There’s no such thing as public money

Over a decade ago, a top-level politician allegedly made the now-infamous statement that “nobody owns public money”. Although we do not know whether the politician actually said this and in what context, or if it is an apocryphal story, the phrase is often dredged up to criticize the underlying belief (that public authorities can do whatever they want with public money). That notion is usually countered with the idea that public money belongs to all of us and that public authorities should be accountable to everyone for how it is used, with the requisite transparency and diligence. From my experience in public administration, I recall that, at times, when I had misgivings about authorizing a particular expense, my counterparts would make two arguments. First, that the expense in question was within the law. To this, I would reply that I was not questioning the legality of the expense (otherwise, the whole point would have been moot), but rather whether it was a good idea to make it at that time. That is, besides just being allowed by law, an expense must be justified or appropriate. This would bring them to the second argument: do you think it’s your money? Or, more to the point: it is not your money. My reply came easily: of course it is my money, it is all our money, which is why we cannot be haphazard in our spending decisions and, moreover, why our very power to make spending choices is severely limited.

Now, I would like to take this one step further. Understanding public money to be res nullius is nowadays pretty laughable, and almost everyone is on board with the thinking that public funds belong to all of us and should therefore be used carefully and under strict control. But, beyond that, I believe we should question the very concept of “public money”.

I’ll go ahead and put it out there: I don’t believe there is such a thing as public money. What there is, however, is public management of money, which is quite a different thing. All money is private, and it comes from the individuals and companies that are out there creating wealth. When recessions hit, you can still hear people asking “Why don’t they just print more money”? A French labor organizer made headlines a few years ago by openly arguing that to put an end to the financial crisis, we needed to do just that. But, as we have witnessed many times, the cogs of our economic and tax structures somehow keep turning and, in one way or another, these structures remain afloat. Lawmakers do not have a “money-making machine”; rather, our society creates money by carrying out wealth-building business activities. Part of the wealth or money created by a society is taken from individuals and companies (through our tax mechanisms) and put in the hands of public authorities, who are entrusted with managing it so that the public receives all the services it needs to live together in society (which entails, to a greater or lesser degree, some redistribution of wealth).

Public management of money, therefore, is not the same as public money. The distinction is not trivial, and the practical consequences of looking at it in one way or the other can be major. For example, think about social security. In essence (and forgive the simplification), social security is when our governments establish and provide a set of benefits to cover citizens in their times of need. In particular, citizens’ loss of income, whether temporary (unemployment, temporary disability) or definitive (retirement), is covered through a public system that replaces lost income with other benefits. These benefits, and the system, are funded through contributions from employers and workers (sometimes, only by employers, such as in the case of occupational contingencies and workplace accidents and illness). These mandatory contributions are taken through the corresponding mechanisms and placed in the hands of the institutions managing the system. We often hear talk (even from those very institutions and the Court of Auditors) about public funds or social security funds, but they forget that these funds come from companies and workers and are only entrusted to social security in order to cover the public needs identified. The nuance is important, as we will see.

Think about companies that are allowed to opt out of the traditional social security system and instead self-insure. Under the law, for some contingencies, such as occupational ones, companies that meet certain criteria can choose to self-insure, directly covering benefits for their employees. In exchange, they do not have to contribute those amounts to the social security system. The logic behind this arrangement is that the companies paying the benefits themselves (even directly, out of their own funds, if the premiums withheld from employees fall short) and being released from making the corresponding social security contributions (although not entirely – they still pay 31% to the social security system to “support public services” and to “help defray overheads and other public welfare needs”) can enjoy the fruits of efficiently managing the funds. If the self-insuring company is inefficient or if, for any reason, outgoing benefits exceed the premiums withheld, the company must use its own funds to defray the cost of the benefits (which must always be guaranteed). If the company (which, as noted above, already gave 31% to social security to sustain public services and overheads) manages these funds efficiently and, after covering all benefits (and funding the required stabilization reserve), ends up saving money, it should be able to use those savings for itself. If you think that the money managed by these self-insured companies is actually social security’s money, and that the government just let these companies use it to help manage occupational contingencies, you would argue that any surplus generated belongs to social security. However, if you believe that the funds never actually “belonged” to the social security system, but were just entrusted to it through company contributions in order to cover public needs, then it would make sense to you that if companies retain part of the funds they usually contribute and assume responsibility for paying out the related benefits (remember, the benefits are guaranteed even if the premiums retained were not sufficient), then those companies should get to keep any surplus they generate by efficiently managing the funds (bearing in mind that the companies already paid social security 31% of contributions corresponding to the benefits they manage, and that they are required to fund stabilization reserves). Sooner or later, this will be the question under debate. Your stance will depend, ultimately, on whether you believe that the money is public or whether you think that the government simply manages our money (which is always private, never public).

Gracias por compartir!