Tuesday, March 10, 2015

Inequality 23: On Poverty, Agriculture and Motorcycles

Last month, I attended the UPSE-Ayala Corporation Lecture on the Philippine Economic Performance, with NEDA Director General and my former PDE teacher, Dr. Arsenio Balisacan as main speaker. The event was held at Intercon Hotel in Makati, it was an SRO crowd.

The panel of reactors were also high profile, like former NEDA chief Dr. Ciel Habito, former DOF UnderSecretary Romy Bernardo, WB-Philippines chief economist Dr. Karl Chua.

Romy wrote his piece about that forum in BWorld, There’sroom to grow some more, if..., March 08, 2015. 

He also showed these three charts with these notes:
Graph 1: Our investments-to-GDP ratio is still lower than our neighbours’ by far.

Graph 2: Savings vs. Investment -- this makes me cry. We have the domestic resources to put in investments, but instead are going out of the country. The mirror image of the positive current account over a decade.

Graph 3: Net Foreign Direct Investment (FDI) inflows, there’s a slight uptick but a lot of catching up to do vis-à-vis our ASEAN neighbours.

Good observations, Romy. 
But one thing I noticed in that forum were these two mantra, "poverty is still high", "inequality is worsening".

I believe there is deception in these mantra because of the end-goal -- more government welfarism and subsidies, more foreign aid, more taxation to confiscate the income of the rich and "fight inequality", to have forced equality (modern socialism?) if possible.

let me cite some anecdotal stories and proof why I said this.

1. In a rice farming village that  I regularly visit in  Bugallon, Pangasinan (I manage an agro-forestry farm there), before, the poor ride carabaos or cows. Now, the poor ride motorcycles. Almost all houses there have one motorcycle or tricycle. The luckier ones have a 2nd hand car.

2. A big cause or contributor to poverty in villages and areas like this is accidents. People party and drink especially at Fri and Sat nights, and endless accidents happen every week. Household savings can be wiped out in just one accident. The population control advocates were perhaps wrong in legislating for more taxpayers-funded condoms and pills. They should have advocated for cheaper motorcycles and more alcohol, these two are perfect combination  to reduce population, weekly.

3. Agriculture, modernization  is coming rather fast, actually. The use of rural labor with ever-rising government-mandated minimum wage  for rice harvesting is declining. Why? There are now rippers, a small machine operated by just one  person, that can do  the job of 10-15 people in rice harvesting, at a much faster rate, lower cost. To get one rural labor for rice harvest, the going rate is P200 per day with meals, or P250 w/out meals.

The ripper/harvester however, still  requires rich threshing, which means additional cost for the rice farmers. Now there are combiner machines (harvesting + threshing + bagging). Zero labor cost, zero meals cost, zero uncertainty if the workers might go home early and not finish the work. These combiners get around one sack for every 10 sacks of palay harvested, threshed and bagged. Big savings for farmers, meaning higher income. In that town alone, I  heard that there are seven combiner machines or tractors for hire.

4, Inequality is NOT a problem. The poor used to live up to 40 yrs life expectancy, now the poor can live up to 70, 80 years or longer. That means longer, productive life. If inequality is a problem, then any envious or socialist-leaning person can demand that his salary should be at least 10 percent of the monthly pay of Gokongwei or Henry Sy, even if he works only 5 hours a day and party 6 hours a night, every day.

To conclude:

1. As government intervenes more to  "protect labor" (from capitalist exploitation?), entrepreneurs (big and small) hire less labor. Thanks to endless capitalist innovation in technology including farm mechanization.

2. Inequality is not a problem. Poverty is. To reduce poverty, allow the middle class and the rich to create more jobs, to produce more goods and services so that their prices stabilize if not decline, and thus become more affordable to the poor. Or allow the poor to become micro, then small-medium entrepreneur themselves, via less business taxes and bureaucracies. 

See also:

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