Let’s stop exporting our money

According to statistics it seems that about $100,000,000 annually is being exported by our 22,000 nonresident workers and foreign investors. I wonder what effect it has on our economy when we export so much money out instead of keeping that money here. This amount is exported to the senders’ home countries. Nothing is wrong with that except see below what effect on the economy it could have should this huge sum of money stay here and circulate throughout our economy.

If our residents had the jobs, the money would stay here and circulate throughout the economy. For example, according to the “multiplier effect” theory as espoused by John Keynes, the famous economist, for each dollar spent locally, it creates several more dollars spending power as it circulates. Local businesses would grow, and bank loans would be more available for people to buy more goods.

When we spend money, that money has value to the economy which is more than what we spend. Money spent on imports is worth less to the local economy than money spent on local produce. Buying local products at locally owned businesses keeps money circulating closer to where we spend it. This creates a “ripple effect” as those businesses and their employees in turn spend our money locally. Instead foreign investors and nonresident workers send most of our money out of town.

If everyone in our community spent a greater percentage locally, the multiplier effect would turn that into big bucks for the local economy. For example, increasing local spending from 50 to 80 percent more that doubles the local effect—from $200 to $500.

When we go to the store to buy a bag of groceries for say $50, the money pays the salaries of the “local employees” and the rent and the utilities, etc. The employees in turn buy their own groceries. They deposit some of their salaries into banks who in turn loan that money to people who need to borrow money for a car or something else. And so on. The cycle continues.

However when the salaries are paid to nonresident workers, most of the money is remitted to their home country. Also consider adding in the loss of the gross revenue tax and other taxes lost because of less spending locally when that large amount of money is remitted abroad.

As an example, Saipan Ice and Water Company is locally owned and operated. It has been processing bottled drinking water for the past 24 years locally. It pays local workers as well as nonresident workers. It invests in its company expansion and keeps its earnings here. There are other businesses similar that could benefit from some sort of protection from outside competition. This has nothing to do with internal competition but how an economy grows when the money earned and spent is circulated locally.

However, the government allows importers to bring in foreign bottled water produced by cheap labor from abroad to compete against this locally produced product with a very small import duty. Where is the benefit except for the importer at the expense of the local industry? How many others are affected by this oversight? How many farmers are discouraged from selling their produce? How many local businesses that produce goods here are hurt by allowing cheap imports without protection for the local producer? How many others would like to produce locally but will not because of this fact? Has anyone made a study?

The importer exports the money that should stay here and circulate several times, adding to the strength of the economy. For every $1 spent at a local business, $.45 is reinvested locally. For every $1 spent at a corporate chain or a foreign owned business only $.15 is reinvested locally. Thus the export of money drains the economy of positive growth.

We must protect local manufacturers and other producers and keep the money here. We must encourage local production of as many products as possible. Of course, this does not apply to all products, but to ones that could be produced here such as fresh produce, poultry, fish and others.

I noticed in this past week’s newspaper that Palau has taken steps to protect its local producers of water and other products from cheap imports. The Palau government has added a high import tax to protect its local industries. They have come to realize that it is important to keep the money locally circulated.

Another example of how we further weaken our economy is through the use of an overly generous “tax qualifying certificate.” Consider the following application from a foreign company for a tax qualifying certificate request in this week’s newspaper:

Percentage Period
Requested Requested
Business Gross Revenue Tax Abatement 100% 25 years
Excise Tax Abatement 100% 25 years
Alcoholic Beverage Tax Abatement 100% 25 years

Developer Infrastructure Tax Rebate 100% 25 years

While I welcome this company’s investment in and its belief in the CNMI, please explain to me how much monetary benefits the CNMI government will receive over the next 25 years. Will our economy grow from such a generous deal? Will many local people be employed at the facilities? And who has done the accounting to see how much the general public will benefit from this deal? What other countries in the world give 25-year total tax free benefits on all profits made from an investment?

Are we considering the fact that we are exporting more money than what we are generating internally? How long can any of us spend more money than we earn? Is it any wonder that the government is broke? Is anyone making a study of this situation and how it can be turned around?

We need to understand how money flows in a community. The flow of money has many currents and we must understand them if we are to regain our economy. There is a real danger lurking if we don’t stop the export of our money. It is like a wound that doesn’t stop bleeding. But let’s stop this conversation. How about a short jog down memory lane?

Let me share with you some thoughts from years back. Do you remember when people said:

“I’ll tell you one thing, if things keep going the way they are, it’s going to be impossible to buy a week’s groceries for $20.”

“When I started driving, who would have thought gas would someday cost 50 cents a gallon.”

“I never thought I’d see the day when all our kitchen appliances would be electric. They are even making electric typewriters now.”

“Why in the world would you want to send your daughter to college? Isn’t she going to get married? It would be different if she could be a doctor or a lawyer.”

“The drive-in restaurant is convenient in nice weather, but I seriously doubt they will ever catch on.”

“Marilyn Monroe is now showing her bra and panties, so apparently there are no standards anymore.”

Did you hear the post office is thinking about charging a dime just to mail a letter?”

“Have you seen the new cars coming out next year? It won’t be long when $5,000 will only buy a used one.”

“If cigarettes keep going up in price, I’m going to quit. A quarter a pack is ridiculous.”

“If they raise the minimum wage to $1, nobody will be able to hire outside help at the store.”

If you remember when the above were actually believed, you are as old as I am. Have a great day and keep smiling.