Recently I got a private mail from a good friend in one of the discussion yahoogroups that I moderate, Pilipinas Forum (PF). My friend wrote,
“PF has degenerated into a one-track advocacy platform rather than a free market of ideas. Anything that gets posted gets a single kind of response:
the culprit: BIG GOVERNMENT AND TAXES
the solution: MINIMAL GOVERNMENT”
I thanked my friend for voicing out that sentiment. It’s a healthy and friendly observation and I need to be aware of such observation or sentiment. So perhaps I need to clarify a few things.
First, PF is not an organization with a definite and specific advocacy or program of action. PF is just a forum, like millions of other online fora out there, from blogs to wordpress to other ygroups. So there is still diversity in opinions. Contrast that with a ygroups I created for Minimal Government (MG) supporters, that ygroups can be considered relatively “one-track advocacy” forum because of the specifically-defined advocacy.
Second, the core of my political and economic advocacies is not MG per se, but Personal Responsibility. If you visit the online magazine www.thelobbyist.biz, the title of my weekly column there is “Back to Personal Responsibility”. And if you visit MG’s website, www.minimalgovernment.net, it says there, “In a sense, MG is a philosophical movement attempting to change the dominant thinking in our people that many things in our lives – education, health care, housing, pension,… – should be government responsibility, not personal or parental or firm responsibility.”
So my philosophy can be summarized as follows:
the culprit: Big Government Responsibility and taxation
the solution: More Personal Responsibility
I find it really disgusting that so many bright people in this planet have bright ideas on how to make the world a better place, by forcing you and me, our family, friends, neighbors, everyone, to finance their bright ideas. And they make thousands of press releases, hold press conferences left and right, to announce their bright ideas!
Why can’t they say, “Hey, I got a bright idea how to reduce housing backlog and the squatters problem, but I won’t force you to finance my idea and projects even if you don’t believe in it. Only people who believe in my idea will!”
But they say, “There is lack of food, there is high malnutrition among certain groups of people, so we propose even bigger budget from big taxes and fees, for the Department of Agriculture, NFA, Quedancor, UNFAO, UN WFP, WB, ADB, etc; more food self-sufficiency and less food imports or exports, less international trade in food, etc.”
We can pick up any subject under the sun; what differentiate our perspectives in analyzing certain problems and the corresponding solutions to them will depend on how much faith, or lack of faith, we put in personal responsibility. The lesser that faith is, the more we will believe in more government, more forced collectivism.
That is why in analyzing the on-going global financial turmoil, my approach is more philosophical than financial. If you are an individual with small or no stable income, don’t buy an expensive house. If you are a bank, don’t lend someone big amount of house mortgage if you perfectly know that his/her capacity to pay in the future is suspect. If you are a government, don’t force banks or other private enterprises from lending to people whose capacity to pay such loans is suspect if not impossible. The “common denominator” remains the same: personal responsibility. Disregard it and we’ll have a society of irresponsible, authoritarian and corrupt people ruling our lives.
Thursday, October 23, 2008
Tuesday, October 21, 2008
Agri Econ 4: Government Agricultural Interventions
Everybody in this planet is a food consumer. Hence, there is a big demand for food; the bigger the population, the bigger the demand. There will also be big incentives for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and few farmers, and there are minimal or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders -- and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and consumers are too poor or too stupid to be left on their own -- that government, both national and local, plus multilateral institutions and NGOs, should guide how farmers and consumers should behave. This interventionist thinking has become widespread that agriculture bureaucracies and interventions in many countries have become huge. Naturally, the taxes and fees needed to sustain them, plus their endless conferences and activities will be big too. High taxes plus huge army of agriculture regulators, bureaucrats and statist activists would mean higher food prices too.
Last October 16, World Food Day was celebrated. National bureaucracies like the Department of Agriculture, multilateral institutions like the UN Food and Agriculture Organization (UN FAO), and big international NGOs like Oxfam, seized the occasion to preach for ever-bigger government intervention and politicization of agriculture. Among the advocacies they promoted were the following.
More tax money, xx billion pesos more on top of existing budgets and subsidies, for Philippine agriculture for the country to avoid the recent “rice crisis” and huge food price hikes. Two, do not rely on private entrepreneurship in agriculture because the market will prod farmers to produce more pineapples and bananas for exports, even biofuels and other cash crops, instead of more rice and corn. Three, agriculture trade liberalization is wrong and must be slapped with high tariffs and non-tariff barriers; instead, food “self-sufficiency” should be pursued.
These are myths that need to be corrected. Here are some reasons why they can be considered myths.
One, every year, there is no dearth of reports and stories of wastes and inefficiencies, if not corruption and robbery, in Philippine agriculture. Among the publicized ones involved the fertilizer scam, the government’s Quedan and Rural Credit Corporation (Quedancor) involving the swine scam, and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting certain subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic, which will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province, north of Manila that this writer regularly visits, the following were gathered:
* The municipal government last year or two years ago, distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative.
* Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$148 at P47/$) per year for 10 years.
* After a year, only about 15% of the farmer-borrowers have paid.
* No sanctions were imposed on the non-paying farmers, such as taking back the tractors and giving these to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers in many municipalities and provinces in the country is that they pay only on the first three years of the 10-year payment period. No one went to prison or had his tractor or any form of support taken back by the government for negligence in payment. The dominant thinking is that if it is a government program, farmers believe it is a dole-out and they are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
Two, it escapes the mind of many anti-market activists that farmers themselves, big or small, are private entrepreneurs driven by the dual desire to produce food for their household consumption, and to produce a surplus for profit. The Philippine population is increasing by 1.8 million people every year, net of death and migration. The rice land area has remained static at 4 to 4.2 million hectares in the last two or three decades. There is not much land to devote for rice as there is large land conversions going on -- initially from forest to non-forest use like rice and corn land, then from agriculture to residential or commercial/industrial land. And many parts of the country are mountainous that only a few ingenuous Filipino farmers can secure regular irrigation sources from somewhere.
And yet for such steady increase in the number of rice consumers while rice land has remained static, there is only one important conclusion: rice productivity is increasing over time. If this is not true, food riots and mass starvation would have happened many years ago, but it never did. Credit goes to private entrepreneurs in agriculture – farmers and traders, millers and processors, etc. – not so much the NGO activists and often unproductive agriculture bureaucracies.
Three, food imports by the Philippines from its rice-exporting Asian neighbors have covered up for any food supply deficit due to various reasons (strong typhoons, drought, pest attack, earthquakes, and so on). Since the 90s until today, Philippine imports averaged 8% to 10% of annual consumption. Besides, the country’s rice-surplus neighbors really have the natural “comparative advantage” in growing rice than the Philippines. Take Thailand and Vietnam, the world’s top two rice exporting countries, for example.
First, these two countries have wide, contiguous rice land areas of between seven to 10 million hectares, compared to the Philippines’ four million hectares scattered in various provinces and islands around the archipelago. Second, these two countries have huge rivers as main irrigation source like Mekong River, courtesy of their being a contiguous land mass. Third, these two countries have no or very little typhoons, only about 10 per year perhaps, versus the Philippines’ 20 typhoons per year on average.
Interventions like the provision of farm equipment, seeds and fertilizers, credit and marketing network, entrepreneurial spirit, are not included yet. The natural geography of those two countries alone gives them enough comparative and competitive advantage to grow rice. The Philippines’ comparative advantage is more on tourism, not agriculture.
Thus, instead of continuing agricultural trade protectionism, the various tariff and non-tariff barriers in agricultural imports, especially rice, should be slowly removed. Poor households who cannot afford to buy some local grains, vegetables, animal and fishery products in large amount for their families’ daily consumption, should be given respite by giving them access to otherwise cheaper food imports from the country’s Asian neighbors.
The market, the interaction between producers and consumers, not between bureaucrats and statist activists, can provide reliable information and signals for both producers and consumers to adjust with each other. Hence, statist interventions for more tax money for more subsidies, more tax money for dishonest and corrupt politicians and bureaucrats, and more agricultural trade restrictions and protectionism, should be slowly reduced, ultimately abolished. There is nothing wrong with a social system that allows the lazy and irresponsible to go hungry and poor, while allowing the hardworking, the entrepreneurial and responsible people to flourish and become rich.
-------
Related papers I wrote recently:
(1) More Food Producers, Less Food Bureaucrats
September 08, 2008
Agriculture is often an emotional subject when it should not be. Mention farming and farmers and images of poverty and economic difficulty would more often than not, come up in the minds of the public. Hence, various forms of subsidies, crop insurance, trade protectionism and other “incentives” were cooked up and implemented by many governments and generally supported by the public.
That should not be the case because everybody in this planet is a food consumer. Hence, there is a big demand for food, and there is big incentive for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and there are few farmers, and there are little or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders, and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and many consumers are too poor or too stupid to be left on their own, that government, both national and local, should guide them how they should behave, so that everybody will have access to good food at a good price. This interventionist thinking has become widespread so that bureaucracies in agriculture ministries or departments and related or supporting agencies have become huge and wide in many countries. Naturally, the taxes and fees needed to sustain them all, including their conferences, meetings, travel and other activities will be big too.
Bureaucracies in agriculture-related foreign aid institutions also expand as these institutions become more efficient in convincing the taxpayers in richer countries that they should continue paying high taxes because part of it is being used to subsidize farmers in poorer countries. Of course they do not mention or tone down the fact that a big portion of the foreign aid money goes to the politicians, agriculture and infrastructure bureaucracies of recipient countries first, before reaching the poor farmers, if any is left.
So with more intervention and subsidies, agriculture departments or ministries and their attached agencies naturally have huge budgets, directly or indirectly. With lots of money to administer, tinker, if not play around, the agriculture bureaucracies would normally attract robbers and opportunists among men and women. Cases of inefficiencies and wastes of tax money are widely reported in many rich countries like the EU’s Common Agriculture Policy (CAP) and the US.
Here in the Philippines, there is no lack of large-scale robbery scandals. Among the most prominent were the fertilizer scam in 2005, then the swine scam this year involving the government’s Quedan and Rural Credit Corporation (Quedancor) and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting endless subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic that will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province that I regularly visit, I learned of the following. The municipal government last year distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative. Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$152 at P46/$) per year for 10 years. After a year, only about 15 percent of the farmer-borrowers have paid. There are no sanctions done to non-paying farmers like taking back the tractors and give to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers is that they pay only on the first 3 years of the 10-years payment period. No one went to prison or his tractor or any form of support taken back by the government for negligence in payment. And the thinking persists that if it is government program, it is a dole-out and people are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
The issue of non-productive use of agricultural extension workers employed by the provincial and city/municipal governments is another case of wastes. The extension workers are supposed to be the “bridge” between new results in agricultural R&D and modern farming practices, and the farmers on the field, especially the subsistence farmers. But the right incentive for the extension workers to do their job well is not there. Whether they perform their work or not, they are already assured of their monthly salary and allowances. They are accountable to the Mayor, or other local politicians who recommended them and/or approved their employment in the local government. So when the provincial Governor or city/municipal Mayor assigns them in any work except agricultural extension work, they do it.
Efforts by multilateral bodies and bureaucracies to expand foreign aid in agriculture in poorer countries purportedly to stabilize food prices in the future are likely to create more wastes and inefficiencies than good results. The better options are: One, leave the farmers and consumers alone to adjust and adapt to changes in food supply and demand as reflected in food prices. Two, abolish, or at least consolidate, certain agricultural programs and agencies which have been clearly burdensome to taxpayers for a long time now with no clear and consistent positive results. And three, abolish or at least consolidate, certain regulations that make life more difficult, more complicated, for people engaged in food production and distribution. Let us have less agricultural and economic bureaucrats and more agri-businessmen and women.
(2) State Intervention in Agriculture Production and Distribution
July 07, 2008
A number of observers and policy makers blame "market manipulation" and "market failure" as reasons for the current food price spikes around the world. Hence, existing government regulations, taxation, and intervention should be retained, if not expanded, in agricultural production and distribution.
Below are a some of these interventions and regulations being practiced by governments in many countries around the world. I have identified no less than 10 various government interventions in the sector, but due to space constraints, will discuss only seven of them here. A longer paper covering and discussing all those interventions that I have identified will be posted in our website, http://www.minimalgovernment.net/.
After enumerating these interventions and their purported rationale, my comments and critic of these measures follow. The "farmers" being referred in the foregoing discussions refer to both small and big/commercial farmers.
One, subsidize farmers to produce more food for "self sufficiency" . The goal here is self-explanatory.
Two, subsidize farmers to produce less food in times of bumper harvest. The goal is to stop prices from going too low that will make farming unprofitable, which might prompt some farmers to stop farming and move elsewhere.
Three, impose high agricultural tariffs to discourage importation of food that are cheaper than those locally-produced. The goal here is to protect local farmers from foreign competition, never mind the consumers who demand cheaper food.
Four, subsidize farmers to produce more crops for biofuels and away from food. The goal is to help "fight global warming".
Five, have an agricultural insurance where farmers will get subsidy when the price of their produce declines in the future. The goal is to prod farmers to continue producing certain crops even when it may look unprofitable to do so.
Six, impose "community preference" of high health and sanitation standards, animal welfare and labor standards, for imported food products; otherwise, the tariff will be very high.
And seven, impose rice "export ban" at the height of high world rice prices. The goal is to protect local prices from rising further when some of local output will be diverted for the world market.
For me, these are misguided public policies that do not result in more food for more consumers at more or differentiated price levels. Their negative consequences are as follows.
First, maintaining food "self-sufficiency" policy invites agricultural protectionism in order to shield local farmers from foreign competition, which may turn them off from continued farming, which can result to "food insufficiency" someday. Some countries produce particular agricultural commodities more efficiently than others by virtue of their geography (wide flat lands, few mountains, lots of lakes and rivers, away from usual typhoon path, and so on), soil condition, conservation practices and entrepreneurial spirit of farmers, etc. Hence, it will give justice to both local consumers to avail of such natural and social advantages in other country that allow them to produce cheaper food than what local producers can provide. A good example of what food autarky can do is North Korea.
Commodities that often experience huge price spikes are those that are least-traded. Rice that is traded internationally is only about six percent of global food production. So when certain countries experience supply shortfall for whatever reasons, the leeway for emergency supply from imports is small, resulting in huge price spikes and hence, economic difficulty for poorer consumers of those countries.
Second, encouraging farmers to produce less food when they are capable of producing more prevents local food prices from falling, which should have benefited consumers. This perverse use of taxpayers money then making the same taxpayers pay more for food that could have been made available at a lower price is insensitive public policy.
Third, as discussed above, food protectionism penalizes consumers, including many farmers themselves who experience crop damage or small harvest (due to strong typhoons, pest or insect attack, prolonged drought, civil conflict, etc.). A better option is to cut, if not abolish, those tariffs on food products, have full free trade in food and other commodities and services. Producers of food-surplus countries will benefit through higher income, while consumers of food-deficient countries will benefit through lower price.
Fourth, encouraging production of more biofuels through tax money has contributed to the recent food price spikes, even if at a minor level. If farming for biofuels production is indeed profitable, then there is no need for subsidies.
Fifth, encouraging farmers to continue producing particular commodities even if their prices have gone down (due to big local harvest due to improved productivity, due to big harvests abroad and imported cheaply, etc.) to non-profitable levels is not good. Taxpayers should be spared from shelling out more money for price differential subsidy. With current high prices of many food products, farming is becoming more profitable. But when governments maintain, if not increase, various farm insurance and price subsidy, this means those governments have no intention of allowing cheaper farm production in the future.
Sixth, those strict health, sanitation, environmental, animal welfare, and labor standards were imposed by farm lobbies and bureaucracies of rich governments, not so much by consumers. If some rich consumers want these strict regulations, they can do so by demanding labeling and purchasing only those products (local or imported). Poorer consumers who may not be too strict with those standards and just want cheaper and safe food, need not be forced to pay ore. If food products are indeed unfit for human consumption, they should be banned, not over-taxed to make it very expensive for consumers.
And seventh, export bans by some governments have worsened the difficulty of net rice importing countries through even higher rice prices. Global supply is disrupted and some farmers in rice-surplus countries are discouraged from higher production since the opportunity to earn higher at exporting rice was killed. Allow freer trade, have few or zero restrictions, in mobility and trading of commodities that experience high price increases so that producers will have more incentives to produce more.
There is no substitute to allowing the individuals – food producers, traders, processors, and consumers – determine what is good for them. More government intervention in agricultural production and distribution is creating more problems than solutions.
---------
See also:
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and few farmers, and there are minimal or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders -- and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and consumers are too poor or too stupid to be left on their own -- that government, both national and local, plus multilateral institutions and NGOs, should guide how farmers and consumers should behave. This interventionist thinking has become widespread that agriculture bureaucracies and interventions in many countries have become huge. Naturally, the taxes and fees needed to sustain them, plus their endless conferences and activities will be big too. High taxes plus huge army of agriculture regulators, bureaucrats and statist activists would mean higher food prices too.
Last October 16, World Food Day was celebrated. National bureaucracies like the Department of Agriculture, multilateral institutions like the UN Food and Agriculture Organization (UN FAO), and big international NGOs like Oxfam, seized the occasion to preach for ever-bigger government intervention and politicization of agriculture. Among the advocacies they promoted were the following.
More tax money, xx billion pesos more on top of existing budgets and subsidies, for Philippine agriculture for the country to avoid the recent “rice crisis” and huge food price hikes. Two, do not rely on private entrepreneurship in agriculture because the market will prod farmers to produce more pineapples and bananas for exports, even biofuels and other cash crops, instead of more rice and corn. Three, agriculture trade liberalization is wrong and must be slapped with high tariffs and non-tariff barriers; instead, food “self-sufficiency” should be pursued.
These are myths that need to be corrected. Here are some reasons why they can be considered myths.
One, every year, there is no dearth of reports and stories of wastes and inefficiencies, if not corruption and robbery, in Philippine agriculture. Among the publicized ones involved the fertilizer scam, the government’s Quedan and Rural Credit Corporation (Quedancor) involving the swine scam, and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting certain subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic, which will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province, north of Manila that this writer regularly visits, the following were gathered:
* The municipal government last year or two years ago, distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative.
* Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$148 at P47/$) per year for 10 years.
* After a year, only about 15% of the farmer-borrowers have paid.
* No sanctions were imposed on the non-paying farmers, such as taking back the tractors and giving these to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers in many municipalities and provinces in the country is that they pay only on the first three years of the 10-year payment period. No one went to prison or had his tractor or any form of support taken back by the government for negligence in payment. The dominant thinking is that if it is a government program, farmers believe it is a dole-out and they are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
Two, it escapes the mind of many anti-market activists that farmers themselves, big or small, are private entrepreneurs driven by the dual desire to produce food for their household consumption, and to produce a surplus for profit. The Philippine population is increasing by 1.8 million people every year, net of death and migration. The rice land area has remained static at 4 to 4.2 million hectares in the last two or three decades. There is not much land to devote for rice as there is large land conversions going on -- initially from forest to non-forest use like rice and corn land, then from agriculture to residential or commercial/industrial land. And many parts of the country are mountainous that only a few ingenuous Filipino farmers can secure regular irrigation sources from somewhere.
And yet for such steady increase in the number of rice consumers while rice land has remained static, there is only one important conclusion: rice productivity is increasing over time. If this is not true, food riots and mass starvation would have happened many years ago, but it never did. Credit goes to private entrepreneurs in agriculture – farmers and traders, millers and processors, etc. – not so much the NGO activists and often unproductive agriculture bureaucracies.
Three, food imports by the Philippines from its rice-exporting Asian neighbors have covered up for any food supply deficit due to various reasons (strong typhoons, drought, pest attack, earthquakes, and so on). Since the 90s until today, Philippine imports averaged 8% to 10% of annual consumption. Besides, the country’s rice-surplus neighbors really have the natural “comparative advantage” in growing rice than the Philippines. Take Thailand and Vietnam, the world’s top two rice exporting countries, for example.
First, these two countries have wide, contiguous rice land areas of between seven to 10 million hectares, compared to the Philippines’ four million hectares scattered in various provinces and islands around the archipelago. Second, these two countries have huge rivers as main irrigation source like Mekong River, courtesy of their being a contiguous land mass. Third, these two countries have no or very little typhoons, only about 10 per year perhaps, versus the Philippines’ 20 typhoons per year on average.
Interventions like the provision of farm equipment, seeds and fertilizers, credit and marketing network, entrepreneurial spirit, are not included yet. The natural geography of those two countries alone gives them enough comparative and competitive advantage to grow rice. The Philippines’ comparative advantage is more on tourism, not agriculture.
Thus, instead of continuing agricultural trade protectionism, the various tariff and non-tariff barriers in agricultural imports, especially rice, should be slowly removed. Poor households who cannot afford to buy some local grains, vegetables, animal and fishery products in large amount for their families’ daily consumption, should be given respite by giving them access to otherwise cheaper food imports from the country’s Asian neighbors.
The market, the interaction between producers and consumers, not between bureaucrats and statist activists, can provide reliable information and signals for both producers and consumers to adjust with each other. Hence, statist interventions for more tax money for more subsidies, more tax money for dishonest and corrupt politicians and bureaucrats, and more agricultural trade restrictions and protectionism, should be slowly reduced, ultimately abolished. There is nothing wrong with a social system that allows the lazy and irresponsible to go hungry and poor, while allowing the hardworking, the entrepreneurial and responsible people to flourish and become rich.
-------
Related papers I wrote recently:
(1) More Food Producers, Less Food Bureaucrats
September 08, 2008
Agriculture is often an emotional subject when it should not be. Mention farming and farmers and images of poverty and economic difficulty would more often than not, come up in the minds of the public. Hence, various forms of subsidies, crop insurance, trade protectionism and other “incentives” were cooked up and implemented by many governments and generally supported by the public.
That should not be the case because everybody in this planet is a food consumer. Hence, there is a big demand for food, and there is big incentive for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and there are few farmers, and there are little or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders, and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and many consumers are too poor or too stupid to be left on their own, that government, both national and local, should guide them how they should behave, so that everybody will have access to good food at a good price. This interventionist thinking has become widespread so that bureaucracies in agriculture ministries or departments and related or supporting agencies have become huge and wide in many countries. Naturally, the taxes and fees needed to sustain them all, including their conferences, meetings, travel and other activities will be big too.
Bureaucracies in agriculture-related foreign aid institutions also expand as these institutions become more efficient in convincing the taxpayers in richer countries that they should continue paying high taxes because part of it is being used to subsidize farmers in poorer countries. Of course they do not mention or tone down the fact that a big portion of the foreign aid money goes to the politicians, agriculture and infrastructure bureaucracies of recipient countries first, before reaching the poor farmers, if any is left.
So with more intervention and subsidies, agriculture departments or ministries and their attached agencies naturally have huge budgets, directly or indirectly. With lots of money to administer, tinker, if not play around, the agriculture bureaucracies would normally attract robbers and opportunists among men and women. Cases of inefficiencies and wastes of tax money are widely reported in many rich countries like the EU’s Common Agriculture Policy (CAP) and the US.
Here in the Philippines, there is no lack of large-scale robbery scandals. Among the most prominent were the fertilizer scam in 2005, then the swine scam this year involving the government’s Quedan and Rural Credit Corporation (Quedancor) and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting endless subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic that will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province that I regularly visit, I learned of the following. The municipal government last year distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative. Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$152 at P46/$) per year for 10 years. After a year, only about 15 percent of the farmer-borrowers have paid. There are no sanctions done to non-paying farmers like taking back the tractors and give to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers is that they pay only on the first 3 years of the 10-years payment period. No one went to prison or his tractor or any form of support taken back by the government for negligence in payment. And the thinking persists that if it is government program, it is a dole-out and people are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
The issue of non-productive use of agricultural extension workers employed by the provincial and city/municipal governments is another case of wastes. The extension workers are supposed to be the “bridge” between new results in agricultural R&D and modern farming practices, and the farmers on the field, especially the subsistence farmers. But the right incentive for the extension workers to do their job well is not there. Whether they perform their work or not, they are already assured of their monthly salary and allowances. They are accountable to the Mayor, or other local politicians who recommended them and/or approved their employment in the local government. So when the provincial Governor or city/municipal Mayor assigns them in any work except agricultural extension work, they do it.
Efforts by multilateral bodies and bureaucracies to expand foreign aid in agriculture in poorer countries purportedly to stabilize food prices in the future are likely to create more wastes and inefficiencies than good results. The better options are: One, leave the farmers and consumers alone to adjust and adapt to changes in food supply and demand as reflected in food prices. Two, abolish, or at least consolidate, certain agricultural programs and agencies which have been clearly burdensome to taxpayers for a long time now with no clear and consistent positive results. And three, abolish or at least consolidate, certain regulations that make life more difficult, more complicated, for people engaged in food production and distribution. Let us have less agricultural and economic bureaucrats and more agri-businessmen and women.
(2) State Intervention in Agriculture Production and Distribution
July 07, 2008
A number of observers and policy makers blame "market manipulation" and "market failure" as reasons for the current food price spikes around the world. Hence, existing government regulations, taxation, and intervention should be retained, if not expanded, in agricultural production and distribution.
Below are a some of these interventions and regulations being practiced by governments in many countries around the world. I have identified no less than 10 various government interventions in the sector, but due to space constraints, will discuss only seven of them here. A longer paper covering and discussing all those interventions that I have identified will be posted in our website, http://www.minimalgovernment.net/.
After enumerating these interventions and their purported rationale, my comments and critic of these measures follow. The "farmers" being referred in the foregoing discussions refer to both small and big/commercial farmers.
One, subsidize farmers to produce more food for "self sufficiency" . The goal here is self-explanatory.
Two, subsidize farmers to produce less food in times of bumper harvest. The goal is to stop prices from going too low that will make farming unprofitable, which might prompt some farmers to stop farming and move elsewhere.
Three, impose high agricultural tariffs to discourage importation of food that are cheaper than those locally-produced. The goal here is to protect local farmers from foreign competition, never mind the consumers who demand cheaper food.
Four, subsidize farmers to produce more crops for biofuels and away from food. The goal is to help "fight global warming".
Five, have an agricultural insurance where farmers will get subsidy when the price of their produce declines in the future. The goal is to prod farmers to continue producing certain crops even when it may look unprofitable to do so.
Six, impose "community preference" of high health and sanitation standards, animal welfare and labor standards, for imported food products; otherwise, the tariff will be very high.
And seven, impose rice "export ban" at the height of high world rice prices. The goal is to protect local prices from rising further when some of local output will be diverted for the world market.
For me, these are misguided public policies that do not result in more food for more consumers at more or differentiated price levels. Their negative consequences are as follows.
First, maintaining food "self-sufficiency" policy invites agricultural protectionism in order to shield local farmers from foreign competition, which may turn them off from continued farming, which can result to "food insufficiency" someday. Some countries produce particular agricultural commodities more efficiently than others by virtue of their geography (wide flat lands, few mountains, lots of lakes and rivers, away from usual typhoon path, and so on), soil condition, conservation practices and entrepreneurial spirit of farmers, etc. Hence, it will give justice to both local consumers to avail of such natural and social advantages in other country that allow them to produce cheaper food than what local producers can provide. A good example of what food autarky can do is North Korea.
Commodities that often experience huge price spikes are those that are least-traded. Rice that is traded internationally is only about six percent of global food production. So when certain countries experience supply shortfall for whatever reasons, the leeway for emergency supply from imports is small, resulting in huge price spikes and hence, economic difficulty for poorer consumers of those countries.
Second, encouraging farmers to produce less food when they are capable of producing more prevents local food prices from falling, which should have benefited consumers. This perverse use of taxpayers money then making the same taxpayers pay more for food that could have been made available at a lower price is insensitive public policy.
Third, as discussed above, food protectionism penalizes consumers, including many farmers themselves who experience crop damage or small harvest (due to strong typhoons, pest or insect attack, prolonged drought, civil conflict, etc.). A better option is to cut, if not abolish, those tariffs on food products, have full free trade in food and other commodities and services. Producers of food-surplus countries will benefit through higher income, while consumers of food-deficient countries will benefit through lower price.
Fourth, encouraging production of more biofuels through tax money has contributed to the recent food price spikes, even if at a minor level. If farming for biofuels production is indeed profitable, then there is no need for subsidies.
Fifth, encouraging farmers to continue producing particular commodities even if their prices have gone down (due to big local harvest due to improved productivity, due to big harvests abroad and imported cheaply, etc.) to non-profitable levels is not good. Taxpayers should be spared from shelling out more money for price differential subsidy. With current high prices of many food products, farming is becoming more profitable. But when governments maintain, if not increase, various farm insurance and price subsidy, this means those governments have no intention of allowing cheaper farm production in the future.
Sixth, those strict health, sanitation, environmental, animal welfare, and labor standards were imposed by farm lobbies and bureaucracies of rich governments, not so much by consumers. If some rich consumers want these strict regulations, they can do so by demanding labeling and purchasing only those products (local or imported). Poorer consumers who may not be too strict with those standards and just want cheaper and safe food, need not be forced to pay ore. If food products are indeed unfit for human consumption, they should be banned, not over-taxed to make it very expensive for consumers.
And seventh, export bans by some governments have worsened the difficulty of net rice importing countries through even higher rice prices. Global supply is disrupted and some farmers in rice-surplus countries are discouraged from higher production since the opportunity to earn higher at exporting rice was killed. Allow freer trade, have few or zero restrictions, in mobility and trading of commodities that experience high price increases so that producers will have more incentives to produce more.
There is no substitute to allowing the individuals – food producers, traders, processors, and consumers – determine what is good for them. More government intervention in agricultural production and distribution is creating more problems than solutions.
---------
See also:
Agri Econ 1: Food Prices and Government, April 13, 2008
Agri Econ 2: Rice Laissez Faire vs. Subsidies, May 06, 2008
Agri Econ 3: Dr. Samran Sombatpanit and WASWC, July 03, 2008
Monday, October 13, 2008
US Debt 3: Crisis of Irresponsibility
The ongoing economic turmoil in the US and the rest of the world has been termed a “credit crisis,” a “financial meltdown,” a “market free fall,” and even worse, a “crisis of capitalism.” The use of the latter phrase is implying that the current economic woes could be the beginning of the “end of capitalism,” and the rise of what? Rise of socialism, or Hugo Chavezm, or other forms of statism?
For lack of a more apt term to describe the ongoing financial troubles in major economies around the world, this writer would rather use the term “crisis of irresponsibility.” Here are some reasons why.
One, borrower irresponsibility. There is general acceptance, if not consensus, that the immediate cause of the current global financial trouble was the widespread default of sub-prime borrowers in the US for the houses they bought. People who have small or no stable income were allowed to buy houses whose price are much higher than what those borrowers could really afford to pay if some explicit or implicit subsidies were absent. The immediate symptom showed up in July 2007 after Wall Street investors started pulling out their money after learning those huge sub-prime homeowners’ loan default.
Two, lender irresponsibility. Anticipating continued “housing price bubble,” the lenders – developers, commercial banks, mortgage houses, investment banks, insurance companies – lent even to sub-prime borrowers, people who have questionable capacity to pay those high-priced houses, and charged them higher interest rates.
Three, housing policy irresponsibility. When a government policy forces banks to give out bad loans, then more bad loans will be given away. Eamonn Buttler in his article, “Blame bad rules, not capitalism”, wrote “(On) 12 October 1977, US President Jimmy Carter signed the ‘anti-redlining’ law. Before then, lenders generally denied loans to people in poor neighborhoods. But the politicians – with good intent – wanted to make home ownership available to all Americans. So lenders were forced into giving out risky mortgages: what we now call ‘sub-prime’ loans.”
And four, plain BIG government irresponsibility. Making a bad public policy even bigger and worse. For instance, after the “anti-redlining law,” semi-governmental companies Freddie and Fannie made investors believe that the bad mortgages they made were guaranteed by government, creating a “moral hazards” problem wherein complacency can be rewarded with bailout, not penalized with bankruptcy.
Now, the public in the US and around the world is bombarded with “more government financial regulations please” mantra. Really? But the US government cannot even properly discipline itself, generating hundreds of billions of dollars of budget deficit every year (at least $480 billion by end-2008, for instance). And worse, the Federal government is facing an estimated $56 trillion debt.
In a commentary, “America's $53 trillion debt problem,” David Walker wrote: “The nation's real tab amounted to $53 trillion as of the end of the last fiscal year (September 30, 2007). That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations… The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year.”
The US' gross domestic output (GDP) in a year is about $14 trillion. The cumulative debt of the federal government alone will be about 4x of GDP! GDP is the combined production of goods and services by the federal, local and state governments, private corporations and households.
So, can an institution that can irresponsibly accumulate various debts amounting to 4x of GDP, be the "bright guys" to provide “leadership” in regulating further all corporations, earning or misbehaving, private corporations? This does not look good.
From one big government intervention (encouraging or forcing sub-prime and risky loans and fiscal irresponsibility) to another xx billion dollars for Fannie and Freddie, $85B for AIG, and the enacted $700 billion bailout or “rescue package,” and higher future taxes to pay past and current bailouts and borrowings), there seems to be no logical conclusion or timetable for the never ending big government intervention and taxation.
US capitalism needs the current "electric shock" to deliver real hard lesson for both the American capitalists and the American government. Private enterprises should be allowed to grow big or go bankrupt – without government intervention. The job of the government is to ensure the rule of law, that parties honor their obligations and contracts with other parties, and that robbers, killers and other criminals along the way are neutralized.
The US stockmarket and the rest of the economy have so far shed several trillion dollars of losses and failures because their debt culture (federal debt + local and state governments debt + corporations and household debt) has bloated the economy by trillions of dollars. The bubble should pop, the excesses should be removed, and irresponsibility (personal, corporate and government) should be checked and controlled.
Failing big business should not marry big government. But it is happening now, nonetheless. The Treasury Department, the Fed, the White House and Capitol Hill think that to "solve" previous and current government failures, even bigger government intervention, regulation, borrowings and taxation should be introduced
Plenty of news stories these days say that many American households are cutting back on their consumptions except the necessities – food, health care, education, etc. – which means Americans feel they are poorer now, or they anticipate they will be poorer in the coming days. How can they be made to feel "richer"?
One option is a large-scale income tax cut. Allow them to keep more of their monthly or annual income, let them spend the "de facto" wage increase. Someone's spending is somebody else's income. But all the above US government agencies can think of are retain, if not increase in the future, current high income taxes – to finance more government spending, more bailouts, and possibly, more printing of money. The few tax cut measures in the multi-billion bailout was more of a “sweetener” so that more Republican legislators will support the huge bailout bill.
The author of the book, “In Defense of Global Capitalism”, Mr. Johan Norberg, has some good arguments on why the “more government financial regulations please” mantra is wrong. In his paper, “Regulators cannot avert next crisis”, he wrote: “Every crisis has led to thousands of new pages of regulation. Why is it that regulation doesn't stop crises from happening again? Look no further than the US federal institutions in Washington, DC, and we find 12,113 individuals working full time to regulate the financial markets. What did they do with the powers they had?.. So we get new rules that target the mistakes that everybody already knows they must avoid. The next possible crisis and its causes are so far unknown, and our regulations may have no effect or even make them worse...”
To sum up, is the current “crisis of irresponsibility” leading to continuation or death of irresponsibility?
Based on the above discussions and ongoing global development, the answer seems to point to a continuation, if not expansion, of irresponsibility. But as mentioned earlier, a crisis is short-lived and will not drag for a long time. There is a $56 trillion debt somewhere, and that’s for the US federal government debt alone. Not included there are several trillion dollars debt by US local and state governments, plus trillion dollars more by other central governments of other rich countries (Europe and Japan).
So there should be more crisis ahead in the coming years. But one really big crisis out there will definitely be resolved in favor of death of irresponsibility, especially of big government irresponsibility that encourages, directly or indirectly, personal and corporate irresponsibility. When people around the world assume more personal and parental responsibilities in running their own lives, their own households and communities, and expect less “government responsibility”, then societies will be headed to a new world order and ultimately, world peace.
--------
Greed and Responsibility
Can greed be good, both for the individual and society?
I think Yes, if it is coupled by personal responsibility and not causing harm to other people in the process of being greedy.
Example. A person salivates at the prospect that the price of the 2nd house that he is about to buy will double, if not triple, within one or two years. So he moved to buy that house by recalling his investments elsewhere, took a loan of only 30 percent or nothing, to buy that house cash. He never robbed or kidnapped for ransom anyone to get additional money. From plain pure savings and borrowings with earnest desire to pay the loan.
This still falls under "greed", right? Greed with personal responsibility.
Another variation is greed with personal irresponsibility.
A person who has no money even for a downpayment, or has enough income for his current consumptions and amortization payment, but took another mortgage with zero or very little personal equity for a high-priced 2nd house with the same salivating desire to make big money after a year or two. This is a very risky practice with some harm to other people happening if that person will default on his loan.
The current financial woes in the US and elsewhere is a result not too much of greed per se, but of greed + debt culture. Living beyond one's means, living on borrowed money, living on an illusion of big money in the future that may or may not materialize. There is lot of personal irresponsibility involved.
With this view, the current situation therefore, is good. It is a self-correcting mechanism by the market. Those with bloated assets suddenly experience their assets shrink, if not become bankrupt. As my favorite finance whiz kid Gina would say, "the market will correct itself with or without government intervention."
People with bleeding hearts for corporate failures simply don't get it.
Capitalism without failure is like religion without sin.
Or like Christianity without hell.
The sins of the past will haunt the sinner today, or in the future.
Once the sin has been atoned or "paid" and corrected, life will go on.
Incidentally, there's a good article from the IHT today, "Debt is whittling away US economic power",
http://www.iht.com/articles/2008/10/12/business/leonhardt.php?page=1
The debt culture will catch up on America. It has caught up now, but not entirely. There's more debt and bubbles down the carpet and bed of the US government, both federal and state/local government, than currently admitted.
With the current bail-outs and planned ownership stakes in a number of private banks, the US government's debt is changing from bad to worse. Applaud more borrowings and more regulations!
* See also
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
For lack of a more apt term to describe the ongoing financial troubles in major economies around the world, this writer would rather use the term “crisis of irresponsibility.” Here are some reasons why.
One, borrower irresponsibility. There is general acceptance, if not consensus, that the immediate cause of the current global financial trouble was the widespread default of sub-prime borrowers in the US for the houses they bought. People who have small or no stable income were allowed to buy houses whose price are much higher than what those borrowers could really afford to pay if some explicit or implicit subsidies were absent. The immediate symptom showed up in July 2007 after Wall Street investors started pulling out their money after learning those huge sub-prime homeowners’ loan default.
Two, lender irresponsibility. Anticipating continued “housing price bubble,” the lenders – developers, commercial banks, mortgage houses, investment banks, insurance companies – lent even to sub-prime borrowers, people who have questionable capacity to pay those high-priced houses, and charged them higher interest rates.
Three, housing policy irresponsibility. When a government policy forces banks to give out bad loans, then more bad loans will be given away. Eamonn Buttler in his article, “Blame bad rules, not capitalism”, wrote “(On) 12 October 1977, US President Jimmy Carter signed the ‘anti-redlining’ law. Before then, lenders generally denied loans to people in poor neighborhoods. But the politicians – with good intent – wanted to make home ownership available to all Americans. So lenders were forced into giving out risky mortgages: what we now call ‘sub-prime’ loans.”
And four, plain BIG government irresponsibility. Making a bad public policy even bigger and worse. For instance, after the “anti-redlining law,” semi-governmental companies Freddie and Fannie made investors believe that the bad mortgages they made were guaranteed by government, creating a “moral hazards” problem wherein complacency can be rewarded with bailout, not penalized with bankruptcy.
Now, the public in the US and around the world is bombarded with “more government financial regulations please” mantra. Really? But the US government cannot even properly discipline itself, generating hundreds of billions of dollars of budget deficit every year (at least $480 billion by end-2008, for instance). And worse, the Federal government is facing an estimated $56 trillion debt.
In a commentary, “America's $53 trillion debt problem,” David Walker wrote: “The nation's real tab amounted to $53 trillion as of the end of the last fiscal year (September 30, 2007). That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations… The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year.”
The US' gross domestic output (GDP) in a year is about $14 trillion. The cumulative debt of the federal government alone will be about 4x of GDP! GDP is the combined production of goods and services by the federal, local and state governments, private corporations and households.
So, can an institution that can irresponsibly accumulate various debts amounting to 4x of GDP, be the "bright guys" to provide “leadership” in regulating further all corporations, earning or misbehaving, private corporations? This does not look good.
From one big government intervention (encouraging or forcing sub-prime and risky loans and fiscal irresponsibility) to another xx billion dollars for Fannie and Freddie, $85B for AIG, and the enacted $700 billion bailout or “rescue package,” and higher future taxes to pay past and current bailouts and borrowings), there seems to be no logical conclusion or timetable for the never ending big government intervention and taxation.
US capitalism needs the current "electric shock" to deliver real hard lesson for both the American capitalists and the American government. Private enterprises should be allowed to grow big or go bankrupt – without government intervention. The job of the government is to ensure the rule of law, that parties honor their obligations and contracts with other parties, and that robbers, killers and other criminals along the way are neutralized.
The US stockmarket and the rest of the economy have so far shed several trillion dollars of losses and failures because their debt culture (federal debt + local and state governments debt + corporations and household debt) has bloated the economy by trillions of dollars. The bubble should pop, the excesses should be removed, and irresponsibility (personal, corporate and government) should be checked and controlled.
Failing big business should not marry big government. But it is happening now, nonetheless. The Treasury Department, the Fed, the White House and Capitol Hill think that to "solve" previous and current government failures, even bigger government intervention, regulation, borrowings and taxation should be introduced
Plenty of news stories these days say that many American households are cutting back on their consumptions except the necessities – food, health care, education, etc. – which means Americans feel they are poorer now, or they anticipate they will be poorer in the coming days. How can they be made to feel "richer"?
One option is a large-scale income tax cut. Allow them to keep more of their monthly or annual income, let them spend the "de facto" wage increase. Someone's spending is somebody else's income. But all the above US government agencies can think of are retain, if not increase in the future, current high income taxes – to finance more government spending, more bailouts, and possibly, more printing of money. The few tax cut measures in the multi-billion bailout was more of a “sweetener” so that more Republican legislators will support the huge bailout bill.
The author of the book, “In Defense of Global Capitalism”, Mr. Johan Norberg, has some good arguments on why the “more government financial regulations please” mantra is wrong. In his paper, “Regulators cannot avert next crisis”, he wrote: “Every crisis has led to thousands of new pages of regulation. Why is it that regulation doesn't stop crises from happening again? Look no further than the US federal institutions in Washington, DC, and we find 12,113 individuals working full time to regulate the financial markets. What did they do with the powers they had?.. So we get new rules that target the mistakes that everybody already knows they must avoid. The next possible crisis and its causes are so far unknown, and our regulations may have no effect or even make them worse...”
To sum up, is the current “crisis of irresponsibility” leading to continuation or death of irresponsibility?
Based on the above discussions and ongoing global development, the answer seems to point to a continuation, if not expansion, of irresponsibility. But as mentioned earlier, a crisis is short-lived and will not drag for a long time. There is a $56 trillion debt somewhere, and that’s for the US federal government debt alone. Not included there are several trillion dollars debt by US local and state governments, plus trillion dollars more by other central governments of other rich countries (Europe and Japan).
So there should be more crisis ahead in the coming years. But one really big crisis out there will definitely be resolved in favor of death of irresponsibility, especially of big government irresponsibility that encourages, directly or indirectly, personal and corporate irresponsibility. When people around the world assume more personal and parental responsibilities in running their own lives, their own households and communities, and expect less “government responsibility”, then societies will be headed to a new world order and ultimately, world peace.
--------
Greed and Responsibility
Can greed be good, both for the individual and society?
I think Yes, if it is coupled by personal responsibility and not causing harm to other people in the process of being greedy.
Example. A person salivates at the prospect that the price of the 2nd house that he is about to buy will double, if not triple, within one or two years. So he moved to buy that house by recalling his investments elsewhere, took a loan of only 30 percent or nothing, to buy that house cash. He never robbed or kidnapped for ransom anyone to get additional money. From plain pure savings and borrowings with earnest desire to pay the loan.
This still falls under "greed", right? Greed with personal responsibility.
Another variation is greed with personal irresponsibility.
A person who has no money even for a downpayment, or has enough income for his current consumptions and amortization payment, but took another mortgage with zero or very little personal equity for a high-priced 2nd house with the same salivating desire to make big money after a year or two. This is a very risky practice with some harm to other people happening if that person will default on his loan.
The current financial woes in the US and elsewhere is a result not too much of greed per se, but of greed + debt culture. Living beyond one's means, living on borrowed money, living on an illusion of big money in the future that may or may not materialize. There is lot of personal irresponsibility involved.
With this view, the current situation therefore, is good. It is a self-correcting mechanism by the market. Those with bloated assets suddenly experience their assets shrink, if not become bankrupt. As my favorite finance whiz kid Gina would say, "the market will correct itself with or without government intervention."
People with bleeding hearts for corporate failures simply don't get it.
Capitalism without failure is like religion without sin.
Or like Christianity without hell.
The sins of the past will haunt the sinner today, or in the future.
Once the sin has been atoned or "paid" and corrected, life will go on.
Incidentally, there's a good article from the IHT today, "Debt is whittling away US economic power",
http://www.iht.com/articles/2008/10/12/business/leonhardt.php?page=1
The debt culture will catch up on America. It has caught up now, but not entirely. There's more debt and bubbles down the carpet and bed of the US government, both federal and state/local government, than currently admitted.
With the current bail-outs and planned ownership stakes in a number of private banks, the US government's debt is changing from bad to worse. Applaud more borrowings and more regulations!
* See also
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
Monday, October 06, 2008
Patent exhaustion and the rule of law
The philosophy of "rule of law" is very explicit that a law should apply to all and everything, and no one or nothing is exempted. That not even the legislators and administrators of the State should be exempted or have the power to make exemptions. That is why classical political philosophers (like Friedrich Hayek) argued that not all output by the legislature, national or local government councils, can be considered as "general laws" because many rules created by modern legislatures often make certain exemptions. And those "exemptees" and "above the law" are usually the economically protected and politically connected ones.
Take the case of patents or other forms of intellectual property rights (IPR). A patent is granted by a national government to a product or invention by a certain manufacturer. This is the State's way of saying "Thank you for producing an innovative product for the use of the people". But before the State grants such compliment, it first requires lots of papers and permits, authorizations and accreditations, taxes and fees. Once the manufacturer and inventor of such product has complied with all those regulatory requirements, the State, through its agencies that handle and grant IPR, finally gives the patent.
So, securing a patent, complying with the State's various regulatory requirements for an IPR protection, are neither short nor cheap. It takes long and expensive procedures -- from the actual invention itself, discovering the basic and applied sciences that govern the molecules and physical energy of one's invention, checking and counter-checking that there will be no harmful risks to the consumers, to complying with the bureaucracy, discovering the rules and regulations, both printed and hidden, that govern the molecular behavior of government regulators.
This sends mixed signals to entrepreneurs and traders out there. Let us tackle two prominent and opposing signals or options, and the corresponding behavior to each respective option.
One, by requiring stringent and expensive patent approval system, the State will be accountable to protect an IPR, come high or low water.
Corresponding behavior: Go through the entire process, endure the bureaucracy, taxes and fees. This is the route taken by law-abiding individuals, inventors, scientific institutions, and corporations.
Two, by requiring stringent and expensive patent approval system, there should be some loopholes or "exemptions" somewhere.
Corresponding behavior: Don't go through the entire process, don't endure the bureaucracy, taxes and fees. Find those loopholes and exemptions, or introduce and lobby the introduction of such exemptions, and still make money in the end. This is the route taken by less innovative, or bleeding heart collectivist, and often shrewd, individuals, inventors, and corporations.
In the patent and IPR system of many developing countries like the Philippines, the policy of "national exhaustion", meaning a patent on an invention in a particular country will stay until the end of its patent life, is followed. But with growing socialization of health care campaigns in the world, a new concept called "international exhaustion" – for drugs and medicines only – was introduced and negates "national exhaustion". It was introduced first in the WTO under the Trade-Related Aspects of IPRs (TRIPS), and second in the country through the "Cheaper medicines law" (Republic Act 9502). This unfortunately, is a violation of the "rule of law" principle because it grants exemption to the general rule of protecting private property rights, regardless of reason or alibi, social, cultural or whatever.
The scheme violates "national exhaustion" rule but the said violation is legalized and implemented by the State under the "international exhaustion" rule is called "parallel importation". Drug manufacturer X went through option one discussed above (i.e., endured all the bureaucracies and paid all the taxes and fees to get a patent, say in the Philippines). Now the government agency that granted the patent to company X can now say, "The patent that I gave to drug manufacturer X is now 'exhausted' and useless because the same patented drug it sells here has been introduced and sold in other countries. So other firms can now parallel import said drug and sell it here; no need to go through the long process of securing a patent."
This sudden about-face can be done instantly and the national patent system for the affected drug becomes a farce and a hypocrisy. The plentier the practice and declaration of "international exhaustion", the bigger the hypocrisy.
But that's on the level of political and legal philosophy alone. Let us tackle the implication of "parallel importation" scheme on public health, which is the main reason why said violation of the rule of law on patent has been justified in the first place.
Drug trader Company Y buys "cheaper medicines" from the sister firm of Company X from abroad, then transported, stored, and distributed said drug to various drugstores, pharmacies and other drug retail outlets in the home country – all without permission or approval by Company X being the national patent holder of said drug. One or more patients develop bad allergies, or develop negative side effects, after taking the "cheaper medicine" imported and distributed by Company Y. It turns out that any or all of the following possibilities happened:
The imported "cheaper medicine" was mishandled, mis-stored (say a few degrees Celsius hotter than the minimum temperature required for effective storage), opened from original containers and repacked, and consequently contained wrong labels and wrong expiration date, etc.
The imported "cheaper medicine" was counterfeit, produced by a fake and unlicensed drug manufacturer abroad, and the medicine contained very little or no active ingredients that can cure a particular disease.
The original manufacturer (sister firm abroad of Company X) found some health risks in the medicine and was recalling it, but Company Y is just a trader and has spent money already for the importation, transportation, storage and distribution to many retail outlets here, and would not care recalling said drug since it will not be affected anyway because it does not carry the corporate brand of the drug manufacturer.
Who will the adversely affected patient complain and possibly sue? Company X at home country, or its sister firm abroad, or drug trader Company Y, or the physician who prescribed the medicine, or the drug store?
Recently the Philippines and other importing countries were gripped by the scare of melamine-tainted milk from China. The chemical melamine is said to cause kidney problems on babies and children who consumed the milk. A number of raids were conducted, by the police, the Health department, and other government agencies, to remove from the shelves and storage areas of supermarkets, drug stores and warehouses, milk products that are proven or even suspected of containing melamine. The panic was wide but pinpointing who is responsible for manufacturing and distributing said melamine-tainted milk was not clear.
A similar scare in the distribution of counterfeit medicines, or original but mis-handled and mis-stored medicines, or medicines recalled by drug manufacturers but not recalled by drug traders, can happen someday in this country or other countries that implemented the "parallel importation" and "junk the national patent" scheme.
But policy damage has been done, because laws have been enacted in a number of countries that legalized the violation of the rule of law on national patent and IPR protection. And pretty soon, an implementing rules and regulations (IRR) will be promulgated in the Philippines to give more meat and mechanism on how to operationalize the violation of the rule of law.
Some "remedies" or remedial measures can be introduced though, in order to reduce the potential risks and damage by this scheme. This author has proposed some safeguard measures to be incorporated in the planned IRR. Seems that not one of them has been considered by the government agency that has the power to give patent and the power to render said patent "exhausted" and meaningless later on under the "international exhaustion" rule as legalized by the new law.
Another remedy perhaps, is for the all government agencies involved that required the submission of various regulatory requirements and agencies that collected various taxes and fees, to reimburse the full costs of compliance by the patent holder. The latter's right to private property protection of an invention has been disregarded by the same government agencies that promised to protect such private property right. Hence, the patent holder should be fully reimbursed at least, as a way of the State saying, "Sorry for disregarding your private property right and for my violation of the rule of law on IPR protection."
Take the case of patents or other forms of intellectual property rights (IPR). A patent is granted by a national government to a product or invention by a certain manufacturer. This is the State's way of saying "Thank you for producing an innovative product for the use of the people". But before the State grants such compliment, it first requires lots of papers and permits, authorizations and accreditations, taxes and fees. Once the manufacturer and inventor of such product has complied with all those regulatory requirements, the State, through its agencies that handle and grant IPR, finally gives the patent.
So, securing a patent, complying with the State's various regulatory requirements for an IPR protection, are neither short nor cheap. It takes long and expensive procedures -- from the actual invention itself, discovering the basic and applied sciences that govern the molecules and physical energy of one's invention, checking and counter-checking that there will be no harmful risks to the consumers, to complying with the bureaucracy, discovering the rules and regulations, both printed and hidden, that govern the molecular behavior of government regulators.
This sends mixed signals to entrepreneurs and traders out there. Let us tackle two prominent and opposing signals or options, and the corresponding behavior to each respective option.
One, by requiring stringent and expensive patent approval system, the State will be accountable to protect an IPR, come high or low water.
Corresponding behavior: Go through the entire process, endure the bureaucracy, taxes and fees. This is the route taken by law-abiding individuals, inventors, scientific institutions, and corporations.
Two, by requiring stringent and expensive patent approval system, there should be some loopholes or "exemptions" somewhere.
Corresponding behavior: Don't go through the entire process, don't endure the bureaucracy, taxes and fees. Find those loopholes and exemptions, or introduce and lobby the introduction of such exemptions, and still make money in the end. This is the route taken by less innovative, or bleeding heart collectivist, and often shrewd, individuals, inventors, and corporations.
In the patent and IPR system of many developing countries like the Philippines, the policy of "national exhaustion", meaning a patent on an invention in a particular country will stay until the end of its patent life, is followed. But with growing socialization of health care campaigns in the world, a new concept called "international exhaustion" – for drugs and medicines only – was introduced and negates "national exhaustion". It was introduced first in the WTO under the Trade-Related Aspects of IPRs (TRIPS), and second in the country through the "Cheaper medicines law" (Republic Act 9502). This unfortunately, is a violation of the "rule of law" principle because it grants exemption to the general rule of protecting private property rights, regardless of reason or alibi, social, cultural or whatever.
The scheme violates "national exhaustion" rule but the said violation is legalized and implemented by the State under the "international exhaustion" rule is called "parallel importation". Drug manufacturer X went through option one discussed above (i.e., endured all the bureaucracies and paid all the taxes and fees to get a patent, say in the Philippines). Now the government agency that granted the patent to company X can now say, "The patent that I gave to drug manufacturer X is now 'exhausted' and useless because the same patented drug it sells here has been introduced and sold in other countries. So other firms can now parallel import said drug and sell it here; no need to go through the long process of securing a patent."
This sudden about-face can be done instantly and the national patent system for the affected drug becomes a farce and a hypocrisy. The plentier the practice and declaration of "international exhaustion", the bigger the hypocrisy.
But that's on the level of political and legal philosophy alone. Let us tackle the implication of "parallel importation" scheme on public health, which is the main reason why said violation of the rule of law on patent has been justified in the first place.
Drug trader Company Y buys "cheaper medicines" from the sister firm of Company X from abroad, then transported, stored, and distributed said drug to various drugstores, pharmacies and other drug retail outlets in the home country – all without permission or approval by Company X being the national patent holder of said drug. One or more patients develop bad allergies, or develop negative side effects, after taking the "cheaper medicine" imported and distributed by Company Y. It turns out that any or all of the following possibilities happened:
The imported "cheaper medicine" was mishandled, mis-stored (say a few degrees Celsius hotter than the minimum temperature required for effective storage), opened from original containers and repacked, and consequently contained wrong labels and wrong expiration date, etc.
The imported "cheaper medicine" was counterfeit, produced by a fake and unlicensed drug manufacturer abroad, and the medicine contained very little or no active ingredients that can cure a particular disease.
The original manufacturer (sister firm abroad of Company X) found some health risks in the medicine and was recalling it, but Company Y is just a trader and has spent money already for the importation, transportation, storage and distribution to many retail outlets here, and would not care recalling said drug since it will not be affected anyway because it does not carry the corporate brand of the drug manufacturer.
Who will the adversely affected patient complain and possibly sue? Company X at home country, or its sister firm abroad, or drug trader Company Y, or the physician who prescribed the medicine, or the drug store?
Recently the Philippines and other importing countries were gripped by the scare of melamine-tainted milk from China. The chemical melamine is said to cause kidney problems on babies and children who consumed the milk. A number of raids were conducted, by the police, the Health department, and other government agencies, to remove from the shelves and storage areas of supermarkets, drug stores and warehouses, milk products that are proven or even suspected of containing melamine. The panic was wide but pinpointing who is responsible for manufacturing and distributing said melamine-tainted milk was not clear.
A similar scare in the distribution of counterfeit medicines, or original but mis-handled and mis-stored medicines, or medicines recalled by drug manufacturers but not recalled by drug traders, can happen someday in this country or other countries that implemented the "parallel importation" and "junk the national patent" scheme.
But policy damage has been done, because laws have been enacted in a number of countries that legalized the violation of the rule of law on national patent and IPR protection. And pretty soon, an implementing rules and regulations (IRR) will be promulgated in the Philippines to give more meat and mechanism on how to operationalize the violation of the rule of law.
Some "remedies" or remedial measures can be introduced though, in order to reduce the potential risks and damage by this scheme. This author has proposed some safeguard measures to be incorporated in the planned IRR. Seems that not one of them has been considered by the government agency that has the power to give patent and the power to render said patent "exhausted" and meaningless later on under the "international exhaustion" rule as legalized by the new law.
Another remedy perhaps, is for the all government agencies involved that required the submission of various regulatory requirements and agencies that collected various taxes and fees, to reimburse the full costs of compliance by the patent holder. The latter's right to private property protection of an invention has been disregarded by the same government agencies that promised to protect such private property right. Hence, the patent holder should be fully reimbursed at least, as a way of the State saying, "Sorry for disregarding your private property right and for my violation of the rule of law on IPR protection."
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