM

Yap State Education Enterprising Department/SEED NEWS/New Development in Education in Yap State

October 1999


[PDF Files] Seed News-p.1,     Seed News-p.2,   Seed News-p.3

  • By John Mangefel, Curriculum Advisor, Yap SEED/ Former Governor, Yap State


I have been asked to write something about the economic development of the Federated States of Micronesia. Like a fool, I agreed to write something without giving much thought as to what the FSM economy is all about.

I think it would be better and fairer for everybody to come to a clear understanding at the beginning that I am not an economist at all and probably know next to nothing about economics, the economy and economic development.

FSM economy is a very peculiar economy in the sense that it is really a “false” type of economy. The FSM economy exists because of an agreement called the “Compact of Free Association” with the United States of America. All economic development or activities occur because of the Compact of Free Association. Without this Compact, there is no real economy and economic development.

Let’s look at this Compact for a minute. In very simple terms, the money we get under the Compact comes to us in two categories. Sixty percent of the money can be used for operation. This is the part that government employees get salaries from (and also the money for other office expenses). The other forty percent must be used for capital improvements and economic development. Any government, National or State, can use less for operations and more for capital improvements and economic development if it wants to. [If you want to know more details about this, check the Finance Office or Budget Office.]

“Economic development” means different things to different people. Each person has his own definition and his own way of going about it.

Economic development to some people involves building big hotels and going fishing in a big way. Our country has spent millions and millions of dollars in fisheries. Fortunately, our government has not spent much money in building hotels. We have not lost money in this area. I am not saying there that building hotels and going fishing do not contribute to the economy. They certainly do. Right now, we do not have enough trained people in building and running of hotels and in fishing. We need more trained people in these areas.

It would seem that we need to readjust our thinking and attitudes about economic development. We need to be realistic and practical about our development. Instead of thinking about the big kinds of development, perhaps we need to think about small down-to-earth, affordable developments, which we can afford and manage ourselves. Above all, we need to be sustainable about our development.

Having said all that about our economy—being a false and vulnerable one—let’s look at it from a different angle.

Many people say we do not have enough money in this “Compact of Free Association.” I choose to disagree with that statement. It is not a matter of whether we have enough money or not. Rather, it is a matter of how we are using our money.

Many people say that whether our economy is “false” or unrealistic, it is nevertheless an economy. It functions like a real and true economy. Okay, I have no problem looking at it from that angle. The question becomes then, “Are we doing what we ought to be doing in our situation?” Well, this is a very hard question to answer. I think we have finally woken up and realized what we ought to be doing. We are probably no thinking fast enough or doing things fast enough, but we are on the right track.

Federated States of Micronesia had its Second Economic Summit in September 1999 in Pohnpei. The theme of this Second Summit was “Self-Reliance”. FSM is very good in coming up with what is needed and proper to say. However, it is very poor in following up what it says. We have been saying “self-reliance” for a long time, and yet we do not seem to do anything to be more “self-reliant”. A good example of what we are not doing for ourselves is the table salt we use every day. Do you know that FSM people live in and are surrounded by salt? If we are not careful, we could be drowned by salt. And yet, we turn around and import our salt from Taiwan, Japan, and who knows from where else! Why can we not produce this commodity ourselves?

If you sit down and think for a few minutes, you will undoubtedly come up with many small and practical things we can do for ourselves to reach little-by-little our goal of “self-reliance”. Examples of what we can do for ourselves are producing our own soap, our own eggs, our own eating chickens, our own pork and so on and so on.

Some of the things we have grown to like and have may be beyond our reach. They may require expensive high-tech to produce and may not be affordable to get. For example, we like beer, but it may not be affordable and needs expensive ingredients and a lengthy process to produce. We like and are accustomed to eating rice, but we do not have enough land to produce that much rice. This is understandable. On the other hand, we have many things we can do for ourselves. We must do these things if we are serious enough to be more and more self-reliant.

The other very simple way of looking at our economy is like this: We get our money under the “Compact” from the United States of America. Believe me this is not a simple process. This may take a long, long time. The states then take some of the money and send back to America for Budweiser, frying chicken, pork chops and beef products. We get these items from different companies in the US. Would it not be better and simpler if the USA sent some of this money straight to these domestic companies so we save the cost of having an auditor come in and audit our books?

Another way of looking at our economy is that other people come to our area and catch “our” tuna (at least in our “exclusive economic zone”) and return to their respective countries for processing. These same countries then sell the canned, processed tuna to the US, were we in the FSM buy them back, or we buy from the countries directly. What we are doing is buying back our tuna in cans. No wonder tuna is expensive in our island stores.

Like I said at the beginning of this article, I am not an economist. So, if I have said anything here that offended any economist or anybody else for that matter, please forgive me for I know not what I am saying or rather what I am writing.

I would like to close this article with an anecdote. There was this anthropologist doctor who was doing a survey on different people. He was working on the brains from different groups of people. He went to this lab that sold body parts for just such studies.

On one side of the wall, on shelves, were many jars filled with ethyl alcohol. Each jar contained a brain. The labels on the jars read where the brain was from: Chamorro, Tonga, Fiji, Samoa, Palau, FSM and so on. There were also prices printed on the jars. All the brains each cost $75, except for the brain from the FSM. The FSM brain was priced at $125.

The anthropologist complained, “How come all the brains here cost $75, except for the FSM brain? They are the same size, and all of them are dead.”

The storekeeper replied, “You may be right. Bu you see, the FSM brain is a brand-new brain. It has never been used.”

[PDF Files] Seed News-p.1,     Seed News-p.2,   Seed News-p.3


Website Manager’s Note: This article was published in October 1999 on SEED NEWS. The condition of Compact of Free Association has changed significantly since its amendment in 2004. However, we still like to share this article with you, for it has brought us some light on a desirable and doable model of development in FSM, and, of course, the Yap State.



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