Making money by spending less

By William H. Stewart
Special to the Saipan Tribune

If you were to spend a semester at the Harvard Business School or any other institution of learning (including high school) one of the things you will hopefully learn is how to make money. In some instances acquiring an understanding of this skill may take two semesters depending upon how swift one is.

Once mastered, this mysterious and complicated method may also be applied to government. Basically, when money is made in business it’s often referred to as income (or “profit” when income exceeds expenses)—while in government income is often referred to as “revenue.” This is because, in government, “profit” is sometimes considered a “dirty word.”

In government when revenue exceeds expenses, it’s often spent forthwith; on the other hand, when expenses exceed revenue—thus creating a deficit situation—all the revenue generated is spent up to and including the deficit amount. This is called “deficit financing.” Governments can do this but private businesses cannot.

It’s a thing of concern—deficit spending—which is spending money you don’t have. It means there is a lack of discipline; some say even immaturity and little concern for the future with complete disregard for the next generation.

Here’s a lesson from Harvard but you can also learn it at NMC for much less the cost. The lesson is this:

There are only two ways to make money that can be applied with equal validity to government. These are:

* Increase income and hold expenses.

If you can’t increase income, then:
* Attempt to hold the income level and cut expenses.

Simple isn’t it!

On second thought maybe Harvard or other Ivy League schools are not the place to study business. Not only are they far away and expensive, with difficult matriculation standards, but not all graduates have distinguished themselves in business. Some graduates have been indicted for such diverse crimes as misusing confidential information; leaking word of planned mergers; committing securities and tax fraud, insider trading and tax evasion; forging documents to get bank loans; orchestrating accounting scams; conspiring to bilk investors of more than $17 million; taking $6 million in kickbacks as money manager and more.

You have to wonder who taught the perpetrators that stuff? I think NMC might be a more appropriate choice.

But if you think education is expensive—try ignorance.

I thought about the basic money making truth described above when I read an April 13 article in the Saipan Tribune entitled “Govt liabilities total $113 M” which pointed out that the government’s liabilities are currently at $113.3 million, of which $79.1 million (or 70 percent) of the deficit represents overdue Retirement Fund payments, which have been accumulating for more than 10 years.

According to the article, CNMI Treasury data showed, as of this month, of the $79.1 million the government owes the Retirement Fund, $12.6 million in quarterly allotments to the Fund have not been transferred. Regarding the government’s unpaid obligation to the Retirement Fund the “Rule of Franklin” is appropriate: “Blessed is he or she who expects nothing, for they shall not be disappointed.”

The remaining $34.2 million of government debt is owed to other agencies and private venders, according to the article, in which it was pointed out that the “current outstanding balances with the Fund include $19 million for FY 2002; $23.4 million for FY 2003; $24.5 million for FY 2004; and $12.2 million so far for FY 2005.”

The government’s financial philosophy appears to be: “Live within your income, even if you have to borrow to do so.”

If the Commonwealth had to pay for all the road, air and seaport improvements itself along with many other infrastructure investment from its own locally generate revenue—expenses which the American taxpayer has provided—the local government would be even further in debit.

As near as I can calculate, the United States has provided the Commonwealth more than $1 billion since 1976.This huge amount of money is about equal to what the NMI might normally generate over a total period of 5 or 6 years from its own sources, depending on which years one selects to review. U.S. government provided assistance has been money available for programs and projects, which the CNMI did not have to provide for itself.

Being affiliated with the United States provides many advantages and programs not readily apparent to the casual observer. These are in addition to the many freedoms enjoyed by American citizens under the U.S. Constitution, advantages which include benefiting from a myriad of social and economic programs made available by the U. S. government such as the weather service and typhoon warning systems; typhoon damage relief from a variety of agencies; food stamps; medical care for the needy; rent subsidies and the availability of low-cost housing for the disadvantaged; loans for small businesses and higher education; agricultural services; children’s Head Start programs; Social Security; diplomatic protection when traveling in foreign lands; use of the U. S. Postal System; benefits which accrue from the drug enforcement capabilities and life saving, search and rescue activities of the U. S. Navy and Coast Guard and many more programs and services too numerous to mention.

All of the above and much more are expenses the CNMI does not have to meet since they are provided by the American taxpayer. Still the CNMI government has difficulty in paying its bills and meeting its other financial obligations.

What’s the point you say?

It’s time for the CNMI government to start acting more like a government and less like an extended family. Accept the responsibility for paying its debts and strive to rely less on the United States, which is certain to become more and more necessary as the future unfolds. When that has been accomplished one can say that “self government” has truly been achieved.

(The author, an economist, has recorded the economic history of the Northern Marianas from the pre-war period to the present. His insight is based upon the universal truth: “You can observe a lot just by watching.”)