A person has to work for his own personal security and his family’s household security. Securing such security is a personal and parental responsibility, not government responsibility. Thus, savings for the rainy days someday – by how much, for whom, on what services, how long to save and contribute, when to claim, where to claim – should be individually tailored because each individual has different needs and different priorities.
Person A with three or more children will prioritize education and health care for the kids; Person B with the same number of children who plans on home-schooling will prioritize a beautiful house and cars; Person C who is single with old and sick parents will prioritize healthcare for the older folks; Person D who is single with deceased parents will prioritize big pension for his/her foreign travels or lavish lifestyle someday; Person E who is either single or has family but plans to migrate abroad someday will prioritize portability of his savings and the services that he can enjoy with it; Person F who jumps from one job to another wants unemployment allowance and healthcare; and so on.
With increasing globalization and greater mobility of people across national borders and across continents, portability of savings and contribution is becoming more and more important. A person who suddenly feels the need to migrate elsewhere for whatever reason should have the flexibility to bring with him/her the value of his/her accumulated savings and contribution for both personal and household security. When such accumulated savings cannot be portable, then the providers of such security have the parochial assumption that people will not be mobile across countries, and the evil intention of utilizing such savings for their personal interests when the social security contributors have finally migrated and not come back or come back but too impatient to claim the would-be services because of complicated procedures and bureaucracies.
Here in the Philippines, social security is a business monopoly of the State: the Social Security System (SSS) for private sector personnel, and the Government Service Insurance System (GSIS) for the government personnel. Both financial institutions are State-owned and managed, even if all contributions are from private savings of the employed people.
A person employed in the formal sector, whether in private enterprises or government agencies, would see his/her monthly pay significantly shrank due to four different types of automatic deductions: personal income tax, housing tax (PAG-IBIG contribution), health tax (PhilHealth contribution) and social security tax (SSS or GSIS contribution). The government does not call the last three as "tax" but rather as "contributions". Contributions by nature, should be voluntary. Since these are non-voluntary payment and are mandatory collections because all employed person are coerced by various laws to become members of those government financial institutions, they are essentially a form of tax.
Those employed in the informal or “underground” sector are somehow lucky because their monthly income is not subject to those four automatic deductions and hence, they will have their income intact; they will just have to device some scheme to put up their own savings for the rainy days someday. The problem with this is that there will be little or no incentives for them to become bigger entrepreneurs someday because business growth will expose their heads and will attract the eyes and attention, and consequent regulations and bureaucracies, of the various government agencies that make those mandatory membership and collection.
Since private savings and contributions have been made socialized and collectivized, managed and controlled by the administrators of the collective, the State, then there is danger that said savings will be subject to socialized robbery. There is the built-in malady for instance, in the design of private social security: both the fund administrators (the SSS President and other officials) and the person who appointed the chief fund administrator (the President of the Republic) are not even SSS members (they are GSIS members), and yet they have almost full control of where the bulk of the accumulated private savings will go.
Thus, putting private citizens' pension and social security money into direct control by the State is not only risky. It is wrong. The SSS being funded by private sector employees and entrepreneurs should not be a State corporation. The State has already collected a big share of the employed people’s pay check, the personal income tax. So when the State further dips its hands in after-tax savings and contributions, there is a big likelihood that some evil intentions are being designed. Because by virtue of a financial institution being State-controlled, the appointment of such institution’s officials is subject to politics. The decision of where the savings will be invested, who can borrow big amount and who cannot borrow, will be subject to politics. Thus, all heads of SSS are thankful of, and accountable to, the one who put them there -- the President of the Republic, not to the members employed in private enterprises who were coerced by social security laws to contribute to the funds.
In a sense, this somehow explains why all past SSS administrators were not raising the issue of politicized appointments in that state corporation because they themselves were beneficiaries of such politicization of private funds’ pool.
Recently, there was wide public confusion, if not non-acceptance, of the appointment of the new SSS administrator. The incoming administrator who was then occupying another government agency has approved a supposedly government broadband network deal that involved US$300+ million, despite his earlier public admission that there was an attempt at large-scale robbery and corruption in the said project. When the controversy became too hot to handle, the project was shelved by the President. When the Senate conducted an investigation, the incoming administrator shut up and could not be compelled by the Senate to further talk when most of earlier evidences gathered by the Senate pointed to the President as the master-mind of the attempt at large-scale robbery.
What is noteworthy at this turn of events is that public discussion and debate on social security has been focused on a few personalities, namely the incoming SSS administrator and the President of the Republic. Although the issue raised – morality and integrity of the administrators of private savings – is indeed valid, the other issue, a bigger one for me, of State monopoly control of private savings and contributions, was relegated as a secondary issue or non-issue at all.
I personally know the incoming fund administrator because I was one of his staff for several years when I was still working at the House of Representatives in the 90s. And I can say that the said official is not exactly a man of high integrity. But as I have pointed out above, the appointment of whoever as fund administrator is a smaller issue compared to the fact that an institution that was built up by private savings is fully State-managed and controlled. An angel President will likely appoint an angel fund administrator and other government officials. A President who is a thief will likely appoint a thief and politics-loving fund administrator and other government officials.
One indicator or characteristic of a monopolist is lack of transparency. An enterprise that wants to get as many clients and customers as possible will strive to be as transparent as possible because people want to be assured that they get value for their money, that their savings are invested in productive projects that will give them good returns someday.
In the case of the SSS, its website alone is among the most unreliable sites in the world. For a fund with more than 27 million individual members and PhP234 billion (US$5.2 billion at P45/$) of investments, inquiries by phone or personal visits by its millions of members is costly and very inefficient. The maintenance of a reliable website therefore, is a must. But if you visit www.sss.gov.ph, either it is down or it shows only the homepage; and if you click any of its sections, it takes several minutes of “loading”, you wait for several minutes more and… voila! “Page Load Error” will show up. As of this writing, the website is down.
Many ordinary members just want an SSS ID because this is being asked or demanded by other agencies. But getting an ID alone is very time consuming. In my experience, getting an appointment for ID pictorial alone takes several days. Waiting period for the pictorial (digital camera) and e-signature was about two hours, from the time I submitted the ID application form to the time I finished everything. And waiting period for the ID to be delivered to my place was supposed to be two months, they said. But my ID came after four months!
Other SSS members though were more unlucky. Some waited six or eight months before their IDs were delivered to them. Others are worse off: they have waited 10 or 11 months and still they have not yet received their ID! See those sentiments and experiences on getting an SSS ID and the unreliability of the monopolist’s website here,
http://kulaypinay.com/2007/04/23/sss-id-application-walkthrough/.
A monopoly is often characterized by wastes and inefficiencies. This is because the administrators of a monopoly know that they have no competitors, so that their clients and the public have no other option but to patronize them. Unlike private enterprises like insurance companies who have to be extra courteous and friendly to their clients since the latter have the option of leaving them and go to the other competitors and players in the sector, a monopolist can be callous to the complaints of bad service by their clients. They can even arrogantly brush aside such complaints and demand for better service. That is why monopoly is bad and we should break all monopolies or oligopolies in the entire economy, including social security monopoly.
The social security sector should be deregulated and demonopolized. SSS and GSIS should be privatized since their funds come from private savings and the State has lots of money already from various taxes, charges and fees, mandatory contributions, and sale of its other non-performing assets. If privatization of these two financial institutions is not possible in the short-run, so that they remain as government-controlled corporations, the sector should be deregulated nonetheless.
Deregulation and demonopolization will allow the entry of new players and competitors, and membership to the SSS and GSIS should not be made mandatory. When these two institutions wake up to the reality that the public has other options, then their inefficiencies and wasteful habits, if not arrogance, will be tempered. Of course anyone can retain his/her arrogance, fine. So long as the public can retain their power to choose, then the arrogant and wasteful will slowly find themselves out of jobs, out of relevance in society.
And leadership and Presidency of both SSS and GSIS will become a secondary issue to the public. The President of the Republic can appoint an angel or hoodlum, it’s up to him or her. What is important is that the public have a choice whether to entrust their savings for their future personal and household security or not to political appointees.
Thursday, July 24, 2008
Tuesday, July 22, 2008
Anti-trust law is anti-competition
There are a number of legislations in some countries that introduce "anti-trust" regulations. A law has been passed in China and it will be implemented next month. An anti-trust legislation is also being worked in HK, in the Philippines, elsewhere.
The trouble with anti-trust laws and regulations is that they empower the anti-trust bureaucrats with the power to investigate any big firm. Small and medium-sized firms that are very efficient and innovative will ultimately become big. Sometimes even medium-sized firms can be investigated if the owners/managers of such firms are non-friendly to the administration in power.
When a firm lowers its prices relative to its competitors, the anti-trust agency can investigate on grounds of "predatory pricing.
When a firm increases its prices relative to its competitors, it can be investigated and charged with "price gouging".
When all the big firms have the same price, they can be investigated on charges of "price collusion".
Whichever you go, there will always be a ground for investigation -- and harassment and possibly extortion -- by the anti-trust regulators and bureaucrats. And this partly explains why many politicians, even some activist groups and academics, would want to become bureaucrats themselves and become anti-trust regulators.
If people want real competition and protection from monopolistic/oligopolistic system, government regulations like putting up anti-trust bodies are not the answer. Better to drastically cut multiple and bureaucratic business permit procedures, taxes and fees, to only 1 or 2, abolish the rest. Approximate a "contestable market" situation where firm entry and exit (opening up or closing a business) is almost zero, except on sectors and industries with huge "sunk costs".
A friend asked, as corporations grow larger and larger, "who will make them accountable?"
Mega-corporations emerge out of previously small corporations, the same way that some mega-corporations of yesteryears may not even be in the top 500 corporations in the world today. Here in the Philippines, today's mega-corporations SM and Robinsons/JG Summit were non-existent when Henry Sy and John Gokongwei were still teenagers about 6 or 7 decades ago. The same way that big corporations like Pantranco in luzon and Netran (bus companies) in Negros are now dead.
As corporations grow larger and larger, who will make them accountable? Us consumers. If Henry Sy screws up, we can stop going to any SM malls and go instead to Robinsons or Ayala malls or waltermart, wherever. If we think they all suck, we can stop going to any mall and we'll stay alive and kicking, we keep our money, no one will steal it from us.
When corporations become bigger and bigger, fine. They create more jobs, they create more shops, they build more buildings and malls, and they create more jobs in the construction industry. We pay not a single peso for their building or mall madness.
Compare that when government becomes bigger and bigger -- say 15 new departments to be created (dept of fishery, dept of ITC, dept of shipping, dept of climate change, dept. of Asean matters, etc.). And 50 new congressional districts to be created, 50 new partylist groups to be added, 20 new provinces to be created, etc. We'll be dead sure that instead of aspiring for a 10 percent flat income tax, the current 32 percent will be hiked to possibly 42 percent, or 52 percent?
Another way of looking at this would be, is the world better off if Microsoft, Warren Buffet's Berkshire, Intel, Toyota, GM, Shell, Chevron, and other mega-corporations don't exist? My vote is no.
The trouble with anti-trust laws and regulations is that they empower the anti-trust bureaucrats with the power to investigate any big firm. Small and medium-sized firms that are very efficient and innovative will ultimately become big. Sometimes even medium-sized firms can be investigated if the owners/managers of such firms are non-friendly to the administration in power.
When a firm lowers its prices relative to its competitors, the anti-trust agency can investigate on grounds of "predatory pricing.
When a firm increases its prices relative to its competitors, it can be investigated and charged with "price gouging".
When all the big firms have the same price, they can be investigated on charges of "price collusion".
Whichever you go, there will always be a ground for investigation -- and harassment and possibly extortion -- by the anti-trust regulators and bureaucrats. And this partly explains why many politicians, even some activist groups and academics, would want to become bureaucrats themselves and become anti-trust regulators.
If people want real competition and protection from monopolistic/oligopolistic system, government regulations like putting up anti-trust bodies are not the answer. Better to drastically cut multiple and bureaucratic business permit procedures, taxes and fees, to only 1 or 2, abolish the rest. Approximate a "contestable market" situation where firm entry and exit (opening up or closing a business) is almost zero, except on sectors and industries with huge "sunk costs".
A friend asked, as corporations grow larger and larger, "who will make them accountable?"
Mega-corporations emerge out of previously small corporations, the same way that some mega-corporations of yesteryears may not even be in the top 500 corporations in the world today. Here in the Philippines, today's mega-corporations SM and Robinsons/JG Summit were non-existent when Henry Sy and John Gokongwei were still teenagers about 6 or 7 decades ago. The same way that big corporations like Pantranco in luzon and Netran (bus companies) in Negros are now dead.
As corporations grow larger and larger, who will make them accountable? Us consumers. If Henry Sy screws up, we can stop going to any SM malls and go instead to Robinsons or Ayala malls or waltermart, wherever. If we think they all suck, we can stop going to any mall and we'll stay alive and kicking, we keep our money, no one will steal it from us.
When corporations become bigger and bigger, fine. They create more jobs, they create more shops, they build more buildings and malls, and they create more jobs in the construction industry. We pay not a single peso for their building or mall madness.
Compare that when government becomes bigger and bigger -- say 15 new departments to be created (dept of fishery, dept of ITC, dept of shipping, dept of climate change, dept. of Asean matters, etc.). And 50 new congressional districts to be created, 50 new partylist groups to be added, 20 new provinces to be created, etc. We'll be dead sure that instead of aspiring for a 10 percent flat income tax, the current 32 percent will be hiked to possibly 42 percent, or 52 percent?
Another way of looking at this would be, is the world better off if Microsoft, Warren Buffet's Berkshire, Intel, Toyota, GM, Shell, Chevron, and other mega-corporations don't exist? My vote is no.
Tuesday, July 15, 2008
Free Trade 10: More on Unilateral Trade Liberalization
Representatives of member-states of the World Trade Organization (WTO) will hold another "crucial talks" in Geneva starting July 21 this year. The negotiations will focus on agricultural issues (tariffs, domestic support, and other subsidies) and non-agriculture market access (NAMA). These are among the "unfinished agenda" from the Doha Development Round in 2001, and they contain among the most contentious issues.
Some facts here on the two basic documents: the "Revised Draft Modalities for Agriculture" (July 10 draft) is 116 pages long, single spaced, including tables. The "Draft Modalities for Non-Agricultural Market Access" (July 10 draft) is 112 pages, single spaced, including tables. Both documents are not so easy to understand for someone busy producing or trading various goods and services, or for ordinary consumers who only want as many choices as possible. But those documents can be convenient and easy to understand for someone whose job is to put up various regulations and restrictions, then meet and talk how on to slightly reduce those restrictions and schedule endless rounds of global meetings and negotiations.
From time to time, we get to read news stories and opinion articles on how this and that country's trade representatives and negotiators are blaming someone else, or group or bloc of country representatives, why the trade talks collapse. The tone of the blame-game is something like this: "We can't bring down our tariffs and agricultural subsidies because the other parties and countries are not bringing down their tariffs and non-tariff barriers on other sectors." So the current trade protectionism is justified because the other parties are equally protectionist, if not retaining and instituting even more trade restrictions.
One wonders how much money have been paid by taxpayers from the countries concerned, first to pay for the salaries, travels, and perks of their country trade negotiators, including their pool of consultants and secretariat support, in all those years. And second, how much taxes they have been paying for continued subsidies to their local producers so that the latter can sell them products and services at a cheaper price when similar products and services can be sourced and imported elsewhere at a low price and they don't have to pay a single cent of tax money for these.
Consider Hongkong. The people in this economy are busy producing various goods and services, and facilitating international trade. Why? Because it has a unilateral trade liberalization policy. They don't pay for a huge army of trade negotiators and consultants; they don't blame other parties and countries why they continue to be rigid and restrictive in allowing the exports of other countries when their own citizens demand for it. Hongkong did not ask, and is not asking, that other countries should reduce their tariffs and other non-tariff barriers first, before they will go to the negotiating table. Almost any country that has good quality products and have buyers there can bring in their commodities and pay zero tariff.
In this situation, millions of people from many parts of the world are swooping into this small but very dynamic economy to tour, dine, meet, shop, and do more shopping. Why? Because those people know that Hongkong offers plenty of choices for them, from the most expensive global brands to the cheapest products sold in huge volume. Choices that are not easily available in their country because their governments, trade negotiators, and many local producers are busy persuading other countries that they start liberalizing first before they do, busy blaming other governments if they fail to do so, or busy concocting various reasons and alibi why they should retain their trade restrictions even after other countries have started liberalizing their importation policies.
In a situation like this, the Hongkong government and economy is creating lots of jobs for its people and emigrants, and when people have jobs, they don't demand various state welfare and subsidies because they can provide for themselves and their families. And if there is less demand and clamor for various state subsidies, there is less demand and rationale for high and multiple taxes and fees. This mainly explains why Hongkong remains the freest or among the freest economies in the world.
Singapore is another country that has unilateral trade liberalization policy. And very often it is neck-and-neck with Hongkong in the annual ranking of the world's freest economy studies by various big international think tanks. It is also attracting millions of foreign visitors. Every year, the number of tourists is about twice or thrice the size of its nationals.
Dubai too, and Georgia. The latter, a small European economy, has enacted a zero-import tariff policy just a few years ago, and it is among the fastest growing economies in the European continent. Brunei, Estonia, and Chile are close to being unilateral free traders too.
Trade negotiations are being done by thousands of country trade representatives and bureaucrats, along with WTO officials and staff. Unfortunately, neither countries nor governments trade with each other. People do. And when people trade with each other, from other countries or continents, they do not set conditions. A Korean telecommunications engineer does not demand that a French fashion designer should first buy his Korean company's services or cellular phone products, before he buys the Frenchman's line of clothing. No such thing. People buy a product or service because he thinks he gets value for his money. And this forces many producers and suppliers from many parts of the world to produce good quality commodities at competitive prices, if they want to attract as many buyers and clients as possible. And people engaged in this kind of trade are better off.
For the Philippines and other developing countries, a unilateral free trade policy will serve their economies better. Among the immediate positive results are the following:
First, their people will have lots of choices for their consumer goods and production inputs, whether they are manufacturers that need good quality raw materials, or farmers that need good quality but cheap hand tractors.
Second, the economy will boost its tourism potentials as many people from other countries having high commodity prices due to high taxes and trade protectionism will come in not only to enjoy the tropical climate and white sand beaches, but also to shop, shop, and shop.
Third, the economy will generate plenty of new jobs, from manufacturers who can produce more efficiently and cheaply with more options for their production technologies and raw materials, to farmers who can produce more with cheaper farm machineries and modern post-harvest machines. This also includes tourism-related industries like airlines, hotels, malls, shops, restaurants, and beach and mountain resorts.
Fourth, the economy will worry less about so-called "external aggression". Take Hongkong again. Any potential aggressor country, assuming there is any, will think not only twice or thrice, but a hundred times, before it will ever attempt to invade and colonize that economy. This is true even if it has a very small air force, navy, and army, or even if we assume that China will not give it protective cover. Why? Because among the biggest American and Canadian companies, among the biggest British, French, German, Italian, other European companies, among the biggest Japanese, Korean and Australian companies, have branches, offices, and shops in Hongkong. So any potential aggressor country will face the most ruthless fighter planes, the most modern battle ships, and the most battle-tested soldiers of these big and rich countries who will protect their respective business interests and nationals that are based in that territory. So it is safe to assume and assert that if you are a unilateral free trader and a unilateral low tax economy, you will attract some of the biggest companies in the world, and you will attract no external enemy.
This list of the benefits of unilateral free trade is not exhaustive and complete; it only outlines some of the most basic arguments. To summarize: If we want more economic growth, more job creation, let us minimize if not stop trade negotiations, go straight to a unilateral trade liberalization. If we want peace, let us have free trade and free market.
Consumer choice and free trade
High unemployment and underemployment rates are among the scourge of modern economies today, both in rich and poor countries. People would want to be productive, to be economically useful to their family and community. It's just that there are a number of man-made restrictions that prevent them from being hired by other people, or from employing themselves through entrepreneurship. In a number of countries though, there are plenty of subsidies and allowances given to jobless people, single parents, etc. So there are some "incentives" to become irresponsible because they are "entitled" to certain social and economic benefits anyway. But that is not the subject of this paper. It is those who were rendered economically unproductive due to man-made restrictions like high taxes, bureaucratic business regulations, and trade protectionism.
Trade protectionism comes in two forms: high tariffs and high non-tariff barriers (NTBs) like plentiful trade requirements and regulations. Any or both of these happening can cause damage to the economy, the entrepreneurs, their employees and the jobless people in particular.
Take the case of Hong Kong. There are no tariffs or import taxes, so imported goods – except those explicitly prohibited like hazardous wastes and ozone-depleting substances – come in duty free. Aside from zero tariff policy, international trade is facilitated and very much encouraged through the following additional policies: (a) no laws for valuing goods for customs purposes (since there are no tariffs). (b) no rules of origin or certificate of origin required, (c) no rules on anti-dumping and countervailing measures or any "safeguard" actions. These policies amount to zero NTBs. In addition, there are no State-owned trading enterprises that can cause unfair competition to private sector traders. For the exporters, there are no export-related duties and taxes, no "local content" requirements for exports, no subsidy to exporters.
What all these mean is that the government will hire very few customs personnel and inspectors, and importers too will not need to hire additional lawyers, accountants, other "negotiators" with government customs officials since there are very few requirements to comply with. Since there is very little demand for such kinds of jobs and services, young people will see it and they would rather become traders and entrepreneurs when they grow up.
When there is zero tariff, zero NTBs (zero tax for countervailing, anti-dumping or other safeguard measures, zero fees for other trade regulations like rules of origin certificates, and so on), landed price of imported goods is low and cheap. So when you add up those two important factors, (i) plenty of entrepreneurs + (ii) cheap imported commodities (whether for household consumption or production inputs and intermediate goods), the result is more economic growth, more job creation, possibly a full-employment economy.
Full employment does not mean zero unemployment rate. It could mean 2 or 3 percent unemployment rate because some people are "jobless" at the time of a labor force survey because they have a high "reservation wage". Meaning a job is awaiting for them anytime but they refuse to take it because they are waiting for another job offer with higher pay or better package (say car and housing, travels, commissions, etc.).
Resistance to free trade through very small or zero tariff and very small or zero NTBs, comes from three groups of people. These are the protected sectors and businessmen, the left-leaning NGOs and lobby groups, and the government bureaucracy and politicians. Let us tackle them one by one.
The protectionist businessmen and sectors can be understandable because they feel threatened that their products might be spurned by local consumers who might find imported substitutes not only cheaper but better in quality. But the same protectionist businessmen and sectors also want free trade in other products and commodities that they do not produce. A rice farmer is biased only against imported rice but he wants free trade and more choices when it comes to fertilizers and hand tractors, shoes and clothes for his children, tv and other appliances for his house, etc. When they realize that they actually benefit from free trade for their household needs and farm inputs, plus the possibility that they can export their surplus rice at a higher price when their productivity improves due to more modern farming tools and practices, their opposition to free trade can weaken.
The second group, the left-leaning NGOs, trade unions, media and other professionals are harder to please because of very often, plain envy and ideological hatred of free markets. They hate to see some people becoming very rich and prosperous because of the big economic opportunities opened up by free trade. They hate to see inequality and temporary economic dislocation as a result of resource reallocation in society. And some of them are on the payroll of big businesses who benefit from trade protectionism and absence of foreign competition. But being consumers, deep inside they want free trade, they want more choices, they want bargains, for their various personal and professional needs, from shoes and jeans to food and drinks, to cell phones, laptops and cars.
The last group, the government trade bureaucracy and politicians, are the hardest to please, the hardest to convince of the evils of trade protectionism. Mainly because they live off on taxes, and high tariff means high tax revenues. Or high tariff and NTBs mean difficulty for entrepreneurs and hence, higher incentives for the latter to pay them bribes or other favor in exchange for facilitating trade. When a country is protectionist, the trade bureaucrats and some politicians enjoy vast arbitrary powers: who can trade and who cannot trade; where they can export and import and where they cannot; by how much quantity they can trade; how much fees to pay and many papers and documents to submit; and ultimately, how quick or late they can allow trade. Arbitrary powers mean arbitrary mean and opportunity to amass wealth at the expense of consumers, especially the poor and the jobless.
Unlike businessmen, farmers, labor unions, media people and other professional groups, consumers are not organized. The power of the consumers is in their purchasing capacity, in the expression of their preferences and priorities as reflected in the goods and services they buy. Their power is therefore, not fully articulated in media and Congress, but in various market places like malls, shops and public markets. The absence or non-articulation of power by consumers is also reflected in the level of poverty and joblessness in society.
It is important therefore, to continue explaining the importance of free trade if society is to attain full employment and assert consumer choice and freedom. And it is equally important to explain and expose the reasons and vested interests of some groups of people who are opposing free trade.
Meanwhile, the WTO has just released its World Trade Report 2008: Trade in a Globalizing World. The main message of that report is simple: Trade and globalization have brought greater prosperity to hundreds of millions as well as greater stability among nations.
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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
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008
Some facts here on the two basic documents: the "Revised Draft Modalities for Agriculture" (July 10 draft) is 116 pages long, single spaced, including tables. The "Draft Modalities for Non-Agricultural Market Access" (July 10 draft) is 112 pages, single spaced, including tables. Both documents are not so easy to understand for someone busy producing or trading various goods and services, or for ordinary consumers who only want as many choices as possible. But those documents can be convenient and easy to understand for someone whose job is to put up various regulations and restrictions, then meet and talk how on to slightly reduce those restrictions and schedule endless rounds of global meetings and negotiations.
From time to time, we get to read news stories and opinion articles on how this and that country's trade representatives and negotiators are blaming someone else, or group or bloc of country representatives, why the trade talks collapse. The tone of the blame-game is something like this: "We can't bring down our tariffs and agricultural subsidies because the other parties and countries are not bringing down their tariffs and non-tariff barriers on other sectors." So the current trade protectionism is justified because the other parties are equally protectionist, if not retaining and instituting even more trade restrictions.
One wonders how much money have been paid by taxpayers from the countries concerned, first to pay for the salaries, travels, and perks of their country trade negotiators, including their pool of consultants and secretariat support, in all those years. And second, how much taxes they have been paying for continued subsidies to their local producers so that the latter can sell them products and services at a cheaper price when similar products and services can be sourced and imported elsewhere at a low price and they don't have to pay a single cent of tax money for these.
Consider Hongkong. The people in this economy are busy producing various goods and services, and facilitating international trade. Why? Because it has a unilateral trade liberalization policy. They don't pay for a huge army of trade negotiators and consultants; they don't blame other parties and countries why they continue to be rigid and restrictive in allowing the exports of other countries when their own citizens demand for it. Hongkong did not ask, and is not asking, that other countries should reduce their tariffs and other non-tariff barriers first, before they will go to the negotiating table. Almost any country that has good quality products and have buyers there can bring in their commodities and pay zero tariff.
In this situation, millions of people from many parts of the world are swooping into this small but very dynamic economy to tour, dine, meet, shop, and do more shopping. Why? Because those people know that Hongkong offers plenty of choices for them, from the most expensive global brands to the cheapest products sold in huge volume. Choices that are not easily available in their country because their governments, trade negotiators, and many local producers are busy persuading other countries that they start liberalizing first before they do, busy blaming other governments if they fail to do so, or busy concocting various reasons and alibi why they should retain their trade restrictions even after other countries have started liberalizing their importation policies.
In a situation like this, the Hongkong government and economy is creating lots of jobs for its people and emigrants, and when people have jobs, they don't demand various state welfare and subsidies because they can provide for themselves and their families. And if there is less demand and clamor for various state subsidies, there is less demand and rationale for high and multiple taxes and fees. This mainly explains why Hongkong remains the freest or among the freest economies in the world.
Singapore is another country that has unilateral trade liberalization policy. And very often it is neck-and-neck with Hongkong in the annual ranking of the world's freest economy studies by various big international think tanks. It is also attracting millions of foreign visitors. Every year, the number of tourists is about twice or thrice the size of its nationals.
Dubai too, and Georgia. The latter, a small European economy, has enacted a zero-import tariff policy just a few years ago, and it is among the fastest growing economies in the European continent. Brunei, Estonia, and Chile are close to being unilateral free traders too.
Trade negotiations are being done by thousands of country trade representatives and bureaucrats, along with WTO officials and staff. Unfortunately, neither countries nor governments trade with each other. People do. And when people trade with each other, from other countries or continents, they do not set conditions. A Korean telecommunications engineer does not demand that a French fashion designer should first buy his Korean company's services or cellular phone products, before he buys the Frenchman's line of clothing. No such thing. People buy a product or service because he thinks he gets value for his money. And this forces many producers and suppliers from many parts of the world to produce good quality commodities at competitive prices, if they want to attract as many buyers and clients as possible. And people engaged in this kind of trade are better off.
For the Philippines and other developing countries, a unilateral free trade policy will serve their economies better. Among the immediate positive results are the following:
First, their people will have lots of choices for their consumer goods and production inputs, whether they are manufacturers that need good quality raw materials, or farmers that need good quality but cheap hand tractors.
Second, the economy will boost its tourism potentials as many people from other countries having high commodity prices due to high taxes and trade protectionism will come in not only to enjoy the tropical climate and white sand beaches, but also to shop, shop, and shop.
Third, the economy will generate plenty of new jobs, from manufacturers who can produce more efficiently and cheaply with more options for their production technologies and raw materials, to farmers who can produce more with cheaper farm machineries and modern post-harvest machines. This also includes tourism-related industries like airlines, hotels, malls, shops, restaurants, and beach and mountain resorts.
Fourth, the economy will worry less about so-called "external aggression". Take Hongkong again. Any potential aggressor country, assuming there is any, will think not only twice or thrice, but a hundred times, before it will ever attempt to invade and colonize that economy. This is true even if it has a very small air force, navy, and army, or even if we assume that China will not give it protective cover. Why? Because among the biggest American and Canadian companies, among the biggest British, French, German, Italian, other European companies, among the biggest Japanese, Korean and Australian companies, have branches, offices, and shops in Hongkong. So any potential aggressor country will face the most ruthless fighter planes, the most modern battle ships, and the most battle-tested soldiers of these big and rich countries who will protect their respective business interests and nationals that are based in that territory. So it is safe to assume and assert that if you are a unilateral free trader and a unilateral low tax economy, you will attract some of the biggest companies in the world, and you will attract no external enemy.
This list of the benefits of unilateral free trade is not exhaustive and complete; it only outlines some of the most basic arguments. To summarize: If we want more economic growth, more job creation, let us minimize if not stop trade negotiations, go straight to a unilateral trade liberalization. If we want peace, let us have free trade and free market.
Consumer choice and free trade
High unemployment and underemployment rates are among the scourge of modern economies today, both in rich and poor countries. People would want to be productive, to be economically useful to their family and community. It's just that there are a number of man-made restrictions that prevent them from being hired by other people, or from employing themselves through entrepreneurship. In a number of countries though, there are plenty of subsidies and allowances given to jobless people, single parents, etc. So there are some "incentives" to become irresponsible because they are "entitled" to certain social and economic benefits anyway. But that is not the subject of this paper. It is those who were rendered economically unproductive due to man-made restrictions like high taxes, bureaucratic business regulations, and trade protectionism.
Trade protectionism comes in two forms: high tariffs and high non-tariff barriers (NTBs) like plentiful trade requirements and regulations. Any or both of these happening can cause damage to the economy, the entrepreneurs, their employees and the jobless people in particular.
Take the case of Hong Kong. There are no tariffs or import taxes, so imported goods – except those explicitly prohibited like hazardous wastes and ozone-depleting substances – come in duty free. Aside from zero tariff policy, international trade is facilitated and very much encouraged through the following additional policies: (a) no laws for valuing goods for customs purposes (since there are no tariffs). (b) no rules of origin or certificate of origin required, (c) no rules on anti-dumping and countervailing measures or any "safeguard" actions. These policies amount to zero NTBs. In addition, there are no State-owned trading enterprises that can cause unfair competition to private sector traders. For the exporters, there are no export-related duties and taxes, no "local content" requirements for exports, no subsidy to exporters.
What all these mean is that the government will hire very few customs personnel and inspectors, and importers too will not need to hire additional lawyers, accountants, other "negotiators" with government customs officials since there are very few requirements to comply with. Since there is very little demand for such kinds of jobs and services, young people will see it and they would rather become traders and entrepreneurs when they grow up.
When there is zero tariff, zero NTBs (zero tax for countervailing, anti-dumping or other safeguard measures, zero fees for other trade regulations like rules of origin certificates, and so on), landed price of imported goods is low and cheap. So when you add up those two important factors, (i) plenty of entrepreneurs + (ii) cheap imported commodities (whether for household consumption or production inputs and intermediate goods), the result is more economic growth, more job creation, possibly a full-employment economy.
Full employment does not mean zero unemployment rate. It could mean 2 or 3 percent unemployment rate because some people are "jobless" at the time of a labor force survey because they have a high "reservation wage". Meaning a job is awaiting for them anytime but they refuse to take it because they are waiting for another job offer with higher pay or better package (say car and housing, travels, commissions, etc.).
Resistance to free trade through very small or zero tariff and very small or zero NTBs, comes from three groups of people. These are the protected sectors and businessmen, the left-leaning NGOs and lobby groups, and the government bureaucracy and politicians. Let us tackle them one by one.
The protectionist businessmen and sectors can be understandable because they feel threatened that their products might be spurned by local consumers who might find imported substitutes not only cheaper but better in quality. But the same protectionist businessmen and sectors also want free trade in other products and commodities that they do not produce. A rice farmer is biased only against imported rice but he wants free trade and more choices when it comes to fertilizers and hand tractors, shoes and clothes for his children, tv and other appliances for his house, etc. When they realize that they actually benefit from free trade for their household needs and farm inputs, plus the possibility that they can export their surplus rice at a higher price when their productivity improves due to more modern farming tools and practices, their opposition to free trade can weaken.
The second group, the left-leaning NGOs, trade unions, media and other professionals are harder to please because of very often, plain envy and ideological hatred of free markets. They hate to see some people becoming very rich and prosperous because of the big economic opportunities opened up by free trade. They hate to see inequality and temporary economic dislocation as a result of resource reallocation in society. And some of them are on the payroll of big businesses who benefit from trade protectionism and absence of foreign competition. But being consumers, deep inside they want free trade, they want more choices, they want bargains, for their various personal and professional needs, from shoes and jeans to food and drinks, to cell phones, laptops and cars.
The last group, the government trade bureaucracy and politicians, are the hardest to please, the hardest to convince of the evils of trade protectionism. Mainly because they live off on taxes, and high tariff means high tax revenues. Or high tariff and NTBs mean difficulty for entrepreneurs and hence, higher incentives for the latter to pay them bribes or other favor in exchange for facilitating trade. When a country is protectionist, the trade bureaucrats and some politicians enjoy vast arbitrary powers: who can trade and who cannot trade; where they can export and import and where they cannot; by how much quantity they can trade; how much fees to pay and many papers and documents to submit; and ultimately, how quick or late they can allow trade. Arbitrary powers mean arbitrary mean and opportunity to amass wealth at the expense of consumers, especially the poor and the jobless.
Unlike businessmen, farmers, labor unions, media people and other professional groups, consumers are not organized. The power of the consumers is in their purchasing capacity, in the expression of their preferences and priorities as reflected in the goods and services they buy. Their power is therefore, not fully articulated in media and Congress, but in various market places like malls, shops and public markets. The absence or non-articulation of power by consumers is also reflected in the level of poverty and joblessness in society.
It is important therefore, to continue explaining the importance of free trade if society is to attain full employment and assert consumer choice and freedom. And it is equally important to explain and expose the reasons and vested interests of some groups of people who are opposing free trade.
Meanwhile, the WTO has just released its World Trade Report 2008: Trade in a Globalizing World. The main message of that report is simple: Trade and globalization have brought greater prosperity to hundreds of millions as well as greater stability among nations.
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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
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008
Thursday, July 10, 2008
Sir John Templeton, 95
I just read today in the news,
http://www.iht.com/articles/2008/07/09/america/obits.php
and in the Atlas website,
http://atlasnetwork.org/sir-john-templeton-passed-away-at-the-age-of-95/
that Sir John Templeton -- was among the world's richest men, put up charities that give away about $70M a year -- has died.
He's 95 years old, renounced his American citizenship and lived in Bahamas. The news reports say his deep interest were on the nexus of science and religion, discoveries and faith.
I hear his name every year when Atlas economic research foundation gives away competitive prizes to some free market think tanks around the world that work on certain categories.
Sir John has lived a full and very productive life.
Perhaps his death is the culmination of his continuing journey in faith and discovery.
A noble life, and noble after-life journey.
My deep respect for the man, and condolence to his family and close friends.
http://www.iht.com/articles/2008/07/09/america/obits.php
and in the Atlas website,
http://atlasnetwork.org/sir-john-templeton-passed-away-at-the-age-of-95/
that Sir John Templeton -- was among the world's richest men, put up charities that give away about $70M a year -- has died.
He's 95 years old, renounced his American citizenship and lived in Bahamas. The news reports say his deep interest were on the nexus of science and religion, discoveries and faith.
I hear his name every year when Atlas economic research foundation gives away competitive prizes to some free market think tanks around the world that work on certain categories.
Sir John has lived a full and very productive life.
Perhaps his death is the culmination of his continuing journey in faith and discovery.
A noble life, and noble after-life journey.
My deep respect for the man, and condolence to his family and close friends.
Thursday, July 03, 2008
Agri Econ 3: Dr. Samran Sombatpanit and WASWC
My two articles the past three weeks....
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June 17, 2008
Meeting Dr. Samran Sombatpanit
Before going to Hong Kong the other week to attend the Pacific Rim Conference (see my previous article, "Individual liberty in the Pacific Rim"), I passed by Bangkok, upon the invitation of a Thai friend, Dr. Samran Sombatpanit. He is the immediate past president of the World Association for Soil and Water Conservation (WASWC). My route was Manila-Bangkok-Hong Kong-Manila. By making two foreign trips in one exit at the Manila airport NAIA, I would pay only once the extortion charges of travel tax of Php1,620 (about US$37 at Php44/US$1) and terminal fee of Php750 (about US$17), instead of paying twice.
I got to know Dr. Sombatpanit through a Moroccan friend, Nahid Elbezaz, who was my ‘batchmate’ in an international training on "Sustainable Agriculture" in late 2003 held in Sweden. I have been managing an agro-forest farm for a decade-and-a-half now, and the farm is owned by the Millora family, a friend whom I consider my second family here in Manila.
I contributed a paper for WASWC on building stone terraces for small water path to control soil erosion. This system not only minimizes and controls soil erosion, but also somehow conserves the eroded soil through well-arranged stone terraces that act as soil trap. Then I would also contribute to Samran some short papers on some of my observations and experience in agro-forestry, climate change literature, and so on.
Samran and his fellow editors and agriculture scientists recently published a book called "No Till Farming". It's a bit of a ‘revolutionary’ approach in farming for the following reasons. First, not tilling the soil is leaving it undisturbed; regular plowing and tilling can be harmful to the soil and the farm by making the soil loose and easily eroded during heavy rains and strong winds. Second, for many countries, government distribution of tractors to farmers at heavily subsidized price is among the more expensive public expenditures that taxpayers have to bear. And third, plowing by tractors and other mechanical devices can be expensive at this time of high oil prices.
Thus, the no-till farming philosophy can (a) save the soil from becoming loose and easily eroded, thus retaining nutrient-rich topsoil; (b) save taxpayers of the high cost of additional farm subsidies, (c) save farmers of the high cost of oil and tractor maintenance, and (d) save rivers and lakes from heavy siltation due to eroded topsoil due to heavy and frequent tilling of soil. From a number of farm results, crop yield is not that far from farms that experience regular tilling, leaving farmers with higher net income. So when you come to think of it, farming should not be too subsidy-dependent from the State – a principle that negates the ever-expanding agricultural bureaucracies and budget in many governments around the world.
If farming is left to agro-entrepreneurs and not distorted by heavy state subsidies, regulation and taxation – like NFA monopolization of rice importation for many decades, abuse and moral hazards problem in government agri credit programs, and rich countries' high domestic support and subsidies for their local agricultural production – a more dynamic market of supply-demand situation in food production, distribution and international trade will emerge. And the recent drastic food spikes could have been averted. This is because farming is an entrepreneurial activity, not a “social welfare” activity. Entrepreneurship requires less regulation, taxation, and subsidies, whereas social welfare requires the opposite. There should be big profit in farming and hence, state subsidies should be unnecessary because farming is mainly on food production, and everyone in this planet needs food.
Furthermore, if agri subsidies are kept at the minimum, if not abolished, then only those who can make profitable farming should stay in the business, unlike in many societies now where many farmers stay in the sector not because they are making enough money, but because they are receiving lots of state subsidies. And this is true in many rich countries like the European Union’s Common Agricultural Policy (CAP).
It is good that the Comprehensive Agrarian Reform Program (CARP) is not extended for another five years. The program is among the major factors why many agro-entrepreneurs are hesitant to develop and expand investments in their farms because when the farm is becoming prosperous and making good income, officials from the Department of Agrarian Reform (DAR) would come to them and tell them that their now prosperous land will be subjected to land redistribution to farm workers. That is why the current CARP as implemented will really have no time table. Which means uncertainty in agricultural investments will remain and the thick bureaucracy in DAR will only grow, not be reduced, in number.
Meanwhile, while we were in Thailand (my wife and our daughter came along), Dr. Sombatpanit toured us to Ayudhya and surrounding areas – Bang Sai, the King's summer palace, Ayuthaya, and other tourism areas. The development of Thailand's tourism industry, like its agricultural development, is somehow impressive. Of course it helps that Thailand does not experience strong typhoons like the Philippines; that it has a wide flat land, unlike the Philippines' archipelagic nature; and it has plenty of long and wide river systems that provide ample irrigation to its farms. The development of its new, big, and beautiful international airport that was opened only two years ago is a big bonus to foreign visitors who come to that country.
---------
-----------
June 17, 2008
Meeting Dr. Samran Sombatpanit
Before going to Hong Kong the other week to attend the Pacific Rim Conference (see my previous article, "Individual liberty in the Pacific Rim"), I passed by Bangkok, upon the invitation of a Thai friend, Dr. Samran Sombatpanit. He is the immediate past president of the World Association for Soil and Water Conservation (WASWC). My route was Manila-Bangkok-Hong Kong-Manila. By making two foreign trips in one exit at the Manila airport NAIA, I would pay only once the extortion charges of travel tax of Php1,620 (about US$37 at Php44/US$1) and terminal fee of Php750 (about US$17), instead of paying twice.
I got to know Dr. Sombatpanit through a Moroccan friend, Nahid Elbezaz, who was my ‘batchmate’ in an international training on "Sustainable Agriculture" in late 2003 held in Sweden. I have been managing an agro-forest farm for a decade-and-a-half now, and the farm is owned by the Millora family, a friend whom I consider my second family here in Manila.
I contributed a paper for WASWC on building stone terraces for small water path to control soil erosion. This system not only minimizes and controls soil erosion, but also somehow conserves the eroded soil through well-arranged stone terraces that act as soil trap. Then I would also contribute to Samran some short papers on some of my observations and experience in agro-forestry, climate change literature, and so on.
Samran and his fellow editors and agriculture scientists recently published a book called "No Till Farming". It's a bit of a ‘revolutionary’ approach in farming for the following reasons. First, not tilling the soil is leaving it undisturbed; regular plowing and tilling can be harmful to the soil and the farm by making the soil loose and easily eroded during heavy rains and strong winds. Second, for many countries, government distribution of tractors to farmers at heavily subsidized price is among the more expensive public expenditures that taxpayers have to bear. And third, plowing by tractors and other mechanical devices can be expensive at this time of high oil prices.
Thus, the no-till farming philosophy can (a) save the soil from becoming loose and easily eroded, thus retaining nutrient-rich topsoil; (b) save taxpayers of the high cost of additional farm subsidies, (c) save farmers of the high cost of oil and tractor maintenance, and (d) save rivers and lakes from heavy siltation due to eroded topsoil due to heavy and frequent tilling of soil. From a number of farm results, crop yield is not that far from farms that experience regular tilling, leaving farmers with higher net income. So when you come to think of it, farming should not be too subsidy-dependent from the State – a principle that negates the ever-expanding agricultural bureaucracies and budget in many governments around the world.
If farming is left to agro-entrepreneurs and not distorted by heavy state subsidies, regulation and taxation – like NFA monopolization of rice importation for many decades, abuse and moral hazards problem in government agri credit programs, and rich countries' high domestic support and subsidies for their local agricultural production – a more dynamic market of supply-demand situation in food production, distribution and international trade will emerge. And the recent drastic food spikes could have been averted. This is because farming is an entrepreneurial activity, not a “social welfare” activity. Entrepreneurship requires less regulation, taxation, and subsidies, whereas social welfare requires the opposite. There should be big profit in farming and hence, state subsidies should be unnecessary because farming is mainly on food production, and everyone in this planet needs food.
Furthermore, if agri subsidies are kept at the minimum, if not abolished, then only those who can make profitable farming should stay in the business, unlike in many societies now where many farmers stay in the sector not because they are making enough money, but because they are receiving lots of state subsidies. And this is true in many rich countries like the European Union’s Common Agricultural Policy (CAP).
It is good that the Comprehensive Agrarian Reform Program (CARP) is not extended for another five years. The program is among the major factors why many agro-entrepreneurs are hesitant to develop and expand investments in their farms because when the farm is becoming prosperous and making good income, officials from the Department of Agrarian Reform (DAR) would come to them and tell them that their now prosperous land will be subjected to land redistribution to farm workers. That is why the current CARP as implemented will really have no time table. Which means uncertainty in agricultural investments will remain and the thick bureaucracy in DAR will only grow, not be reduced, in number.
Meanwhile, while we were in Thailand (my wife and our daughter came along), Dr. Sombatpanit toured us to Ayudhya and surrounding areas – Bang Sai, the King's summer palace, Ayuthaya, and other tourism areas. The development of Thailand's tourism industry, like its agricultural development, is somehow impressive. Of course it helps that Thailand does not experience strong typhoons like the Philippines; that it has a wide flat land, unlike the Philippines' archipelagic nature; and it has plenty of long and wide river systems that provide ample irrigation to its farms. The development of its new, big, and beautiful international airport that was opened only two years ago is a big bonus to foreign visitors who come to that country.
---------
JULY 03, 2008
Tilling and soil erosion: sugarcane farms
I was born and grew up in Negros Occidental province in central Philippines. It is the sugar plantation capital of the country. In my past travels to almost all 81 provinces in the country, I would say that in terms of land utilization, no other province could beat it because one will hardly see vacant or idle land there. Almost all lands are fully utilized, for residential/commercial/industrial use, and planted with sugarcane or any other crops (coconut, banana, fruit orchard, a few rice land). This makes me feel proud of my province.
Huge tracts of land planted mainly to sugarcane, from midway of mountains down to the lowlands, means huge volume of harvested sugarcane being transported from the farms to huge sugar milling companies. During peak harvest and milling season, hundreds of over-loaded 6-wheeler trucks, up to long 18-wheeler trucks, all carrying several tons of sugarcane per truck, would be seen plying the provincial roads everyday. This plus bad public governance where the quality of newly-constructed or newly-repaired roads is often suspect, explains for the bad road network in the province.
I was not too observant of “topsoil level” before. After going through several pages of “No Till Farming” book published by the World Association for Soil and Water Conservation (WASWC), I became more aware of the threats to topsoil erosion by regular tilling and plowing of agricultural lands.
Sugarcane farms are perhaps the most tilled lands in the Philippines and other countries, after rice farms. But in the latter, rice farmers use only small hand tractors, if not farm animals like “carabao” (water buffalo) or bulls. In addition, rice fields are terraced so the ground is flat, that even water is impounded and trapped up to a certain height; hence, soil erosion is minimized and controlled. In sugarcane farms, they are using regular tractors which are big and heavy, so the plowing of the soil is deeper and wider. Many sugarcane fields are also not on flat soil, rather on hilly and rolling terrain. So when there is heavy rain and the soil has just been tilled and not yet planted to sugarcane, the volume of eroded soil can be huge.
In my recent visit to my province just last week, I observed that a number of sugarcane fields are several inches below the average ground level. Some are even 1 or 2 feet lower, especially those on non-flat terrain and those beside a canal. I surmised that the difference between current sugarcane fields’ level and the normal soil level, say on the shoulder of the provincial road, or those planted to bananas and coconut trees, is the amount of soil that has been eroded through time. If this difference or depth is only a few hectares wide, there could be no problem much. But if it covers thousands of hectares, then the problem can be big.
So, if a big volume of topsoil has been eroded through time, where does it go? By the law of gravity, the eroded soil go to lower areas – in creeks and rivers, ultimately into the ocean. The immediate result is that many creeks have disappeared after soil and small stones have covered their deeper portions, and everything were shallow and flat. There is still small water flow coming from upstream springs, but some lowland natural springs were covered and disappeared.
A similar thing happened in rivers. Many rivers’ depth have declined, meaning the rivers have become shallower, with regular deposit of eroded soil and rocks from the uplands and midlands. But rivers’ width have increased on average, as strong flash floods would “eat up” unstable and soft river banks, and as the rivers are now shallower. Mangrove forest species and related vegetation, like “nipa” and palms would help in stabilizing otherwise unstable river banks.
I think not all sugar planters are into yearly plowing of their farm, but I assume that their number is small. With the current expensive fuel prices though, I would assume that some sugar planters will be forced to reduce their tilling, say once every 2 cropping season or every 2 years, or even once every 3 years. Planting of sugarcane tops through manual boring will not only be a cheaper alternative, but also more sustainable in both short- and long-term as the slightly compacted soil is left undisturbed by heavy tractors and deep plowing.
As sugar planters slowly realize the virtue of no-till farming, aided mainly by expensive fuel prices, I hope that topsoil erosion will be minimized in my province. Although high prices and profitability of sugarcane for biofuel production could spur more sugar planters to continue the old ways of regular, annual deep tilling of their sugarcane farms, since high fuel prices for tractor plowing can be offset by high profit for biofuel production. Ultimately, it is the realization of the environmental value and long-term economic benefits of no-till farming that will convince many sugar planters to take this agricultural practice.
Huge tracts of land planted mainly to sugarcane, from midway of mountains down to the lowlands, means huge volume of harvested sugarcane being transported from the farms to huge sugar milling companies. During peak harvest and milling season, hundreds of over-loaded 6-wheeler trucks, up to long 18-wheeler trucks, all carrying several tons of sugarcane per truck, would be seen plying the provincial roads everyday. This plus bad public governance where the quality of newly-constructed or newly-repaired roads is often suspect, explains for the bad road network in the province.
I was not too observant of “topsoil level” before. After going through several pages of “No Till Farming” book published by the World Association for Soil and Water Conservation (WASWC), I became more aware of the threats to topsoil erosion by regular tilling and plowing of agricultural lands.
Sugarcane farms are perhaps the most tilled lands in the Philippines and other countries, after rice farms. But in the latter, rice farmers use only small hand tractors, if not farm animals like “carabao” (water buffalo) or bulls. In addition, rice fields are terraced so the ground is flat, that even water is impounded and trapped up to a certain height; hence, soil erosion is minimized and controlled. In sugarcane farms, they are using regular tractors which are big and heavy, so the plowing of the soil is deeper and wider. Many sugarcane fields are also not on flat soil, rather on hilly and rolling terrain. So when there is heavy rain and the soil has just been tilled and not yet planted to sugarcane, the volume of eroded soil can be huge.
In my recent visit to my province just last week, I observed that a number of sugarcane fields are several inches below the average ground level. Some are even 1 or 2 feet lower, especially those on non-flat terrain and those beside a canal. I surmised that the difference between current sugarcane fields’ level and the normal soil level, say on the shoulder of the provincial road, or those planted to bananas and coconut trees, is the amount of soil that has been eroded through time. If this difference or depth is only a few hectares wide, there could be no problem much. But if it covers thousands of hectares, then the problem can be big.
So, if a big volume of topsoil has been eroded through time, where does it go? By the law of gravity, the eroded soil go to lower areas – in creeks and rivers, ultimately into the ocean. The immediate result is that many creeks have disappeared after soil and small stones have covered their deeper portions, and everything were shallow and flat. There is still small water flow coming from upstream springs, but some lowland natural springs were covered and disappeared.
A similar thing happened in rivers. Many rivers’ depth have declined, meaning the rivers have become shallower, with regular deposit of eroded soil and rocks from the uplands and midlands. But rivers’ width have increased on average, as strong flash floods would “eat up” unstable and soft river banks, and as the rivers are now shallower. Mangrove forest species and related vegetation, like “nipa” and palms would help in stabilizing otherwise unstable river banks.
I think not all sugar planters are into yearly plowing of their farm, but I assume that their number is small. With the current expensive fuel prices though, I would assume that some sugar planters will be forced to reduce their tilling, say once every 2 cropping season or every 2 years, or even once every 3 years. Planting of sugarcane tops through manual boring will not only be a cheaper alternative, but also more sustainable in both short- and long-term as the slightly compacted soil is left undisturbed by heavy tractors and deep plowing.
As sugar planters slowly realize the virtue of no-till farming, aided mainly by expensive fuel prices, I hope that topsoil erosion will be minimized in my province. Although high prices and profitability of sugarcane for biofuel production could spur more sugar planters to continue the old ways of regular, annual deep tilling of their sugarcane farms, since high fuel prices for tractor plowing can be offset by high profit for biofuel production. Ultimately, it is the realization of the environmental value and long-term economic benefits of no-till farming that will convince many sugar planters to take this agricultural practice.
* See also:
Agri Econ 1: Food Prices and Government, April 13, 2008
Agri Econ 2: Rice Laissez Faire vs. Subsidies, May 06, 2008
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