Among the recent news this week about China, these 2 stories caught my attention:
1. China arms shipment to Zimbabwe.
2. Chinese move to boycott French and US products to protest anti-Chinese campaigns in those countries over Tibet.
The first was when the Chinese ship docked in S. Africa (to be transported by land to Zimbabwe) and the S. African dock workers refused to unload the armaments. More political and diplomatic discussions within S. Africa, later the chinese boat moved out -- not to go back to China, but to a port in Mozambique.
Earlier, Chinese shipment of armaments to Sudan was also in the news.
The shipment to Zimbabwe might be legal, but the timing was bad, at the time that Robert Mugabe is still not conceding defeat after the Presidential elections. Mugabe is Mugabe; he has used force and violence to quell opposition against his government in the past. He is capable of doing it again.
The second news was a new development. I have thought that many Chinese were sympathetic with Tibet, now millions of Chinese are sympathizing with the Beijing government and lashing back at countries where anti-Beijing Olympics sentiment is high.
My Chinese friend, Xingyuan, commented that the boycott of any French or US products is nonsense because we are living now in a postmodern world in which many US or French products have many inputs from other nations. The Chinese patriots in effect are boycotting goods and raw materials from their own country and labor of the that country. He added that the games this coming August is not "Chinese Olympic Games".
It was an excellent comment by Xingyuan. People usually boycott goods or services made by certain companies not because of politics or labor and environmental standards, etc. They do it because those companies' products are of bad quality and/or very expensive. This is also our argument why we are opposing "eco-protectionism", where some sectors in rich countries are proposing the imposition of a "carbon tariff", a new protectionist scheme, for exports of developing countries that do not have defined carbon emission cuts (china, india, mexico, brazil, many others).
People can be nationalist, that is their personal decision, the same way that other people can be pro-globalist, which is also their personal decision. What is wrong is when a government becomes nationalist, and drag the entire country and its people towards economic protectionism because people who aspire to buy other foreign goods will be adversely affected. If a country is a free-trader and pro-globalist, then some of its people who are not free-traders and pro-globalists can opt not to buy foreign products and services. People have a choice, and that's the most important thing.
And yes, it's not a "Beijing Olympic Games". It is the "World's Olympic Games to be held in Beijing".
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Two related papers I wrote recently:
(1) Tibet and China
March 28, 2008
The Chinese government was adamant in suppressing the riots and pro-independence movement in Tibet. After Chinese troops have killed several demonstrators and rioters, injured and arrested several hundred others, Lhasa is said to be "quiet and back to normal".
From what I gathered, there are at least 2 major reasons why China will not grant Tibet independence or autonomy. One is that the Dalai Lama is looking for autonomy in pan-Tibet area, about 2x bigger than the current Tibet province, a proposal that Beijing finds unacceptable. And two, there are now at least 3 special administrative regions (SAR) as far as China is concerned -- HK, Macau and Taiwan (though the Taiwanese insist that they're not a SAR but a separate country). If Tibet will succeed to be another SAR, other provinces or regions that also want some autonomy from Beijing will be emboldened, and Beijing will have a new set of headache.
The communist bureaucrats in Beijing are not in the mood to reduce the geographical area of their influence and the number of people whose lives they wish to regulate.
(2) Party and State
March 31, 2008
There is a difference between the (ruling political) party and the state. The non-distinction or non-delineation between the two is among the biggest problems of communist parties in power in all communist governments around the world, both past and present. A Filipino Marxist academic that I talked to many years ago said that it should be possible to delineate the ruling (Communist or Socialist) Party from the State if the party respects political pluralism. If not, meaning the Party thinks it should be the monopoly party, no other big political opposition to be allowed, then that party will surely degenerate to a dictatorship.
The party formulates the policies to be implemented once it captures political power. The party leaders choose the people and officials, like Cabinet Ministers, who will run the state, and these appointed officials need not be party members. This separates the function of the party from the function of the State.
About Tibet, Beijing granting it a SAR status should be possible if doing so will enhance the latter's economic dynamism and competitiveness. This will have a domino effect of course, as other provinces may also demand a SAR status where they will have partial autonomy from the Beijing central government. But if more SAR would mean more HK or Macau type of economic dynamism, then Beijing will be better off.
The glitter and big money that will come into China in the Beijing Olympics just 5 months from now should help some Party hardliners in Beijing realise that they will have less political headache and more economic wealth if they will grant more autonomy to some of their "prodigal" provinces. I hope so.
* See also China Watch 3: World's Largest Traders, 2004, June 03, 2006
Wednesday, April 23, 2008
Tuesday, April 15, 2008
Free enterprise and health innovation
I have always thought that product innovation – new rice and vegetable varieties, new cellphones and laptops, new shoes and dresses, new burgers and pizza, new drugs and medicines, and so on – is done by private firms and companies, not by governments. When a company is the first to innovate on something that is very useful to its consumers, then that company is rewarded with big profit and wide trademark recognition and support. That is why companies compete with each other in various forms of innovation – whether in new products and processes at various price levels, or the same/similar products and processes at a lower price or with better marketing package or better post-sale services, and so on.
Some documents by many governments and multilateral institutions, however, seem to suggest that it’s them who do the innovation and undertake costly R&D, or suggest that they can command and control the private companies that do the innovation, tell them what areas to innovate, how to do it, and at what prices the companies should sell their new products and processes.
One such document that I have encountered is the InterGovernment Working Group on intellectual property, innovation and health (IGWG, under the World Health Organization, WHO) global strategy and draft plan of action. It’s 26 pages long and unless you specifically look for it, you may not easily find it in the WHO website. This and related documents are very important if one wishes to see how the WHO and its member states represented by their respective health ministries or departments wish to “manage” intellectual property rights (IPR) and health innovation by private companies, especially pharmaceutical companies, to pursue certain public health objectives.
The IGWG global strategy and draft plan of action recognizes the important role of IPR on technological innovation but it also says that “IPR do not and should not prevent Member States from taking measures to protect public health.” And from this premise, along with many other premises, it identifies certain plans of action. Among them are the following.
One, health R&D of developed countries should reflect the health needs of developing countries. But governments of developed countries do not undertake R&D; it’s the health research and pharmaceutical companies based in developed countries that do it.
Two, promote and coordinate R&D for diseases in developing countries. This implies that the health ministries or departments of developed countries should coordinate the R&D work of innovator pharmaceutical and biotechnology research companies, and tell them to prioritize in their work the diseases in developing countries.
Three, build and improve innovative capacity of developing countries. Who will do this, the governments of poor countries, or the local health and pharmaceutical companies in poor countries, or both? If it’s the first, then this will require huge budgetary allocation for many years, which will require huge taxes and fees for many years, which can bleed productive enterprises including local health and pharmaceutical companies and disable them to improve their own innovative capacities.
Four, transfer of technology; from north to south. Technology transfer should be done voluntarily, where both the innovator and recipient bodies or enterprises will benefit. When the innovator company spent huge amount of time, effort and money – invested by stockholders and/or borrowed from banks, both of which expect reasonable returns – then it will not just transfer its technology and processes to other companies which did not help in its earlier efforts; or worse, they could be potential competitors. An innovator company will transfer technology only to its subsidiary or sister company which can give it reliable information on local conditions from which the mother or innovator company can consider in its on-going or future R&D work.
Five, manage IP to promote innovation and public health. This implies that governments should “manage” the IPR of innovator companies and if they cannot be managed, then governments can issue compulsory licensing (CL) to some of these companies’ effective and best-selling medicines. Or manufacture and export medicines without the permission of patent owner. The words “allow CL” and “export medicines without the permission of patent owner” are in fact contained in the said document.
These interventionist, if not invasive, “plans of action” by the WHO and its member-governments as drafted by the IGWG secretariat, are meant to socialize and collectivize the efforts and hard work by the innovator health companies. When you collectivize something, you normally disregard the rightful rewards of the innovators in the form of higher profit or wide trademark recognition by consumers. These are subordinated in the name of “public health” and capsulize in the slogans, “patients over patents” or “people over profit”.
Okay, fine and cute slogans. But if the innovators will not be properly rewarded, why would they innovate in the first place? And if there will be no more innovators, who will produce more effective and safe medicines to fight evolving diseases in evolving environments and communities? Or at least mitigate the pain and impatience of the sick or dying patients, like curing a disease in just 1 or 2 days instead of 1 or 2 weeks or more that existing medicines are capable of doing?
The “cheaper/affordable medicines” bill now in the bicameral conference committee by the Senate and the House of Representatives is generally treading along these lines contained in the IGWG document. The Senate Committee Report that produced the current Senate version even proudly declared that “for developing countries, the fewer the patents, the better”.
Fine, but if the few innovator pharmaceutical companies in the Philippines now will be threatened with weak patent and IPR laws for their innovations through “government use” which is more invasive than the CL scheme, and threat of price control of their effective and best-selling drugs by the DOH bureaucracy, are we not penalizing ourselves with even fewer innovator companies who can give us more effective and safe medicines for both existing and future diseases?
Some documents by many governments and multilateral institutions, however, seem to suggest that it’s them who do the innovation and undertake costly R&D, or suggest that they can command and control the private companies that do the innovation, tell them what areas to innovate, how to do it, and at what prices the companies should sell their new products and processes.
One such document that I have encountered is the InterGovernment Working Group on intellectual property, innovation and health (IGWG, under the World Health Organization, WHO) global strategy and draft plan of action. It’s 26 pages long and unless you specifically look for it, you may not easily find it in the WHO website. This and related documents are very important if one wishes to see how the WHO and its member states represented by their respective health ministries or departments wish to “manage” intellectual property rights (IPR) and health innovation by private companies, especially pharmaceutical companies, to pursue certain public health objectives.
The IGWG global strategy and draft plan of action recognizes the important role of IPR on technological innovation but it also says that “IPR do not and should not prevent Member States from taking measures to protect public health.” And from this premise, along with many other premises, it identifies certain plans of action. Among them are the following.
One, health R&D of developed countries should reflect the health needs of developing countries. But governments of developed countries do not undertake R&D; it’s the health research and pharmaceutical companies based in developed countries that do it.
Two, promote and coordinate R&D for diseases in developing countries. This implies that the health ministries or departments of developed countries should coordinate the R&D work of innovator pharmaceutical and biotechnology research companies, and tell them to prioritize in their work the diseases in developing countries.
Three, build and improve innovative capacity of developing countries. Who will do this, the governments of poor countries, or the local health and pharmaceutical companies in poor countries, or both? If it’s the first, then this will require huge budgetary allocation for many years, which will require huge taxes and fees for many years, which can bleed productive enterprises including local health and pharmaceutical companies and disable them to improve their own innovative capacities.
Four, transfer of technology; from north to south. Technology transfer should be done voluntarily, where both the innovator and recipient bodies or enterprises will benefit. When the innovator company spent huge amount of time, effort and money – invested by stockholders and/or borrowed from banks, both of which expect reasonable returns – then it will not just transfer its technology and processes to other companies which did not help in its earlier efforts; or worse, they could be potential competitors. An innovator company will transfer technology only to its subsidiary or sister company which can give it reliable information on local conditions from which the mother or innovator company can consider in its on-going or future R&D work.
Five, manage IP to promote innovation and public health. This implies that governments should “manage” the IPR of innovator companies and if they cannot be managed, then governments can issue compulsory licensing (CL) to some of these companies’ effective and best-selling medicines. Or manufacture and export medicines without the permission of patent owner. The words “allow CL” and “export medicines without the permission of patent owner” are in fact contained in the said document.
These interventionist, if not invasive, “plans of action” by the WHO and its member-governments as drafted by the IGWG secretariat, are meant to socialize and collectivize the efforts and hard work by the innovator health companies. When you collectivize something, you normally disregard the rightful rewards of the innovators in the form of higher profit or wide trademark recognition by consumers. These are subordinated in the name of “public health” and capsulize in the slogans, “patients over patents” or “people over profit”.
Okay, fine and cute slogans. But if the innovators will not be properly rewarded, why would they innovate in the first place? And if there will be no more innovators, who will produce more effective and safe medicines to fight evolving diseases in evolving environments and communities? Or at least mitigate the pain and impatience of the sick or dying patients, like curing a disease in just 1 or 2 days instead of 1 or 2 weeks or more that existing medicines are capable of doing?
The “cheaper/affordable medicines” bill now in the bicameral conference committee by the Senate and the House of Representatives is generally treading along these lines contained in the IGWG document. The Senate Committee Report that produced the current Senate version even proudly declared that “for developing countries, the fewer the patents, the better”.
Fine, but if the few innovator pharmaceutical companies in the Philippines now will be threatened with weak patent and IPR laws for their innovations through “government use” which is more invasive than the CL scheme, and threat of price control of their effective and best-selling drugs by the DOH bureaucracy, are we not penalizing ourselves with even fewer innovator companies who can give us more effective and safe medicines for both existing and future diseases?
Sunday, April 13, 2008
Agri Econ 1: Food Prices and Government
My two articles last month and today...
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Lent is among those big “retreat days” for Filipinos due to the 4-days weekend. Many of those living and working in Metro Manila and other big cities retreat “back to the provinces or far away municipalities” and enjoy less stressful life where the air is cleaner and food prices are cheaper. But not this year’s Lent, it seems.
Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.
The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.
A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.
So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.
Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.
Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.
Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.
Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.
Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.
Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.
So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.
The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.
First of all, while many people who try to analyze the current food price hikes phenomenon call this as "rice or food crisis", I do not believe that it is already in a crisis situation. A "crisis" situation is where you have a 50-50 chance of either surviving or dying in a particular condition, say a patient in an intensive care unit (ICU). I'd go along with a few who simply call this a "rice shortage" problem that can be solved by more rice supply, both in the short- and long-term.
Most of the literatures that come out recently analyzing the problem in the Philippines and abroad blame the government for "not doing enough" -- ie, not intervening enough -- in earlier years. They mean the government did not: build more dams and irrigation canals, more warehouses and other post-harvest facilities; did not undertake more research and extension work; did not produce more subsidized fertilizers and hand tractors; did not provide more agri credit; did not reforest enough watershed areas; etc.
The list can be endless, depending on how statist the person who is talking of writing. That is, the more statist and socialist-oriented a person is, he's likely to say that government should "provide everything" for agriculture and the farmers. Of course they won't say that they also advocate that the government should also "take everything" from the people to finance those "provide and subsidize everything" projects.
I am of the opinion that government should not provide everything and take everything; not even provide many things and take away many taxes and fees. The reason why rice -- and other food crops' -- supply has not kept up with demand is precisely because of too many government intervention. People respond to incentives and shy way from disincentives. If there is not much profit from producing rice, then there will be less people who will produce rice, and there may be less land that will be devoted to planting rice.
When governments say they are increasing the budget for agriculture, the first thing that they increase is the number of personnel, consultants, and officials in their respective Ministry or Department of Agriculture, plus those in related agencies like Ministry or Department of Agrarian Reform, state agricultural colleges, etc. And those plenty of personnel will require more salaries, more bonuses, more offices, more trainings, more travels, more cars, and later on, more pension and retirement funds. Then some local governments follow suit, and expand their own local agriculture bureaucracies, financed from their local taxes and fees.
I think one of the important moves if societies are to improve their agricultural and food production capacities, is to abolish those Agriculture Ministries or Departments, and cut the taxes that the state collect from the private sector that finance those expensive bureaucracies. Since rational people would not want to be jobless for long and die hungry, many of those currently in government agricultural and related bureaucracies will likely become farmers themselves or become traders and/or processors of raw agricultural products. And this expands rice and food supply. When supply grows faster than demand, then the price will go down, and people will have lots of food at cheap and affordable prices, and there will be less hunger and malnutrition in society.
But when government Agriculture Ministries or Departments are abolished, who will build the dams and irrigation canals? The warehouses and post-harvest facilities? Who will do more rice and agri crops R&D? Who will provide cheap credit, and so on?
Good question, and the quick answer is -- the productive people themselves. For one, many of those infrastructure and facilities are currently being provided by the private sector, and they are being operated despite zero taxes financing, at least in the Philippines.
When people know that there is an agency whose job is to provide lots of subsidies to them and they won't go to prison if they cannot pay back those subsidized credit, subsidized fertilizers, seeds and hand tractors, then they will get and abuse those government services without necessarily raising their farm output. For instance selling a few bags of fertilizers and seeds to other people and use the proceeds to drink and party.
Okay, abolition of those monster Ministry or Department of Agriculture is unpalatable and unacceptable due to big political risks. Then the next move will be drastic reduction of those bureaucracies, including privatization of some of their attached agencies and bureaus. In the Philippines for instance, the privatization of the government grains trading monopoly, National Food Authority (NFA) has long been proposed and discussed. The cost to taxpayers, as well as price distortion due to its trading monopoly function -- for many years, it is the grains importation monopoly; and in some municipalities, it is the single biggest buyer of farmers' palay (unmilled rice) output.
Rice shortage that result in high rice prices will naturally create incentives for farmers of other crops to shift back to producing rice. And other investors, including micro- and small businessmen, will flock to a sector (like rice) that experience high prices and high profitability, and leave those sectors that experience low income, if not losses.
Market failure, as some statists call this, always invite and create market solutions. The "failure" or displacement is temporary, the same way that high profitability in one sector is also temporary once entry of other players and competitors is not hindered -- a contestable market situation.
It is government failure that needs to be corrected by going back to the market, and not by "more government" intervention.
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MARCH 19, 2008
Lent and food prices
Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.
The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.
A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.
So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.
Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.
Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.
Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.
Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.
Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.
Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.
So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.
The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.
---------
APRIL 13, 2008
Rice shortage due to government intervention
Most of the literatures that come out recently analyzing the problem in the Philippines and abroad blame the government for "not doing enough" -- ie, not intervening enough -- in earlier years. They mean the government did not: build more dams and irrigation canals, more warehouses and other post-harvest facilities; did not undertake more research and extension work; did not produce more subsidized fertilizers and hand tractors; did not provide more agri credit; did not reforest enough watershed areas; etc.
The list can be endless, depending on how statist the person who is talking of writing. That is, the more statist and socialist-oriented a person is, he's likely to say that government should "provide everything" for agriculture and the farmers. Of course they won't say that they also advocate that the government should also "take everything" from the people to finance those "provide and subsidize everything" projects.
I am of the opinion that government should not provide everything and take everything; not even provide many things and take away many taxes and fees. The reason why rice -- and other food crops' -- supply has not kept up with demand is precisely because of too many government intervention. People respond to incentives and shy way from disincentives. If there is not much profit from producing rice, then there will be less people who will produce rice, and there may be less land that will be devoted to planting rice.
When governments say they are increasing the budget for agriculture, the first thing that they increase is the number of personnel, consultants, and officials in their respective Ministry or Department of Agriculture, plus those in related agencies like Ministry or Department of Agrarian Reform, state agricultural colleges, etc. And those plenty of personnel will require more salaries, more bonuses, more offices, more trainings, more travels, more cars, and later on, more pension and retirement funds. Then some local governments follow suit, and expand their own local agriculture bureaucracies, financed from their local taxes and fees.
I think one of the important moves if societies are to improve their agricultural and food production capacities, is to abolish those Agriculture Ministries or Departments, and cut the taxes that the state collect from the private sector that finance those expensive bureaucracies. Since rational people would not want to be jobless for long and die hungry, many of those currently in government agricultural and related bureaucracies will likely become farmers themselves or become traders and/or processors of raw agricultural products. And this expands rice and food supply. When supply grows faster than demand, then the price will go down, and people will have lots of food at cheap and affordable prices, and there will be less hunger and malnutrition in society.
But when government Agriculture Ministries or Departments are abolished, who will build the dams and irrigation canals? The warehouses and post-harvest facilities? Who will do more rice and agri crops R&D? Who will provide cheap credit, and so on?
Good question, and the quick answer is -- the productive people themselves. For one, many of those infrastructure and facilities are currently being provided by the private sector, and they are being operated despite zero taxes financing, at least in the Philippines.
When people know that there is an agency whose job is to provide lots of subsidies to them and they won't go to prison if they cannot pay back those subsidized credit, subsidized fertilizers, seeds and hand tractors, then they will get and abuse those government services without necessarily raising their farm output. For instance selling a few bags of fertilizers and seeds to other people and use the proceeds to drink and party.
Okay, abolition of those monster Ministry or Department of Agriculture is unpalatable and unacceptable due to big political risks. Then the next move will be drastic reduction of those bureaucracies, including privatization of some of their attached agencies and bureaus. In the Philippines for instance, the privatization of the government grains trading monopoly, National Food Authority (NFA) has long been proposed and discussed. The cost to taxpayers, as well as price distortion due to its trading monopoly function -- for many years, it is the grains importation monopoly; and in some municipalities, it is the single biggest buyer of farmers' palay (unmilled rice) output.
Rice shortage that result in high rice prices will naturally create incentives for farmers of other crops to shift back to producing rice. And other investors, including micro- and small businessmen, will flock to a sector (like rice) that experience high prices and high profitability, and leave those sectors that experience low income, if not losses.
Market failure, as some statists call this, always invite and create market solutions. The "failure" or displacement is temporary, the same way that high profitability in one sector is also temporary once entry of other players and competitors is not hindered -- a contestable market situation.
It is government failure that needs to be corrected by going back to the market, and not by "more government" intervention.
Friday, April 04, 2008
Price hikes and Congressional investigations
In many countries around the world, oil companies are either being investigated by their parliament or congress, or simply ridiculed by the public. The typical sentiment is that these companies are more of villains who benefit from the misery of the public due to high oil prices. Hence, they deserve congressional investigations and harassment.
But gold prices were almost on their historic heights; were there Congressional investigations for big gold miners and traders?
Rice prices — and wheat, corn, other food items — are also on their all-time high, were there congressional investigations for big rice, corn, etc. producers and traders?
There are 2 industries which are the subject of envy always of politicians and the public: petroleum and pharmaceuticals. People can invest in gold, copper, paladium, other minerals and if they make big money, the public and congress won’t crucify them. The same with people who invest in rice production, coffee, etc. Or in hotels and automotive and telecomms, etc. But people who invested in petroleum and innovator pharmaceuticals, they’re considered a bunch of greedy witches. Talk of double standards.
But gold prices were almost on their historic heights; were there Congressional investigations for big gold miners and traders?
Rice prices — and wheat, corn, other food items — are also on their all-time high, were there congressional investigations for big rice, corn, etc. producers and traders?
There are 2 industries which are the subject of envy always of politicians and the public: petroleum and pharmaceuticals. People can invest in gold, copper, paladium, other minerals and if they make big money, the public and congress won’t crucify them. The same with people who invest in rice production, coffee, etc. Or in hotels and automotive and telecomms, etc. But people who invested in petroleum and innovator pharmaceuticals, they’re considered a bunch of greedy witches. Talk of double standards.
Wednesday, April 02, 2008
Free Trade 7: Class War, Eco-protectionism and Climate
Two weeks ago, Dr. John Rutledge posted in his blog (www.rutledgeblog.com) a paper, "Protectionism and the Philippine class war", in reaction to an oped by the Manila Times, "Poverty in the middle of plenty".
I have met John last May in Honolulu during the "Pacific Rim Conference" and he was our dinner guest speaker in the first day of the 2-days conference.
John wrote,
"There are important parallels with the (Philippines and) current US situation.
1) Class war leads to punitive, growth-destroying tax, trade and regulatory policies.
2) Class-war driven tax policies can drive offshore exactly the valuable resources needed to crete jobs and improve family incomes.
3) Protectionism is extremely destructive for growth and incomes. It can permanently mire an economy in poverty.
4) Once started, protectionism is hard to stop because it creates vested and well-funded political interests that want it to continue forever...."
I commented in his blog not to believe the Manila Times oped. There is no "class war" in the Philippines (and many other developing economies) because there are many "classes" or "enclaves" that were not prominent just 2 decades ago.
Entertainers, showbiz personalities, professional basketball players, boxers, IT professionals, advertisers, academics and consultants, traders, media broadcasters and columnists, travel agents, physicians, lawyers, engineers, accountants, top government bureaucrats, politicians, dozen-plus other categories, are making it big and very rich in the Philippines. They are neither "exploiting capitalists" and "exploited workers" in the old Marxist dichotomy of "class war", or "feudal lords" and "exploited peasants" in the old Maoist dichotomy of "class war".
Recently, many people here are getting rich not by becoming overseas workers, or by becoming investors in business process outsourcing (bpo), but by catering to millions of foreign tourists, especially the Koreans, Chinese, Japanese, Taiwanese, Americans, Europeans, coming here to enjoy the white sand beaches, or wonderful golf courses, or for cosmetics and beautification surgery, or simply to learn English language cheaper.
It is true that economic and trade protectionism causes economic stagnation. While free trade gives consumers lots of choices, protectionism limits choice to a few domestic producers that were blessed by the state to be the sole providers of the things and services needed by the people.
-----------
On Eco-Protectionism
There is a proposal made by some groups and politicians in rich countries, that trade protectionism by rich and industrialized countries can be justified because these countries are consuming goods by “carbon-surplus” developing countries. While rich countries focus on emission cuts, many developing countries expand their gas emission as they export and industrialize more, which worsens global warming goes their argument. Thus, to correct and mitigate this problem, exports by developing countries (mainly China, India, Brazil, others) will soon be slapped with a “carbon tax” on top of existing import duties and related taxes by rich countries.
This will be one of the big rackets resulting from climate change alarmism – the idea that with climate change being mostly man-made, then men should be so alarmed and cut their gas emission and possibly, cut their production and consumption, which can possibly cut economic growth and job creation.
So in the case of eco-protectionism, otherwise cheap imports from developing countries should be made expensive to consumers of rich countries in order to discourage high consumption of goods produced by poorer countries, and hopefully reduce gas emission there.
The argument looks cute and appealing, but it does not make much sense for a number of reasons.
First, a portion of the pollution created in poor and exporting countries are the pollution and gas emission that should have taken place in rich countries if those imported commodities are produced there. This process of “outsourcing” production and emission in poor countries should be recognized by the consumers and policy-makers of rich countries.
Take exports powerhouse China. Most of its exports are energy-intensive, and it makes many of the highly polluting manufactured products that used to be made in the US, Europe and Japan. The smoke-stack power plants and industries were exported to China and other developing countries and the products made from those polluting industrial plants are imported into rich countries.
Second, reducing importation of rich countries from poor countries – through imposition of “carbon tax” on top of regular import tax – even if such trade protectionism is limited to so-called “energy-intensive, low value-added” products, will slow down but not stop, further economic growth and industrialization of developing countries. When countries are poor, people there tend to use dirtier technologies, like buying 2nd- or 3rd-hand vehicle engines and assemble their own rickety vehicles that are less fuel efficient and consume more petroleum products per kilometer of distance traveled. Which again, worsens pollution and global warming.
Third, creating artificial scarcity of certain commodities in rich countries because of reduced importation from poor countries which do not have carbon emission constraints, will further widen the gap between rich country price and poor country price of the same or similar goods. Two results will happen and they are both environmentally bad.
One, lower imports by rich countries as a result of such artificial scarcity will lead to higher inflation there, which will adversely affect the income of individuals and profitability of companies there, which ultimately will reduce their capacity to invest in more environment-friendly but expensive technologies and production processes.
And two, lower exports by poor countries as a result of eco-protectionism will slow down if not depress their national income, which will adversely affect their capacity to import products from rich countries, especially more fuel-efficient cars, less energy-intensive machineries and less-polluting production technologies.
Meanwhile, where will the additional revenues from carbon tax go? Most likely to pay for the salaries and perks of additional bureaucrats at the Finance and Environment Ministries of rich countries, who will be hired to compute how much new gas emissions were created by developing country so and so and how much will be the "countervailing" carbon tax to be imposed for their exports.
Free trade has only one unique and very important merit: to give consumers more choices. And more choice means more freedom. Hijacking free trade to advance certain environmental advocacies, even labor or human (and animal) rights advocacies, is wrong. Penalizing producers in poor countries with trade restrictions and protectionism because they are allegedly using less environment-friendly and/or more energy-intensive technologies will immediately reduce the range of choices for ordinary consumers in rich countries. But worse than this, such trade protectionism will restrict economic growth of those countries, which will limit their capacity to invest in more energy-efficient and environment-friendly technologies and production processes.
In short, eco-protectionism as a result of climate change alarmism will only succeed in making the planet dirtier, while pushing more people to poverty and economic stagnation.
--------
See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007
Free Trade 5: Business, Rock Music and Cycling Globalization, July 17, 2007
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
I have met John last May in Honolulu during the "Pacific Rim Conference" and he was our dinner guest speaker in the first day of the 2-days conference.
John wrote,
"There are important parallels with the (Philippines and) current US situation.
1) Class war leads to punitive, growth-destroying tax, trade and regulatory policies.
2) Class-war driven tax policies can drive offshore exactly the valuable resources needed to crete jobs and improve family incomes.
3) Protectionism is extremely destructive for growth and incomes. It can permanently mire an economy in poverty.
4) Once started, protectionism is hard to stop because it creates vested and well-funded political interests that want it to continue forever...."
I commented in his blog not to believe the Manila Times oped. There is no "class war" in the Philippines (and many other developing economies) because there are many "classes" or "enclaves" that were not prominent just 2 decades ago.
Entertainers, showbiz personalities, professional basketball players, boxers, IT professionals, advertisers, academics and consultants, traders, media broadcasters and columnists, travel agents, physicians, lawyers, engineers, accountants, top government bureaucrats, politicians, dozen-plus other categories, are making it big and very rich in the Philippines. They are neither "exploiting capitalists" and "exploited workers" in the old Marxist dichotomy of "class war", or "feudal lords" and "exploited peasants" in the old Maoist dichotomy of "class war".
Recently, many people here are getting rich not by becoming overseas workers, or by becoming investors in business process outsourcing (bpo), but by catering to millions of foreign tourists, especially the Koreans, Chinese, Japanese, Taiwanese, Americans, Europeans, coming here to enjoy the white sand beaches, or wonderful golf courses, or for cosmetics and beautification surgery, or simply to learn English language cheaper.
It is true that economic and trade protectionism causes economic stagnation. While free trade gives consumers lots of choices, protectionism limits choice to a few domestic producers that were blessed by the state to be the sole providers of the things and services needed by the people.
-----------
On Eco-Protectionism
There is a proposal made by some groups and politicians in rich countries, that trade protectionism by rich and industrialized countries can be justified because these countries are consuming goods by “carbon-surplus” developing countries. While rich countries focus on emission cuts, many developing countries expand their gas emission as they export and industrialize more, which worsens global warming goes their argument. Thus, to correct and mitigate this problem, exports by developing countries (mainly China, India, Brazil, others) will soon be slapped with a “carbon tax” on top of existing import duties and related taxes by rich countries.
This will be one of the big rackets resulting from climate change alarmism – the idea that with climate change being mostly man-made, then men should be so alarmed and cut their gas emission and possibly, cut their production and consumption, which can possibly cut economic growth and job creation.
So in the case of eco-protectionism, otherwise cheap imports from developing countries should be made expensive to consumers of rich countries in order to discourage high consumption of goods produced by poorer countries, and hopefully reduce gas emission there.
The argument looks cute and appealing, but it does not make much sense for a number of reasons.
First, a portion of the pollution created in poor and exporting countries are the pollution and gas emission that should have taken place in rich countries if those imported commodities are produced there. This process of “outsourcing” production and emission in poor countries should be recognized by the consumers and policy-makers of rich countries.
Take exports powerhouse China. Most of its exports are energy-intensive, and it makes many of the highly polluting manufactured products that used to be made in the US, Europe and Japan. The smoke-stack power plants and industries were exported to China and other developing countries and the products made from those polluting industrial plants are imported into rich countries.
Second, reducing importation of rich countries from poor countries – through imposition of “carbon tax” on top of regular import tax – even if such trade protectionism is limited to so-called “energy-intensive, low value-added” products, will slow down but not stop, further economic growth and industrialization of developing countries. When countries are poor, people there tend to use dirtier technologies, like buying 2nd- or 3rd-hand vehicle engines and assemble their own rickety vehicles that are less fuel efficient and consume more petroleum products per kilometer of distance traveled. Which again, worsens pollution and global warming.
Third, creating artificial scarcity of certain commodities in rich countries because of reduced importation from poor countries which do not have carbon emission constraints, will further widen the gap between rich country price and poor country price of the same or similar goods. Two results will happen and they are both environmentally bad.
One, lower imports by rich countries as a result of such artificial scarcity will lead to higher inflation there, which will adversely affect the income of individuals and profitability of companies there, which ultimately will reduce their capacity to invest in more environment-friendly but expensive technologies and production processes.
And two, lower exports by poor countries as a result of eco-protectionism will slow down if not depress their national income, which will adversely affect their capacity to import products from rich countries, especially more fuel-efficient cars, less energy-intensive machineries and less-polluting production technologies.
Meanwhile, where will the additional revenues from carbon tax go? Most likely to pay for the salaries and perks of additional bureaucrats at the Finance and Environment Ministries of rich countries, who will be hired to compute how much new gas emissions were created by developing country so and so and how much will be the "countervailing" carbon tax to be imposed for their exports.
Free trade has only one unique and very important merit: to give consumers more choices. And more choice means more freedom. Hijacking free trade to advance certain environmental advocacies, even labor or human (and animal) rights advocacies, is wrong. Penalizing producers in poor countries with trade restrictions and protectionism because they are allegedly using less environment-friendly and/or more energy-intensive technologies will immediately reduce the range of choices for ordinary consumers in rich countries. But worse than this, such trade protectionism will restrict economic growth of those countries, which will limit their capacity to invest in more energy-efficient and environment-friendly technologies and production processes.
In short, eco-protectionism as a result of climate change alarmism will only succeed in making the planet dirtier, while pushing more people to poverty and economic stagnation.
--------
See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007
Free Trade 5: Business, Rock Music and Cycling Globalization, July 17, 2007
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
Tuesday, April 01, 2008
AIDS alarmism in Asia
The UN has a new report, "Redefining Aids in Asia: Crafting an Effective Response", and it made some scary predictions: 500,000 people could die each year people due to AIDS-related illnesses by 2020.
It added that the number of infected people can possibly double to 10 million by 2020 if no preventive work is done. The chairman of the Commission on AIDS in Asia, Dr Chakravarthi Rangarajan says the cost could be up to $2 billion annually until 2020.
Wow, this could be another AIDS alarmism with implicit target to extract more tax (especially foreign aid) money for UNAIDS and its allied organizations.
In mid-2005, UNAIDS posted a warning about “quantum worsening” of AIDS pandemic’s trajectory. But in its late 2007 update report, it admitted that global HIV incidence (new infections) peaked by the late 1990s and has been decreasing since.
Have a more realistic figures and spare our pockets please, UNAIDS guys!
It added that the number of infected people can possibly double to 10 million by 2020 if no preventive work is done. The chairman of the Commission on AIDS in Asia, Dr Chakravarthi Rangarajan says the cost could be up to $2 billion annually until 2020.
Wow, this could be another AIDS alarmism with implicit target to extract more tax (especially foreign aid) money for UNAIDS and its allied organizations.
In mid-2005, UNAIDS posted a warning about “quantum worsening” of AIDS pandemic’s trajectory. But in its late 2007 update report, it admitted that global HIV incidence (new infections) peaked by the late 1990s and has been decreasing since.
Have a more realistic figures and spare our pockets please, UNAIDS guys!
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