Growing crops…or eating the seed

Someone recently told me that families in Hong Kong typically give their kids an allowance. That’s not so newsworthy on its face. This allowance, however, is not to be blown on candy bars and comic books. It is, by contrast, to be invested in securities.

I don’t know anything about Hong Kong so I can’t delve into the mechanics of the story. But the underlying truth is a profound one: it accentuates the difference between consumption and savings. That’s why Hong Kong is rich, and most of the world is poor. They understand in HK that it’s better to plant seeds and watch them grow than it is to eat the seed.

Which is a lesson the Commonwealth may want to heed. I’d be hard pressed to name a successful economy in which the average household didn’t save or invest with an eye towards the future.

This line between consumption and savings isn’t some phony distinction I cooked up in my own little head. It’s a bedrock of economic theory. You can either save your money or consume it. All your savings translates into what’s also known as “investment.” Distinctions begin to get pretty kinky and tangled at this point, but why trouble ourselves with such detail?

Back to the Hong Kong story. These guys are economically strong because, at the basic, household level, the folks value the fundamentals of economic investment and entrepreneurship. How about our average household sectors here in the CNMI? Do we value investing in our businesses, or is that job for “somebody else”?

Leaving that job to somebody else entails two pitfalls. Pitfall number one is easy to see: An acute scarcity of locally available savings and investment funds. Pitfall number two is more important and a lot harder to see: An indifferent–or even hostile–attitude towards businesses, rooted in a consumption oriented outlook that wants to eat the chickens that lay the golden eggs.

Most businessmen here have international experience, and they know what happens if times turn tough and the community calls for the golden egg laying chickens to get plucked. Not many folks are going to stick around for that treatment. There is a wide and growing gulf between the business sector–which is stressed to the point of collapsing–and some policy makers, who just don’t seem to get it. You don’t see this stuff in the headlines, it’s more of a subterranean rumbling.

I’m not saying that the CNMI doesn’t invest “enough.” That’s for the CNMI to decide. I am saying, though, that unless the approach to investment vs. consumption changes here (and it won’t), the Commonwealth will not develop a U.S. or Hong Kong level of economic health.

So we can enjoy our new pickup trucks, free flowing beer, and lavish hotel lunches…but we’re doing so at the expense of the type of fiscal policy that would promote future growth. If the Commonwealth wants to become a massive welfare state, it can certainly do that. But who are we going to blame if that happens? I suspect we’ll blame everyone but ourselves.

Ed Stephens, Jr. is an economist and columnist for the Saipan Tribune. “Ed4Saipan@yahoo.com”