Inflation and state parasitism

The public in many countries around the world are enduring the pain of ever-spiraling prices of commodities, starting from high prices of oil, high prices of rice and other food products, housing and rental, electricity costs, and so on. Their real income – nominal income minus the value “eaten away” by inflation – is declining.

In UK, truckers blocked major streets leading to London; in France, fishermen blocked ports leading to the English Channel; in Bulgaria, truckers converged in a convoy that also caused traffic near the capital city; in the Philippines, some public transportation operators conducted transport strike – all actions protesting high fuel prices.

Many governments around the world recognize this, and they have instituted certain measures that will hopefully reduce the suffering of the citizens. Among such measures are (a) mandating employers to give higher minimum wages to their workers, (b) requiring companies not to sell goods that are genetically-modified; (c) directing companies to make some of their services free to the public, (d) forcing companies to give some discounts to certain consumers, and (e) commanding companies to make their patented products be available for manufacturing by their competing firms.

All these measures are meant to (i) increase the income of the poor, and (ii) reduce the expenses of the people, the poor especially. Cute and commendable goals. But do those measures respect private property rights, and will they really achieve the stated goals? My brief answer to both questions is NO. Why?

One, wage is a function of productivity, not of inflation or number of children that a worker has. Forcing companies to give higher wages even to unskilled and low-skilled workers will force some companies to stop hiring these people. And unemployment and hunger for this group of people will increase, not decrease. Firms and entrepreneurs should be allowed to set wages commensurate to the skills and productivity of their workers. And the economy should encourage the blooming of more employers and entrepreneurs so that workers can have more choices to whom they want to work, or if they themselves want to become entrepreneurs someday too.

Two, obliging food shops, supermarkets and other retailers not to sell genetically-modified (GM) food products and animal feeds would compel farmers not to produce GM crops and animal products when doing so would reduce their production cost due to fewer or zero need for certain pesticides or the crops and animals would grow much faster and they can harvest quicker. Which results in higher income for them and possibly lower food price, at least for consumers who are not convinced of food-Frankenstein scenarios. If such restriction is removed and food sellers are just required to label their products whether organic or GM or whatever, then consumers will have a wider choice, especially poor people who want cheaper food now and worry less about their so-called “mutation” 2 or 5 decades from now.

Three, compelling companies to provide some of their services free to the public will cause over-use or over-consumption of said services, and since the companies will not earn from said services, they will not expand investment, resulting in mediocre quality of those services, or they may opt to scrap providing that service. And the public will suffer. An example of this is the proposal by many top politicians and regulators in the Philippines to compel the 3 telecomms companies to stop charging for SMS or text messages, charge only on voice calls.

Four, requiring companies to provide discounts and such revenue loss cannot be charged as tax deductible, will force companies to either evade following the law, or harass those entitled to discounts by asking many documents, or give them bad quality service like expiring food and medicines. An example of this, also in the Philippines, is requiring restaurants, drug stores, hospitals, public transportation, other sectors, to give 20 percent discount to senior citizens. Bigger companies can absorb the revenue loss, but others, especially the smaller firms that survive only on low-profit margins, are either complaining or not following the law at all.

Five, coercing companies to make their patented products, where they spent a big amount of money and time to invent, be made available for manufacturing and distribution by other companies so that said products can be sold cheaper, will discourage if not kill innovation. An example of this is compulsory licensing (CL) of some pharmaceutical products. An innovator company usually spends nearly $1 billion and 10-12 years of several clinical trials and other R&D processes to produce one good medicine, and not all of those medicines may be profitable since they will have to be sold at a high price to recover the enormous cost at the remaining patent life, which is only 8-10 years out of the 20-years patent.

What governments are doing in these instances, is extend their regulatory power after private enterprises went through an earlier process of regulations and taxation. Regulation allows the regulators to behave as if they own the firms that they are regulating, even if they are not the owners of those firms. Ownership and control are two different things. One need not own something but if he has control of that thing, he can do whatever he wants. Like a family driver. He does not own the car, but when his employer is away and he decides to drive the car to visit and tour his friends without the knowledge or permission of his employer, he can do it. If he gets caught, that's another story.

Governments have two very important tools in their hands which they can do if they are really sincere in reducing inflationary pressures in society: reduce taxes and free up markets. First tool, reduce, simplify, or better year, abolish certain taxes that make the price of various goods and services become more expensive. In oil taxes for instance, the British government holds the distinction of having the highest oil taxes in the EU, if not the world, where up to 65 percent of oil retail prices are taxes. The US government, both federal and state, collects about 19 percent of oil retail price as taxes. In the Philippines, the government collects 3 different types of taxes for gasoline products: import tax (now at 1 percent, previously 3 percent), excise tax (about US$0.14 per liter) and value added tax, 12 percent.

Second tool, free up markets, reduce complicated regulations. Let the real owners of private enterprises – their stockholders – and their managers do what they think is necessary in a level playing field and competitive environment.

Since many governments do not show intention of reducing their regulatory powers over the businesses of companies and lives of individuals, they only show how parasitic they can be. A parasite creates more harm and problems than solutions to its host. Like sucking the host’s blood and multiplying much faster than the host.

But unlike animals preyed on by worms or fleas, people as host to parasitic governments are capable of exposing their parasites and possibly fighting back. And only if the people will realize the burden of heavy regulation and taxation. The inflationary pressure experienced by many people around the world is one symptom of the weight of thick layers of bureaucracies and regulators who all have to be paid salaries, offices and supplies, travels and bonuses, pension and pork barrel.

A competitive economy with more productive people and less regulators and bureaucrats is capable of holding off inflationary pressure, especially for basic necessities like energy and food. Productive people can produce and distribute more food, more energy sources, more houses, more cars, more schools. An economy can even experience short-term deflation – prices falling down – in a situation like this.

By exposing and understanding the parasitic nature of high government regulation, intervention and taxation, people should be able to free themselves up. And people should be ready to assume more personal responsibility about their own lives, their own family, their own community. Then people can really say that they have high level of individual liberty.