BWorld 272, The ASEAN Prosperity Initiative

* This is my article in BusinessWorld last December 05, 2018.

“The rapid economic advance that we have come to expect seems in a large measure to be the result of this inequality and to be impossible without it. Progress at such a fast rate cannot proceed on a uniform front but must take place in echelon fashion, with some far ahead of the rest.”

— Friedrich Hayek, The Constitution of Liberty (1960), Chapter 3.

While many activists and central planners will disagree with the Nobel economist Hayek, this has been the inescapable reality – as prosperity expands, inequality among people also expands but the state of poverty significantly declines.

One measurement of economic prosperity is per capita income or GDP. Many economies in East Asia were able to double or triple the figure in just two decades. The Philippines’ income per head for instance has expanded from only $1,241 in 1997 to nearly $3,000 in 2017 (see table 1).

The Institute for Democracy and Economic Affairs (IDEAS), a free market think tank in Malaysia, will launch the ASEAN Prosperity Initiative (API) next Tuesday, December 11, at Intercontinental Singapore. API predecessor is the Economic Freedom Network (EFN) South East Asia.

The API launching will coincide with the publication of two IDEAS reports: (1) ASEAN Economic Integration Report Card, comparing the targets set in the ASEAN Economic Community Blueprint 2025 and actual achievement; and (2) ASEAN-EU Free Trade Agreement (FTA), studying the potentials and pitfalls of such big FTA.

One indicator for these two topics is the direction of trade – how much of ASEAN countries’ exports go to fellow members and the rest of Asia-Pacific, and how much of their imports come from the region (see table 2).

Many ASEAN countries are trading more with themselves and the rest of Asia-Pacific, reducing the share of trade with North America, Europe, Oceania, South America and Africa.

Another indicator of economic integration is the flow of foreign direct investments (FDI).

FDI inflows in Southeast Asia have more than doubled, but, more important, the FDI stock has expanded nearly 15 times over the past two decades (see table 3).

For the Philippines in particular, FDI inward stock was only $13.8 billion in 2000, rose to $25.9 billion in 2010 and $78.8 billion in 2017. Good expansion but still low compared to our neighbors in the ASEAN as of 2017: $130 billion in Vietnam, $140 billion in Malaysia, $219 billion in Thailand, $248 billion in Indonesia, and $1,285 billion in Singapore.

A day before the API launching, IDEAS will also organize a meeting among ASEAN think tanks on air transport liberalization. If this liberalization happens someday, investments and tourism in the region will further expand significantly.

More economic liberalization and deregulation, this should be the continuing policy of the Philippines and neighbors in the region.

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See also: 

BWorld 269, IPR, private property and prosperity, November 27, 2018 

BWorld 270, Debating with Mr. RE, December 04, 2018

BWorld 271, More smokers and drinkers needed to fund more UHC? December 10, 2018

Inequality 36, Adam Smith the poor

Last September, I have a brief email discussion with some friends and former classmates from UPSE in the 80s. A summary of those points:

1. On scale of economy -- PH economy has momentum mainly because of our big population. Our GDP size doubles about every two decades on average.

2. Poverty reduction, what to do -- Adam Smith the poor. Don’t give too many freebies, forever subsidies. But if the poor are industrious, government and NGOs also should not ask for too many permits, taxes, fees, penalties. There are 100 ways to be poor like being lazy, or work 1 day and then complain about work the next full day. Or people work 6-7 days a week but they also drink, party and/or gamble 6-7 nights a week and have zero savings. These are 101% sure formula for perpetual poverty.

3. "Ambisyon Natin 2040" by NEDA -- it's useful but it looks more like centrally-planned ambitions and hence, may not be attainable. Households and individuals' ambitions are different from bureaucrats and legislators' ambitions.

4.  Where are we headed -- I think towards more, bigger government. Take the RH law, condoms lang, govt and legislation pa? These can be done via civil society, corporate volunteerism.

5.  The "Marcos revival” -- this seems inevitable, as govt expands like amoeba, the amoeba will proliferate like Marcos big govt.

6. Is the PH hopeless? -- No. No country is hopeless, even N.Korea, Myanmar, Venezuela have hopes but the realization takes time. Something like 2 steps forward, 1 step backwards. I remember the first time I took a plane, I was 25 years old already. My eldest took her 1st plane ride at about 6 months, her 1st trip abroad at 1 yr 8 months, 2008. Things are improving fast in the private sector, government is only the drag.

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See also:

Inequality 33, Decline in global poverty, October 16, 2017 

Inequality 34, Eric Jurado on the richest 1%, February 01, 2018 

Inequality 35, Forbes' billionaires 2018, April 04, 2018

BWorld 271, More smokers and drinkers needed to fund more UHC?

* This is my column in BusinessWorld on November 30, 2018.

“The man of system…is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it….He does not consider that in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”

— Adam Smith, Theory of Moral Sentiments (1759)

  

That observation by Adam Smith also applies to the plan of many sectors to further raise tobacco and alcohol taxes to fund higher resources for universal health care (UHC).

There is a clear contradiction here. The stated goal is to further reduce smoking and drinking but there is implicit demand for more smokers and drinkers who will pay more tobacco and alcohol taxes to fund more UHC beneficiaries and health care providers.

There are four stories in BusinessWorld this week related to this:

1. House hearing bills on P40-P60 per pack increase in cigarette tax (Nov. 26),

2. Senate panel opens hearing on raising tobacco tax (Nov. 26),

3. Alcohol tax hike hurdles House committee on 2nd reading (Nov. 26),

4. Tobacco excise bill hurdles House on 2nd reading (Nov. 28).

In report #2, Senator Pacquiao’s bill proposes a cigarette tax hike to P60 per pack, Senator Ejercito’s bill wants to raise the tax up to P90 per pack, to cover the estimated P164-billion funding gap in UHC on top of current funding of only P93 billion.

In report #3, the plan is to generate P60 billion for five years in higher alcohol tax rates. Distilled spirits ad valorem tax on net retail price (NRP) per proof liter will rise from 20% to 22%, in addition to a rise in specific tax from P23.40 to P30 per liter in 2019, P35 in 2020, P40 in 2021, P45 in 2022 and annual increase of 4% be changed to 7% beginning 2023.

In report #4, the approved excise tax hike is P2.50 per pack per year on top of current P35/pack until it reaches P45/pack in 2022, then annual increase of 4%.

My 54-page paper, “Assessment of the Sin Tax Reform Act of 2012” was released last Monday Nov. 26 by Stratbase-Albert Del Rosario Institute (ADRi). I made my own estimates of price elasticity of demand (PED) for both alcohol and tobacco products based on estimated retail price (ERP), changes in tax revenues and volume removals. The various estimates of tobacco smuggling are also summarized here (see Table 1).

There was consistent decline in volume removals except in 2015, and consistent rise in ERP, resulting in average PED of -0.31 for 2013-2016. This paper’s estimate is lower than the PED findings of Quimbo, et al (2012) of -0.87 and DoH (2012) of -0.58.

But all three estimates have one conclusion: PED is below 1 and hence, is inelastic, meaning less- or non-price responsive. A 10% increase in the price because of higher taxes did not result in 10% decline in tobacco consumption, only 3% decline as estimated in my paper.

So for tobacco products, the Sin Tax law was successful only in raising more money for the government but a failure in significantly reducing tobacco use.

For alcohol products — beer, wine and distilled spirits — the average PED from 2013 to 2016 is 0.40 (see Table 2).

Both tobacco and cigarettes products exhibited inelastic demand. If government imposes even higher taxes, many smokers and drinkers will simply shift to (a) cheaper legal brands with lower taxes, or (b) cheaper illegal products with little or no taxes. Thus, a potential failure to address high smoking and drinking incidence and at the same time, revenue loss for the government.

Instead of calling for higher sin tax rates, government should focus on significantly controlling smuggled and illicit products that are cheap and readily available. Newton’s 3rd law of motion (for every action, there is an equal opposite reaction) restated — for every government intervention and taxation, there is an equal opposite distortion — seems to apply in our tobacco-alcohol taxation experience.

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See also: 

BWorld 268, Market-oriented reforms in the Senate, November 24, 2018
BWorld 269, IPR, private property and prosperity, November 27, 2018 

BWorld 270, Debating with Mr. RE, December 04, 2018

Agri Econ 29, Bruce Tolentino lecture at BSP

Last November 28, I attended the lecture of Dr. Bruce Tolentino, "Rice and Inflation: the supply side" at BSP. Bruce is the new member of BSP Monetary Board, a former DA UnderSecretary and former IRRI Dep. Dir. Gen., I think.

Among the slides shown by Bruce:

 Room later became full. Connie Dacuycuy of PIDS was giving her own presentation. 

Among the conclusions by Bruce -- the PH needs more: R&D, tariffication and liberalization, resilient varieties, rice crop managers, mechanization,...

Former DOST Secretary Emil Javier also spoke, among his points....

I also do not support giving away more "freebies" to farmers, and to many other sectors. There is no such thing as "freebie", taxpayers pay for those things while politicians and bureaucrats get free PR points. 

Government resources for agri should be focused on improving rural infra, like more farm roads, wide and cemented roads; more dams and irrigation. Taxpayers' money should not be used for price support and direct subsidies.

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See also: 

Agri Econ 26, Biotech products, July 22, 2018 

Agri Econ 27, On rice tariffication and trade liberalization, November 14, 2018 

Agri Econ 28, SE Asia rice production is rising, not declining, November 17, 2018

BWorld 270, Debating with Mr. RE

* This is my article in BusinessWorld last November 27, 2018.

In a paper, “Setting up the debate with Mr. Coal,” published in BusinessWorld yesterday, Mr. RE and climate scam Eddie O’Connor of wind-solar lobby made new wild claims but did not answer the points I made against his previous paper.

In my paper, “Corrupted science to justify renewables cronyism” in BusinessWorld last Oct. 11, I made these points that the RE/climate scam did not respond to:

(1) “Earth’s climate history is one of natural warming-cooling cycles since the planet was born some 4.6 billion years ago.” I showed there a chart, ”450 Million Years of Unrelatedness between Atmospheric CO2 and Temperature.”

In his paper yesterday, O’Connor showed a chart of ocean heat content the past 50+ years. Sorry but planet Earth was not born in the ’60s as starting point of temperature measurement. Here is another chart showing warming-cooling cycle (see Figure 1).

(2) “Solar price of P9/kWh at P54/US$ is not 2.9 cents but 17 cents/kWh. Wind price of P8.5/kWh at P54/$ is not 4.1 cents but 16 cents/kWh.”

In his paper yesterday, Mr. O’Connor made other wild and fake claims:

(1) “Of course, the developers of wind and solar agree to abolish mandatory dispatch.”

This is lie #1. Mandatory dispatch was put in the RE law of 2008 (RA 9513) because it was demanded by the solar-wind developers. Cost upon dispatch includes the total price (capex and opex; WESM price + FIT-All) and not just the marginal price. In 2018, the total price of solar is P9+/kWh, the total price of wind is P8.50/kWh, data from ERC.

(2) “Regarding abolishing the feed-in-tariff. It is not hard to agree to this, as it is already abolished.”

Lie #2. FIT is still there, not abolished. The FIT-Allowance in our monthly electricity bill has been rising from 4 centavos/kWh in 2015 to 12.40 in 2016, 18.30 in 2017, and 25.32 centavos /kWh since June 2018 billing.

(3) “I am alarmed, indeed devastated by the disappearance of some 60% of species by 2020 due to global warming.”

Lie #3. In a paper published in Nature this year, Steinbauer and 52 other scientist-co-authors reported “a continent-wide acceleration in the rate of increase in plant species richness, with five times as much species enrichment between 2007 and 2016 as fifty years ago, between 1957 and 1966… consistent across all [continental regions], with no single region showing the opposite pattern.” (See Figure 2.)

(4) “I am afraid that Mr. Oplas is a latter day flat earther for denying climate science.”

Lie #4. I believe in climate change and global warming, they are true, they are happening. What I do not believe is that they are “man-made.” On the contrary, the climate/RE scam and square-earther is the big denier: (a) deny that global warming has many precedents and not ‘unprecedented’; (b) deny that climate change is natural and cyclical; (c) deny that global cooling can happen after global warming phase; (d) deny that natural factors — the Sun, galactic cosmic rays, water vapour, clouds, geological degassing, AMO/PDO in the ocean, etc. — are big factors for climate change.

Finally, square-earthers (e) deny that coal remains a big if not biggest source of electricity for many Asia-Pacific economies (see Figure 3).

Square-earthers produce lots of lies and fake stories to fool the public so that the people will keep subsidizing their expensive, intermittent solar-wind energy.

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See also: 
BWorld 267, Poverty data vs banking, mobile phones and Internet access, November 23, 2018 

BWorld 268, Market-oriented reforms in the Senate, November 24, 2018 

BWorld 269, IPR, private property and prosperity, November 27, 2018 

Energy 118, Climate lies to justify RE subsidies, December 04, 2018

Energy 118, Climate lies to justify RE subsidies

An RE developer and lobbyist reacted to my paper, "Corrupted science to justify renewables cronyism". He wrote again to oped editor and his paper was published by BWorld. My reply to this in my next post.
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Setting up a debate with Mr. Coal

November 25, 2018 | 11:01 pm

By Eddie O’Connor

MR. Bienvenido S. Oplas, Jr. writes in his Oct. 10 column, “Corrupted science to justify renewables cronyism,” “if wind-solar are indeed that cheap, then will the lobby agree to (a) abolish the priority and mandatory dispatch of wind-solar to the grid, and (b) abolish the feed-in-tariff (FIT) scheme of guaranteed high price for wind-solar, other variable REs for 20 years?”

Of course, the developers of wind and solar agree to abolish mandatory dispatch. So long as the system dispatchers continue with the practice of dispatching the next batch of electricity at the lowest marginal price, wind and solar will always be dispatched first. The marginal price of wind and solar is zero. Every system dispatcher in the world dispatches the lowest marginal cost first. Remember that once plants are built every marginal unit of coal costs circa $3.5+ cents depending on efficiency. A unit of electricity from a wind and solar plant, once built, costs 0.

Regarding abolishing the feed-in-tariff. It is not hard to agree to this, as it is already abolished. Thank God. Now perhaps we will get a chance to compete head to head with dirty coal. We can then do what has been done in South Africa, Chile, Mexico, and everywhere auctions are run and hammer coal into oblivion.

Mr. Oplas seems to be unaware that in an experiment conducted in the Royal Institution in London in 1861, the great Irish scientist, John Tyndell, passed radiation through a series of gases and observed that CO2 CH4 and H2O, absorbed radiation while oxygen and nitrogen did not. This experiment is easy to replicate, and any university to which Mr. Oplas has access, can replicate it.

I apologize to non-technical readers for the following but it is the real science which has driven the world to sign the Paris accord.

All radiation is quantized. These quanta, or packages of solar radiation, only interact with certain molecules, whose electrons can be jumped to a more energetic orbital. They then fall back releasing an increment of heat.

The chart here shows the heat buildup due to the absorption of radiation by greenhouse gases (see chart).

The slope of the global heat accumulation graph tells us how rapidly the Earth’s climate is building up heat. Over the past decade, the rate is 8 x 1021 Joules per year, or 2.5 x 1014 Joules per second. The yield of the Hiroshima atomic bomb was 6.3 x 1013 Joules, hence the rate of global heat accumulation is equivalent to about 4 Hiroshima bomb detonations per second.

The data comes from peer-reviewed research (Church et al. 2011) and has also been confirmed by more recent research (i.e. Balmaseda et al. 2013).

The slope of the global heat accumulation graph tells us how rapidly the Earth’s climate is building up heat. Over the past decade, the rate is 8 x 1021 Joules per year, or 2.5 x 1014 Joules per second. The yield of the Hiroshima atomic bomb was 6.3 x 1013 Joules, hence the rate of global heat accumulation is equivalent to about 4 Hiroshima bomb detonations per second. That’s nearly 2.7 billion atomic bomb detonations worth of heat accumulating in the Earth’s climate system since 1998, when we’re told global warming supposedly “paused.” That has to be the worst pause ever.

Again let me reiterate. I am alarmed, indeed, devastated by the disappearance of some 60% of species by 2020 due to global warming. I am similarly saddened to observe that even if we can limit the temperature increase to 1.5 degrees we lose 90% of all the corals in the oceans.

There were those who persisted in believing that the earth was flat for hundreds of years after it was demonstrated by Ferdinand Magellan to be round. I am afraid that Mr. Oplas is a latter day flat earther for denying climate science. Delighted to debate on my next visit in May 2019.

Eddie O’Connor is chairman of global renewable energy company Mainstream Renewable Power.

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See also:

Energy 115, Response by wind-solar lobby, October 13, 2018 

Energy 116, Cheaper oil but rising oil tax, November 04, 2018 

Energy 117, Cheap oil and Trump, November 23, 2018

Santo Duterte vs the Catholic Church, again

Normally an idiot does not know his idiocy and arrogance so he braggingly announces it.

https://www.bworldonline.com/duterte-to-catholic-church-your-stupid-god-isnt-my-god/

https://www.philstar.com/headlines/2018/11/02/1865300/santo-rodrigo-duterte-pokes-fun-catholic-all-saints-day

https://www.gmanetwork.com/news/news/nation/676161/duterte-urges-catholics-to-stop-going-to-church/story/

https://newsinfo.inquirer.net/1057313/duterte-tells-people-to-build-own-chapel-to-pray-stop-going-to-church

https://www.philstar.com/headlines/2018/11/26/1871973/after-donation-theft-slur-duterte-now-says-he-thinks-bishop-david-drugs

https://news.mb.com.ph/2018/11/23/duterte-accuses-bishop-of-pocketing-church-donations-for-family-use/

https://newsinfo.inquirer.net/1057402/duterte-threatens-to-cut-off-bishops-head

His dictatorship-leaning prouncements are consistent with his threat to behead a bishop, attacking an institution, in this case the church, that criticizes some of his policies. Even attacking a "stupid" God  that he does not believe. People and institutions should never criticize him, otherwise they are into drugs, they can be murdered.

We should not go back to a dictatorship. In a democracy, the President and his political party, administration are fair game. They allow drugs by the billions of pesos, they kill by the thousands, they will be criticized. They impose high taxes, they are smeared in corruption, they will be criticized. A dictatorship does not like being criticized, one reason why Du30 loves Xi Jinping -- a communist government does not allow organized and sustained criticism.

BWorld 269, IPR, private property and prosperity

* This is my article in BusinessWorld last November 23, 2018.

“Every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say are properly his.”

— John Locke, Two Treatises of Government (1689)

Private property, not collective or communal or state property, is the cornerstone of social order, innovation and prosperity in the history of humanity. The most prosperous economies are those that respect and protect private property of the means of production. Backward communist China and Vietnam realized this later so they instituted reforms that allow and protect private property even if they retain the one-party socialist government.

Such private ownership apply to both physical and nonphysical or intellectual property, the latter including trademark and brand, patent on inventions, copyright on compositions, and trade secret.

In Asia in particular, economies with high per capita income — Singapore, Hong Kong, Japan, South Korea, Taiwan — are also those with high scores and global ranking in intellectual property rights (IPR) protection. And countries with poor or low per capita income also have low scores and ranking in IPR protection. Exception here is Brunei, high per capita income due to gas and oil-based economy and not FDIs-based like the five economies mentioned, and low scores and global ranking.

Data below are from four sources. (1) International Monetary Fund’s (IMF) World Economic Outlook (WEO) October 2018 database, (2) Property Rights Alliance’s (PRA) International Property Rights Index (IPRI), (3) World Economic Forum’s (WEF) Global Competitiveness Report (GCR), and (4) US Chamber of Commerce’s Global Innovation Policy Center (GIPC).

IPRI is composed of three factors, one of them is IPR protection. WEF’s global competitiveness index is composed of 12 pillars, pillar #1 is about Institutions and among the sub-pillars is intellectual property (IP) protection, and global rank is out of 137 countries in 2017 and 140 countries in 2018.

Now there are IPR-busting policies in several governments like plain packaging for tobacco products. Australia was the first country in the world to do it in 2012, and in the ASEAN Thailand wants to do it too.

Plain packaging (PP) is a ban on branding, it removes trademark, certain graphics, colors and logo, and allows only a generic name in a standard font/size with graphic warnings. And this is where the danger lies.

Corporate branding is elaborate and complicated, the bar codes can even show where the product was manufactured and when. By removing corporate branding via PP, generic branding is less complicated, less elaborate, and very easy to copy and reproduce by illegal producers and smugglers. Since these smugglers did not invest decades of business developing their brand, they can sell at a much cheaper price. And this will attract more smokers, more smoking, not less.

IPR issues like forced technology transfer and outright IPR robbery are among the thorny issues in the ongoing US-China mild “trade war.” The US says its companies are losing as much as $600 billion per year via piracy, counterfeits, imitations, trademark infringement and other IPR robbery, but China denies it.

Health socialists and activists who hate tobacco, alcohol, soda, confectionery companies and their products should realize that both nature and the market hate a vacuum. Remove the legal products and demonize their manufacturers, and that gives room for smugglers, criminal gangs and terrorist organizations to produce and sell their own fake, substandard but cheap products. This results are more smuggling and corruption, more smoking and drinking, not less.

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See also: 
BWorld 238, Trademark ban and health alarmism, August 04, 2018

BWorld 266, Inflation, GDP and Duterte, November 16, 2018 

BWorld 267, Poverty data vs banking, mobile phones and Internet access, November 23, 2018 

BWorld 268, Market-oriented reforms in the Senate, November 24, 2018