Capital flows

Old Paul was shooting his mouth off again, verbally masturbating over the demerits of the garment industry.

Exasperated, I had to ask, “what exactly is the main problem with the garment industry again?”

His answer took me a little by surprise. “They don’t keep their money circulating in our economy,” he lamented. “They send most of their profits overseas.”

It was an unusual response, not the same tired old complaint normally leveled against the garment industry. Not a peep about notoriously alleged unsafe working conditions.

“They don’t keep enough of their money in our economy,” he says. It was a charge not particularly directed against the garment industry, but toward industry in general, including tourism .

It happens to be a very false complaint–a complaint often advanced by the anti-business crowd, in an attempt to justify idiotic regulations, such as the $100,000 security deposit. You hear it over and over again, as if repeating it would somehow make it more true, less false.

The fact of the matter is, locals–not aliens–send most of their money abroad. Consider the ways.

The CNMI Retirement Fund, for example, has more than $250 million in invested assets. This is indigenous money earned by local government workers. Where do you suppose the bulk of it is invested? In the new retirement building left unrented?

No. The vast majority of CNMI Retirement assets–perhaps as much as $300 million worth–is invested abroad, in both U.S. and foreign markets.

How much do our Filipino guest workers repatriate annually? Fifty million dollars? Why, that’s peanuts compared to the local money flowing abroad.

Consider the local banking industry. That is another $500 million in financial assets. Do you suppose the whole $500 million is being loaned out to the local economy?

Again, another emphatic no. Most CNMI bank deposits (possibly as much as 70 percent) are invested abroad. Our local banks simply cannot make money by loaning out all of their deposits locally. (The market for good loan risks is not big enough.)

How about private Individual Retirement Accounts and company-sponsored 401 (k) plans? That’s more local money deployed overseas.

And don’t forget the CNMI Scholarship fund: another million or so a year sent to CNMI students spending in the United States.

So much local money goes overseas, in the form of US consumer product purchases (Coke, Budweiser, Gillette) and investments (IBM, Merck, T. Rowe Price), that we hardly know our average annual balance of payments or trade.

And it hardly matters anyway, since the only thing we need to remember is: Money will never come in if it is not allowed to freely exit.