That’s capital, baby

An investor giving the hairy eyeball to the CNMI asked if I could explain how the labor hiring process works. For once I was able to couch my Commonwealth business expertise in succinct phrase: “I’ve got no idea.”

Let’s see…you’ve got your TWA…your DEST…your JVA…good grief, if I heard my doctor uttering such ominous sounding abbreviations I’d figure I had a terminal case of something. I like the term “consensual transfer,” though; it seems kind of romantic. Or terminal. Maybe both.

Meanwhile, from the looks of things, wages in the CNMI aren’t going up any…but how could they? I may not know a TWA from a JVA, but I do know that in any economy, wages are a function of labor productivity, and labor productivity is a function of: money. That’s money as in investment. A fancy word is “capital.” When the CNMI ran off the investors, it also ran off the pool of capital that could have increased wages on the island.

Let’s consider a farmer who is planting seeds as an example. If he has just his bare hands, he’ll be a mighty pathetic sight as he tries to plant his crop. Add a little capital to the equation, say, a hoe, and he’s more productive…not because his innate productivity got any higher, but because you’ve amplified the output of his labor by adding capital. And now…add more capital, say, one of those slick John Deere tractors with air-conditioning and a stereo, and this guy’s productivity will soar a zillion percent.

See? Same laborer, right? Right. But different productivity, right again? Yeah. What’s the difference? Capital, baby. If you wrap your mind around this one before you adjourn for happy hour brewskis and the green flash today, you know more about economics than 99 percent of the world…and 95 percent of the so-called economists.

In most of the world, witless Marxist peasants live in their own filth and blame capital for all their woes. So, they vote—if indeed they are allowed to vote—for policies that run off business owners and run off investors. Result: Less capital. Next result: Lower labor productivity. Next, next result: Lower wages, a lower standard of living, and so on. So what happens? Another turn in the poverty cycle, as politicians stoke the envy of their poor constituents, until capital approaches zero, as does labor productivity, and as do wages. Then they all starve to death, get really weird diseases, or enjoy a final orgy of machete warfare, at which point things will quiet down a bit. Ah, humanity, you gotta love it…

Of course, if you get really bored and miss the green flash this evening, you can look at the telescope through the other end and reflect that, for a fixed amount of capital, adding labor to the equation makes the capital more productive. This is considered engrossing conversation among my pals and I, which is why chicks treat us like pariahs and we couldn’t score a date in a Patpong go-go bar with a hundred dollar bill taped to our foreheads. See, if you had one farmer and one tractor, then you add another farmer to the payroll, the tractor becomes more productive since when one farmer goes to get a haircut or a pedicure, the other guy can operate the tractor so it doesn’t just sit there and rust.

As for the CNMI, I think it did get the message: Business needs workers, and workers need businesses. Many, no, most, of the Commonwealth’s workers are fleeing economies that are not as economically enlightened as the CNMI is.

In the long run, if the workers of the Commonwealth want higher wages, they’ll need an economy that attracts more, not less, capital. If you’re asking yourself why your paycheck isn’t bigger, then ask yourself if you would invest in the CNMI if you had your choice of anywhere in the world to invest. You’ll find your answer there.

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