Tuesday, October 30, 2007

Oil Politics 2: Oil prices and climate change

The first time I read about world oil prices hitting $100 a barrel or higher was sometime April or May this year. The projection then was that price will be reached sometime in February or March 2008, based on certain assumptions. But the $93/barrel has been touched already over the weekend, and it's not even end-October 2007 yet.

Oil price, like the price of any other commodities and services, is driven mainly by the dynamics of supply and demand. High demand relative to supply means prices will go up. High supply relative to demand means prices will go down. And there are dozens of factors that determine both supply and demand. For instance, when millions of newly-riched Chinese and Indians, plus other people around the world buy new cars, then demand goes up. When oil producing-countries (OPEC or non-OPEC member-countries alike) pump more oil, and no supply disruptions (meaning no oil refinery or oil pipeline is blown up by bombs or knocked down by hurricanes), then supply goes up.

When supply keeps increasing (both petroleum and petroleum-substitutes) and yet demand outpaces the growth of supply -- resulting in higher prices -- then it means one thing: the world (or a big portion of the world) is getting richer. Of course the number of poor people also expands, but the number of people who graduated themselves from poverty has expanded much bigger, and these people have bought new cars, or travelled more often in public transportations, which explains for the big growth in world demand for petroleum products.

Some environmentalists complain though when the world gets richer. Because this means more cars and buses, which means more petroleum consumption and more pollution, which worsens global warming. Thus, higher oil taxes can be a good thing so that oil consumption will be partly discouraged, and governments will have more money to fight global warming -- through more international meetings and conventions? more speeches? more tree planting? more subsidies to wind energy farms? Maybe, I usually do not buy governments' various alibi.

What I know is that when people are richer, they themselves find ways and have the resources to adjust to climate change. For instance, richer people tend to buy houses away from cities, in suburban areas where they are surrounded by trees and gardens. Or they buy idle lands and convert these into new real estate projects that have plenty of trees and open areas for outdoor recreation, entertainment that don't need huge air-con systems that require lots of power that require more power plants.

Should oil prices finally reach $100 a barrel this year and stabilize there, if not rise further, then it should be the right time to campaign for drastic cut, if not abolition, of petroleum taxes. In the Philippines for instance, at least 3 direct taxes are slapped on petroleum products -- import tax, excise tax, and value-added tax. Not included here are taxes slapped on companies that refine, distribute, and sell (wholesale and retail) oil.

Savings by households and motorists from lower pump-price of oil as a result of oil tax cut or oil tax abolition, can be used to buy new cars that are more fuel efficient (those cars that run 15 kms or more per liter). Or buy a new house or condo unit in those high rise buildings in the city center so that they will not travel far from their offices and their kids schools and hence, consume less oil. The options for households are unlimited as each household has unique needs and priorities. The bottomline is that petroleum taxes must come down, if not altogether abolished later, and let the households prioritize how they should spend the fruits of their hard work, especially in determining how they should cope with climate change.

* See also, Oil Politics 1: Bush vs. Chavez? March 12, 2007

Tuesday, October 23, 2007

Spontaneous Market 4: Entrepreneurship, Community and Property Rights

Entrepreneurship and free market, in the words of Adam Smith, Friedrich Hayek, and countless other intellectuals, lead to human welfare. People who want to be useful to society and at the same time become rich, invent things and services -- or facilitate the introduction and marketing of those inventions and innovations -- that improve human lives. From new rice varieties that can improve nutrition to new cellphones with cameras that improve communication among people, to new cars that are more fuel efficient, to new medicines that are more effective in fighting diseases.

We can add therefore, that only useful things get the attention of the people, and they buy those things and services, making the inventors and sellers of those things rich. Useless things like nuke bombs and more powerful killing machines are bought mostly by governments and military generals. If you have doubt about this, you can ask the Myanmar generals or Robert Mugabe or Fidel Castro, etc. why they bought hundreds of thousands of assault rifles for their troops.

One example of the fruits of entrepreneurship, is a first ever Oceanarium in the Philippines, that will open up less than 2 months from now. This means that Filipinos who want to see different marine animals and fishes need not go to Singapore or Hong Kong -- and pay thousands of pesos in travel tax, petroleum tax, terminal fee, security fee, to the state -- to see these marine creatures in style.

There is also an ocean park in Subic, about 130 kms. north-east ofManila, but there is corresponding or additional travel costs in going there. This oceanarium will be right in Metro Manila.

When people, children especially, can see live fishes and other marine creatures in front of them, and not just on Discovery or Animal Planet or National Geographic channels, or other documentaries, their appreciation of the marine environment will increase. Because who would want the destruction of marine environment if they will know that those colorful and beautiful, not to mention gentle, marinec reatures, will also be destroyed and killed?

(See the news report here,
First Philippine Oceanarium to open in December
By Louise M. Francisco

MANILA Ocean Park (MOP), the P1.1-billion joint oceanarium project ofChina Oceanis Philippines Inc. (Copi), and Singaporean and Malaysian investors, has set the opening of the first phase of its live aquarium facility on December 15, unveiling plans to exhibit more than 20,000 marine inhabitants of approximately 300 marine species. The oceanarium is divided into six sections named to evoke national pride....

My two related papers in recent months:

(1) Markets, Government and Community

August 22, 2007

A friend defined these 3 concepts as follows:

Market - by competition
Government - by coercion
Community - by cooperation.

In my book though, I define them as:

Market = voluntary exchange
Government = forced exchange
Community = voluntary co-habitation.

1) Market: I can only have your money if you like my hair-cut services, then you come back, you tell other people that i'm a good barber. The moment I become a lousy barber, or my barbershop stinks like a dumpsite, there's no way I can have you and your money.

2) Government: I will have your money even if you think policeman X is the most extortionist law enforcer, even if Congressman Y is the most corrupt politician, even if Mayor Z is the most arrogant mayor around. They are your public servants, so give me your taxes.

3) Community: I will live in this community (or village or condo building or barangay) only if it gives me peace of mind for me and my family, at a price that I can afford. The moment the peace and order deteriorates, or the cost of staying in this community becomes unaffordable for me, I and my family will be out of here, and we'll look for another community.

Market competition is only a means, not an end. The end-goal is choice. With choice, comes freedom. More choices, more freedom. In the process of voluntary exchange, some guys will lose out to fellow sellers as the buyers and consumers become choosy. So sellers are forced, even coerced, by circumstances, to be competitive, to produce goods and/or services that will be wanted and bought by the public. So in the process of giving consumers more choices, competition was born.

Government coercion is also a means to pursue a purported goal of public welfare. Oftentimes, the result, in the perspective of consumers, is lesser choice. Lesser choice means lesser freedom. When you have less take-home pay because of high income taxes, then you have less freedom to buy or consume certain goods and/or services that you deem important for you and your family.

Community cooperation is part of voluntary exchange. That is why builders and leaders of private villages and communities incorporate lots of amenities like good peace and order, garbage collection, street lighting, etc. to entice more residents and locators in their communities. More residents, more profit for them. Less residents and less buyers of their residential units, less profit, even losses for them.

Choice through voluntary exchange is a sacred goal to be pursued if one is to ensure individual and community freedom.

(2) Property Rights = Freedom

JUNE 12, 2007

A friend from Sri Lanka, Ms. Mala Gunasekera, wrote a short essay, "The conversion of bad title into good title by acquisition and vesting. This process has empowered governments and impoverished the poor."

In her paper, she observed:
"In Sri Lanka we had legislation called Waste Lands Ordinance to take over their lands. Successive governments fluctuated in their opinions whether the lands should be government owned or privately owned. From time to time cultivated lands were taken over and controlled by government, land laws were randomly altered thus creating many doubts in the minds of people. This created a political cultural ethos where entrepreneurs looked to their respective governments to obtain land for their industrial establishments. They never looked to willing sellers to purchase land for their projects."

What Mala wrote is so true. Property rights means Freedom. And zero property rights means zero freedom. If you can't say that you own your tv or refrigerator 100%, that is, somebody can always come in and he says that he also owns your tv or refrigerator and takes it away from you, then your life is a mess.

If you extend that analogy to lack of property rights to your agricultural land, or the lot that your house is sitting on, then you have 24 hours of absence of peace of mind. You come home from work and somebody else has already fenced your agri land, or your house has already been demolished and someone else is putting up a new house or shop in your lot.

I think that the absence of secure, well defined property rights among citizens is the single biggest GOVERNMENT FAILURE ever created. But if you look at the literature of those who always cry "market failure" to anything and everything around society, the concept of "government failure" never comes to their minds.

Governments around the world have many tools in their disposal to discourage private property rights. Among them are multiple and high taxes, multiple titles and requirements (and signatures and regulations) to secure, unstable and unpredictable legal and judicial system, and so on. A combination of all these and life can be chaotic. I think people in Zimbabwe, Congo, and many other African countries fully understand this.

The big challenge for free marketers, is how to remind governments to focus on that very important function - to ensure property rights, whether intellectual property or goods/lands property, of the people. By extension, governments should be discouraged from dipping their dirty fingers on endless regulations of business and entrepreneurship, on providing endless subsidies to things that are better relegated and administered as personal and parental responsibilities.

See also:
Spontaneous Market 1: Profit, Trade and Personal Responsibility, May 22, 2006
Spontaneous Market 2: Market Failure vs. Government Failure, June 07, 2006
Spontaneous Market 3: No Nurses' Brain Drain, June 21, 2006

Tuesday, October 09, 2007

Market segmentation and pricing

On my recent trip to Hong Kong 2 weeks ago, at the HK airport on my way back to Manila, I was able to strike a conversation to 2 Filipinas who frankly admitted working as "pick-up" girls in the streets of Kowloon. They said that unlike in the Philippines where the male customers approach the female GROs (or sex workers), in HK, there are hundreds, even thousands of them competing for a few male customers on a strip of bar. So that in HK, its the ladies/GROs who should approach male customers, go out with them for $HK500 (cheapest, 30 minutes quickie), average rate $HK2,500 (3 hours). Supply exceeds demand. So that suppliers of a service or good have to settle for lower price or welfare. For these 2 ladies, they quit after 3 weeks because they were barely earning while the cost of living in HK is very expensive, so they went back home.

When supply exceeds demand, the "equilibrium price" for that particular good or service declines. It applies to domestic helpers from RP (and from Indonesia, from mainland China, from India, from everywhere) in HK. It applies to the squatter shanties in Metro Manila, Cebu, Davao, Bacolod, etc. It applies to the price of tomatoes during the dry or summer season.

A Filipino friend, Teddy, commented that
"If you talk of prostitution in HK, Filipinas belong to the lower rung of that god-forsaken market. The supply of "labor" along this end does not exceed demand. Demand is cyclical, depending on whether its tour season or not. Why do Filipinas belong to the lower rung? Many factors. First of all, they are not as "aggressive" as lets say, latinas and russians who make no fuss approaching men on the street corners. Pinays still have that "hiyang" attitude when it comes to these things. The average latina or chicana is 1,000 hkd for 30 minutes...."

Prostitution is not a homogeneous (same product quality) commodity.If you draw a supply-demand intersection on one graph, you can actually have thousands of different "equilibrium price", not just one. This is because there are thousands of combinations of "supply meets demand" for each pair of sex worker and sex customer.

It's no different from riding a boat, say a Super-Ferry: there are at least 6 different cottages with their respective fares: economy ordinary, economy air-con, business, etc. There is market segmentation on one boat going to one destination.

Even among Pinay sex workers, there is market segmentation among them, whether they work in the Philippines or in HK or in Japan or Korea, wherever. The "prettier and curvier" ones demand a higher price compared to the "uglier and less curvy" ones.

Friday, October 05, 2007

ASEAN 3: On Myanmar, Letter to Sec. Romulo

This is the letter I sent to the DFA.

October 2, 2007

Hon. Alberto G. Romulo
Department of Foreign Affairs
Roxas Boulevard, Pasay City

Dear Sec. Romulo,

We applaud you and other Foreign Ministers of the ASEAN member-countries for issuing a strong statement urging Myanmar leaders to exercise restraint and to release political prisoners like Daw Aung San Suu Kyi. We have also read and support your press release, “No let up on Philippine Advocacy on Myanmar Democracy”, dated September 27, 2007.

The Philippine government has hosted many ASEAN meetings in the past. For this year alone, our country hosted the ASEAN Summit in Cebu last January, the ASEAN Ministerial Meeting in Manila last July, and the ASEAN Economic Ministers Meeting in Makati last August.

As Filipino taxpayers that finance those expensive meetings, and as ordinary motorists that suffer heavy traffic whenever police escorts block our way to allow those officials of ASEAN and other participating governments have their way, we feel bad that part of our hard-earned money were spent on those Myanmar generals and bureaucrats whose definition of “public service” is to suppress their citizens’ economic and civil rights, then truncheon, imprison, or shoot them to death when they find courage to stand up to more than 4 decades of military dictatorship.

As taxpayers that finance the DFA budget, we urge you to take certain penalties on the Myanmar government should it continue its political and military repression of its citizens, in particular the continued detention of political dissenters like Ms. Suu Kyi. Please consider urging other ASEAN member-countries that they bar and exclude Myanmar’s leaders, even temporarily, from attending future ASEAN meetings. They have isolated themselves from their citizens, they have disregarded diplomatic requests from governments of other countries, let ASEAN isolate them, until at least they have followed your demands in the recent joint ASEAN statement issued last month. Please spare our tax money from pleasing those Myanmar leaders until they have learned to reform themselves and democratize their country.

Sincerely yours,

Bienvenido Oplas, Jr.
President, Minimal Government, Philippines
minimalgovernment@gmail.com, 0915-8204616

On another note, our network of liberty-oriented think tanks, research institutes and other political organizations issued the following online campaign:

Solidarity with the People of Myanmar

2 October 2007
148th birth anniversary of Mahatma Gandhi

We, who are united by common principles and values of individual liberty, declare our steadfast support for the freedom of expression and freedom of association of the people of Myanmar to exercise these rights peacefully. In particular, we declare our solidarity with the people of Myanmar in their present hour of crisis, the people who have bravely faced the brutal force unleashed by the military junta against its own people. By its action on peaceful protestors the military regime in Myanmar has not only underscored its own illegitimacy, but also exposed its own vulnerability.

We call on the military regime in Myanmar to respect the popular sentiment of the Burmese people against authoritarian rule. We also call on the military to release from detention all political prisoners, initiate an honest dialogue aimed at reconciliation, and respect the ideal of political pluralism.

We, also call on the international community to support the democratic aspirations of the people of Myanmar to exercise their sovereign right to live in peace, with freedom and dignity.

Signatories, Institute or organizational representatives, as of Oct. 3, 2007:

· Khalil Ahmad, Alternate Solutions Institute, Pakistan
· Ozlem Caglar-Yilmaz, Association for Liberal Thinking, Turkey
· Melinda de Jesus, Center for Media Freedom & Responsibility, Philippines
· Trupti Parekh, Ambrish Mehta, Anil Patel, Action Research in Community Health and Development (ARCH), India
· Barun Mitra, Liberty Institute, India
· Todd Myers, Asia Institute for Social, Philosophical, and Economic Research, USA
· Krishna Neupane, Limited Government, Nepal
· Nonoy Oplas, Minimal Government, Philippines
· Muttukrishna Sarvananthan, Point Pedro Institute of Development, Sri Lanka
· Mohit Satyanand, Liberty Institute, India · Wan Saiful Wan Jan, Malaysia Think Tank, UK

See also: