First of all, I am not comfortable that there are too many government positions, officials and bureaucrats. Which means we taxpayers especially in the private sector, have to part more with our income and savings as these officials and personnel, whether performing or not, will be receiving their salaries, allowances, travels and meetings, pension, etc.
Second, rather too many retired Armed Forces of the Philippines (AFP) and Phil. National Police (PNP) officials serving as "recycled bureaucrats" in civilian agencies is discomforting too. My main beef is that those retired AFP and PNP officials have been net tax receivers all their lives, can't they become net tax payers later? Meaning as private sector entrepreneurs, so they will also feel what it takes to be paying taxes left and right.
A young aspiring soldier enters the Phil. Military Academy (PMA), which has a budget of P500,000 per student per year on average or P2M/student over 4 years, that's already a very expensive spending. Not even the most difficult and most expensive courses at the University of the Philippines (UP) like the natural sciences, would give such level of subsidy to their students. Many military officers who came from private universities as ROTC or CMT officials, would perform well in the course of their AFP work even without receiving P2M/student of direct govt subsidies.
Third, retired or active AFP officers may deny it, but there is simply nepotism and political favoritism in appointing retired officers to become Secretaries of the DENR or DOE or DPWH or DOTC or whatever department, or heads of big agencies like LTFRB, LTO, etc., or as "special envoys" to so and so countries. It's mainly "bribing" those retired officers to remain loyal to the Administration (whoever is in power) and use the network and influence of those retired officers in influencing the active officers and soldiers to remain loyal to the administration too. Kaya pwedeng super-kawatan ang administration, walang serious coup by "idealist soldiers" because most of the soldiers and policemen have been coopted.
My advise to active AFP and PNP personnel, when they retire, is that they go to become private citizens, private entrepreneurs, let them experience jobs based on voluntary exchange between producers and consumers, and not on forcibly confiscated revenues, aka taxes and fees.
Wednesday, January 28, 2009
Pfizer-Wyeth merger and medicine innovation
The Pfizer-Wyeth merger, ie, the former bought the latter at $68 billion tag, is seen by some groups as "moving towards oligopoly" of the world pharmaceutical industry. That it's like approaching "Big Oil" or "Big Tobacco".
I think business moves like this merger should be considered as purely micro- and corporate decisions, as such mergers were done voluntarily: one proposed to buy, the other agreed to be bought, at a certain price and other agreements.
As consumers and patients, our main concern is whether medicine innovation and competition among players for innovator medicines, is retained and expanded, or compromised and scuttled, as a result of this merger. This is because there is ample supply and competition among players in the generics drugs market in the country and many parts of the world. It is in the innovator medicines where problems are cropping up, and ironically, at the time where people are getting more demanding, more impatient, for more “miracle drugs” that can treat their various diseases quickly and safely.
The Pfizer-Wyeth joint statement said that the merger will result in more “synergy” between the research capability and output of the two companies, enabling the single entity to produce more output at lesser cost. Technically this will result in cheaper price of innovator medicines, unless external distortions like multiple taxes and fees and health regulations will also rise, which can erase and neutralize the gains in corporate synergy and efficiency.
The "cheap at all cost" and "access for all" medicines mantra is all around the world now. Understandably in poorer countries, but in rich and industrialized countries like the US, this seems to be ironic.
There is also another irony for many health bureaucracies around the world, like Department or Ministry of Health in many governments, and the WHO: there is huge if not panicky focus on "access to cheap medicines for all" that often result in discouraging medicines innovation, but these agencies are also highlighting "emerging and re-emerging diseases" that need medicine innovations. In the Philppines for instance, the DOH is watching ebola, new avian flu virus, etc. and hinted at the need for "new medicines".
This irony is posing danger to humanity. My observation though is that if you create enough "noise" at the DOH- or WHO-sponsored or co-sponsored fora, they tend to listen. Some sanity should emerge later, when they finally realize the long-term risks of their interventionism and anti-innovation policies.
Monday, January 26, 2009
Health Transparency 1: MeTA Forum January 2009
Last week, the Medicines Transparency Alliance (MeTA) held a one-week activity in Manila. Last Monday and Tuesday was a workshop for local civil society organizations (CSOs) engaged in health, consumer protection, government procurement and policy. I was invited in this event to represent our think tank, Minimal Government Thinkners, Inc. The next three days, Wednesday to Friday, was the MeTA 2nd National Forum, attended by various sectors and groups, from government to pharmaceutical companies, professional organizations to CSOs.
MeTA is an international alliance of various stakeholders pushing for greater access of more people around the world to essential medicines by improving transparency and accountability. Its international secretariat, funded by the UK government, then the World Bank, World Health Organization (WHO), various governments, some pharmaceutical companies and big international CSOs, is helping the formation of country “branches”, like MeTA Philippines.
The 3-days forum tackled lots of interesting topics and issues. For lack of space, this paper will discuss only four of them: (1) lack of health insurance, self-medication by people, drug advertising; (2) local government medicines warehousing, (3) taxes and fees on medicines, and (4) IPR confiscation of innovator drugs. A short discussion of my respective proposals for these issues also follow.
First, the lack of health insurance by many people, especially private health maintenance organizations (HMOs), forces them to self-medicate when they get sick. A visit to government hospitals and physicians (either free or low fees) means long queu, while a visit to private physicians and clinics means high costs in physicians’ fee and possibly diagnostic tests. So to cut costs or avoid long queuing, people self-medicate and buy medicines that are most popular, as advertised in tv, radio, newspapers and outdoor billboards. Pharmaceutical companies know this, so some of them spend a lot of money on advertising, which leads to higher medicine prices, aside from possibly exaggerating claims of beneficial power of their medicines.
My thought on this is that the HMO sub-sector should be deregulated by the government, attract more companies, local and multinationals, to come and provide additional competition in the field, so that various income brackets can be served. For instance, richer people and subscribers can pay P20,000 per year or higher for wider health coverage, middle class people can get P6,000 to P15,000 per year, others can charge P1,000 to P5,000 per year for narrower health coverage (say maximum P20,000 hospital bill in one year, X number of free physician visits, Y set of free diagnostic tests, and so on. The important point is that even poor people can get health insurance on top of their PhilHealth membership to encourage them to see a health professional first before they buy any medicine. This will also neutralize any untruthful claims by heavy drug advertising as patients will listen more to their physicians, not to advertisers.
Second, medicine storage and warehousing by local governments for their constituents. A presenter from the WB showed some of his findings, complete with pictures: dirty warehouses, rodents, garbage and medicines mix up in one room. Warehouse personnel who do not make a regular inventory of medicines, how many have been disposed, how many are left, how many and what drugs are expired. Warehouses that do not have temperature control; one warehouse has a thermometer, fine, but the room temperature is several degrees hotter than the required minimum temperature for proper storage of some medicines. Some local health personnel release and give away expired drugs.
My proposal on this is that those warehouses by local government units (LGUs) should be closed down, LGUs can issue vouchers to their poor and needy constituents, the latter will go to government-accredited Botika ng Bayan or Botika ng Barangay to get the medicines, and the LGUs will pay those drug outlets later. There will be no need for LGUs and DOH then to train personnel for medicine procurement, warehousing, storage and inventory as internally proposed (using WB loans or additional budget appropriations) as these skills are already available in those government-accredited drug outlets. The comparative advantage of LGUs is politics and more politics, not efficient health care provision.
Third, taxation of medicines, apart from taxation of firms dealing with medicines manufacturing, marketing, distribution and retailing, remains high. Among these taxes are: import tax, documentary stamp tax, municipal or city tax, value added tax (VAT). Industry estimates put those various taxes at around 20 percent of the retail price. This means that the government, national and local, is responsible for expensive medicines by around 20 percent. And yet the government is “championing” cheaper medicines? This is pure irony, if not hypocrisy.
Removal of many taxes on medicines is definitely one sure way to bring down the price of this essential commodity. And this will require amending the law on National Internal Revenue Code. I proposed during the open forum that MeTA Philippines can possibly spearhead this measure and the affiliated stakeholders can back them. Our think tank will definitely support MeTA or whoever will spearhead this move.
Fourth, local pharmaceutical industry figures show that only 10 percent of all medicines in the country are patented, 90 percent are already off-patent. If we are to follow the logic, “patented = expensive” and “off-patent = cheap” medicines, then we are supposed to be expecting only 10 percent of all medicines to become cheap as a result of intellectual property rights (IPR) confiscation provisions in the “Cheaper Medicines Law” via (a) international exhaustion and parallel importation, (b) government use, (c) compulsory licensing), and (d) early working principle. The World Health Organization (WHO) even has a more dramatic figure: only one percent of all essential medicines in the world are still patented, 99 percent are off-patent. So the fuss on “patented = expensive, non-accessible to the poor” logic does not hold water, because 99 percent of all medicines in the world should be cheaply available and accessible to the poor.
My proposal on this is nothing. Said provisions are now legal, have implementing rules, they only need to be implemented strictly. I only have a short advice to some groups who strongly supported those IPR confiscatory provisions: that they admit that their advocacies are driven mainly by envy, by lack of appreciation of the need for continuing medicine innovation, by hatred of multinationals, even hatred of global capitalism.
MeTA is an international alliance of various stakeholders pushing for greater access of more people around the world to essential medicines by improving transparency and accountability. Its international secretariat, funded by the UK government, then the World Bank, World Health Organization (WHO), various governments, some pharmaceutical companies and big international CSOs, is helping the formation of country “branches”, like MeTA Philippines.
The 3-days forum tackled lots of interesting topics and issues. For lack of space, this paper will discuss only four of them: (1) lack of health insurance, self-medication by people, drug advertising; (2) local government medicines warehousing, (3) taxes and fees on medicines, and (4) IPR confiscation of innovator drugs. A short discussion of my respective proposals for these issues also follow.
First, the lack of health insurance by many people, especially private health maintenance organizations (HMOs), forces them to self-medicate when they get sick. A visit to government hospitals and physicians (either free or low fees) means long queu, while a visit to private physicians and clinics means high costs in physicians’ fee and possibly diagnostic tests. So to cut costs or avoid long queuing, people self-medicate and buy medicines that are most popular, as advertised in tv, radio, newspapers and outdoor billboards. Pharmaceutical companies know this, so some of them spend a lot of money on advertising, which leads to higher medicine prices, aside from possibly exaggerating claims of beneficial power of their medicines.
My thought on this is that the HMO sub-sector should be deregulated by the government, attract more companies, local and multinationals, to come and provide additional competition in the field, so that various income brackets can be served. For instance, richer people and subscribers can pay P20,000 per year or higher for wider health coverage, middle class people can get P6,000 to P15,000 per year, others can charge P1,000 to P5,000 per year for narrower health coverage (say maximum P20,000 hospital bill in one year, X number of free physician visits, Y set of free diagnostic tests, and so on. The important point is that even poor people can get health insurance on top of their PhilHealth membership to encourage them to see a health professional first before they buy any medicine. This will also neutralize any untruthful claims by heavy drug advertising as patients will listen more to their physicians, not to advertisers.
Second, medicine storage and warehousing by local governments for their constituents. A presenter from the WB showed some of his findings, complete with pictures: dirty warehouses, rodents, garbage and medicines mix up in one room. Warehouse personnel who do not make a regular inventory of medicines, how many have been disposed, how many are left, how many and what drugs are expired. Warehouses that do not have temperature control; one warehouse has a thermometer, fine, but the room temperature is several degrees hotter than the required minimum temperature for proper storage of some medicines. Some local health personnel release and give away expired drugs.
My proposal on this is that those warehouses by local government units (LGUs) should be closed down, LGUs can issue vouchers to their poor and needy constituents, the latter will go to government-accredited Botika ng Bayan or Botika ng Barangay to get the medicines, and the LGUs will pay those drug outlets later. There will be no need for LGUs and DOH then to train personnel for medicine procurement, warehousing, storage and inventory as internally proposed (using WB loans or additional budget appropriations) as these skills are already available in those government-accredited drug outlets. The comparative advantage of LGUs is politics and more politics, not efficient health care provision.
Third, taxation of medicines, apart from taxation of firms dealing with medicines manufacturing, marketing, distribution and retailing, remains high. Among these taxes are: import tax, documentary stamp tax, municipal or city tax, value added tax (VAT). Industry estimates put those various taxes at around 20 percent of the retail price. This means that the government, national and local, is responsible for expensive medicines by around 20 percent. And yet the government is “championing” cheaper medicines? This is pure irony, if not hypocrisy.
Removal of many taxes on medicines is definitely one sure way to bring down the price of this essential commodity. And this will require amending the law on National Internal Revenue Code. I proposed during the open forum that MeTA Philippines can possibly spearhead this measure and the affiliated stakeholders can back them. Our think tank will definitely support MeTA or whoever will spearhead this move.
Fourth, local pharmaceutical industry figures show that only 10 percent of all medicines in the country are patented, 90 percent are already off-patent. If we are to follow the logic, “patented = expensive” and “off-patent = cheap” medicines, then we are supposed to be expecting only 10 percent of all medicines to become cheap as a result of intellectual property rights (IPR) confiscation provisions in the “Cheaper Medicines Law” via (a) international exhaustion and parallel importation, (b) government use, (c) compulsory licensing), and (d) early working principle. The World Health Organization (WHO) even has a more dramatic figure: only one percent of all essential medicines in the world are still patented, 99 percent are off-patent. So the fuss on “patented = expensive, non-accessible to the poor” logic does not hold water, because 99 percent of all medicines in the world should be cheaply available and accessible to the poor.
My proposal on this is nothing. Said provisions are now legal, have implementing rules, they only need to be implemented strictly. I only have a short advice to some groups who strongly supported those IPR confiscatory provisions: that they admit that their advocacies are driven mainly by envy, by lack of appreciation of the need for continuing medicine innovation, by hatred of multinationals, even hatred of global capitalism.
Top Asian Free Market Think Tanks
I congratulate my friends, Parth Shah of Center for Civil Society (CCS, India), Feng Xingyuan, Liu Junning, Mao Shoulong of Cathay Institute for Public Affairs (CIPA, China), and Barun Mitra, Mohit Satyanand of Liberty Institute, India, for their institutes being among the top 25 think tanks in Asia. CCS is #8, a great achievement!
Most of those in the top 25 are government think tanks (ie, getting funding from tax money) and work mainly for government, like advising where to get or "streamline" nex taxes. In the Phils for instance, the Phil Institute for Devt Studies (PIDS) is the top government think tank for economic and social issues, and it is under the Socio-Economic Planning Department, I think.
Below is the list of the top 25 Asian institutes:
Top 25 Think Tanks in Asia
THE GLOBAL "GO-TO THINK TANKS"
The Leading Public Policy Research Organizations In The World
1. Chinese Academy of Social Sciences (CASS) – China
2. Japan Institute of International Affairs (JIIA) – Japan
3. Institute for Defense Studies and Analyses – India
4. Center for Strategic and International Studies – Indonesia
5. Institute for International Policy Studies – Japan
6. Shanghai Institute for International Studies - China
7. Institute of Southeast Asian Studies -- Singapore
8. Center for Civil Society – India
9. China Institute for Contemporary International Relations (CICIR) –
China
10. Institute for Defense and Strategic Studies – Singapore
11. The Energy and Resources Institute (TERI) – India
12. Asian Forum Japan (AFJ) – Japan
13. China Institute for International Studies (CIIS) – China
14. Lowy Institute for International Policy - Australia
15. Cathay Institute for Public Affairs – China
16. Korea Development Institute – South Korea
17. National Institute for Defense Studies – Japan
18. National Institute for Research Advancement - Japan
19. Hong Kong Centre for Economic Research (HKCER) - Hong Kong
20. Research Institute of Economy, Trade and Industry (RIETI) - Japan
21. Taiwan Foundation for Democracy – Taiwan
22. Unirule Institute of Economics – China
23. Institute of Energy Economics Japan (IEEJ) – Japan
24. Liberty Institute – India
T25. Malaysian Institute of Economic Research (MIER) – Malaysia
T25. Philippine Institute for Development Studies – Philippines
T25. Third World Network – Malaysia
http://www.sas.upenn.edu/irp/documents/2008_Global_Go_To_Think_Tanks.pdf
Think Tanks and Civil Societies Program, University of Pennsylvania
--------
Meanwhile, there is an upcoming online newspaper, Philippine-based, that will help champion the free market cause. It will be The New Commonwealth Herald (www.newcommonwealth.org) and it is headed by Francis B., a new friend.
The Philippines need more free market-oriented think tanks, research institutes and publications. I estimate that statist intellectuals and writers outnumber the free market-oriented ones by 200:1, if not more. The cause of free market, more personal responsibility, less government interventions and taxation, will be better advanced if there is more variety among championing think tanks and publications.
Let's wait for the arrival of a new friend in the liberty network.
Most of those in the top 25 are government think tanks (ie, getting funding from tax money) and work mainly for government, like advising where to get or "streamline" nex taxes. In the Phils for instance, the Phil Institute for Devt Studies (PIDS) is the top government think tank for economic and social issues, and it is under the Socio-Economic Planning Department, I think.
Below is the list of the top 25 Asian institutes:
Top 25 Think Tanks in Asia
THE GLOBAL "GO-TO THINK TANKS"
The Leading Public Policy Research Organizations In The World
1. Chinese Academy of Social Sciences (CASS) – China
2. Japan Institute of International Affairs (JIIA) – Japan
3. Institute for Defense Studies and Analyses – India
4. Center for Strategic and International Studies – Indonesia
5. Institute for International Policy Studies – Japan
6. Shanghai Institute for International Studies - China
7. Institute of Southeast Asian Studies -- Singapore
8. Center for Civil Society – India
9. China Institute for Contemporary International Relations (CICIR) –
China
10. Institute for Defense and Strategic Studies – Singapore
11. The Energy and Resources Institute (TERI) – India
12. Asian Forum Japan (AFJ) – Japan
13. China Institute for International Studies (CIIS) – China
14. Lowy Institute for International Policy - Australia
15. Cathay Institute for Public Affairs – China
16. Korea Development Institute – South Korea
17. National Institute for Defense Studies – Japan
18. National Institute for Research Advancement - Japan
19. Hong Kong Centre for Economic Research (HKCER) - Hong Kong
20. Research Institute of Economy, Trade and Industry (RIETI) - Japan
21. Taiwan Foundation for Democracy – Taiwan
22. Unirule Institute of Economics – China
23. Institute of Energy Economics Japan (IEEJ) – Japan
24. Liberty Institute – India
T25. Malaysian Institute of Economic Research (MIER) – Malaysia
T25. Philippine Institute for Development Studies – Philippines
T25. Third World Network – Malaysia
http://www.sas.upenn.edu/irp/documents/2008_Global_Go_To_Think_Tanks.pdf
Think Tanks and Civil Societies Program, University of Pennsylvania
--------
Meanwhile, there is an upcoming online newspaper, Philippine-based, that will help champion the free market cause. It will be The New Commonwealth Herald (www.newcommonwealth.org) and it is headed by Francis B., a new friend.
The Philippines need more free market-oriented think tanks, research institutes and publications. I estimate that statist intellectuals and writers outnumber the free market-oriented ones by 200:1, if not more. The cause of free market, more personal responsibility, less government interventions and taxation, will be better advanced if there is more variety among championing think tanks and publications.
Let's wait for the arrival of a new friend in the liberty network.
Saturday, January 10, 2009
Cheaper health care through less regulation
The cold weather the past two months induced by a cold front has caused various illnesses to many people including this writer who was knocked down by a bad cough. Even some crops and farm animals were adversely affected by the cold weather.
I saw a doctor through my health maintenance organization (HMO). After a routine check-up, my doctor prescribed some antibiotics and adviced me to take plenty of fluids. I got well. After a few weeks, partly due to some late night Christmas parties and reunions I attended and the persistent cold wind, my cough came back.
The other doctor in the same HMO suspected there could be something wrong because my cough came back in a matter of weeks. So he requested for a chest X-ray; he did not prescribe any medicine but advised me to take more water and juice and wait for the result. When I went back to him after a few days with the X-ray result (which said my lungs were clear), my cough has subsided. He said that I should continue drinking lots of fluid, no medicine, go home and get more rest. I got well.
And this leads us to at least three important points.
One, when a person is sick, the first thing that he would do is to see a physician, not buy any medicine. After the initial check up, the physician may not even prescribe a medicine yet and request for some diagnostic tests (blood test, urine test, x-ray, etc.), wait for the result, before prescribing (if necessary) any medicine.
Two, it is important to get a private HMO (many companies here do this). Physician visits, certain diagnostic tests and hospital stay when necessary, are covered. This gives some peace of mind to people. For many poor people who do not have health insurance when they get sick, the first thing they do is to self-medicate: go for some herbal products, buy the “usual” and cheap medicines, and see a doctor only when the pain gets worse, perhaps because they bought counterfeit medicines or took medicines that were inappropriate or could trigger some side effects to their other diseases.
Three, competition among private HMOs make their services to their clients more efficient and fast. What often harms the pockets of patients is not medicine prices, but the cost of diagnostic tests, clinic or hospital stay, and the physicians’ and other health professional fees, especially if one goes through surgery.
So if diagnostic tests, physicians’ fees, hospital stay are among the expensive aspects of public health care, do we expect new laws and government regulations like “Cheaper diagnostic tests law”, “Cheaper physician fees law”, “Cheaper hospital stay law”, along the lines of the recently-enacted “Cheaper medicines law”? Will we see price control in diagnostic tests, physician fees and hospital stay, the same way that the government enacted medicine price control? And will we see the retention of VAT, import tax, import documentary stamp tax and other taxes on hospital/clinic laboratory and medical equipment, high corporate and personal income taxes on hospital and health professionals’ income, the same way that the government retained those multiple taxes on medicines while pontificating that it wants “cheaper medicines”?
The HMO sector should be spared from current and future attempts at more government regulations. Regulations by nature mean prohibitions. They are meant to create paralysis, even temporarily. Government regulators say, “Don’t move, don’t start anything, until you pay various taxes and fees, until you get our signatures and permits first.”
There are not many private HMOs in the Philippines. Private HMOs are non-mandatory, which force these private companies to deliver efficient services at more affordable costs to attract more clients. The Philippine government’s health insurance monopoly, PhilHealth, is mandatory and corporate membership and registration is done by force. And since it is a political institution created by law and funded by mandatory -- not voluntary, contributions, we would hear lots of political intervention, inefficiencies, even corruption charges.
A monopolist with guaranteed income from forced contributions can afford to be lazy and inefficient since there is very little possibility of losses. And should huge losses show up later, there is no possibility of bankruptcy because there are always billions of pesos of tax money to bail it out.
The medicine sub-sector of Philippine health care system has been lost to huge government intervention and regulations. From patent confiscation (through compulsory licensing, government use and parallel importation) to medicine price control, to generics only for government physicians plus many other provisions, the extent of government intervention is wide.
It is important therefore that the other sub-sectors of the country’s health care system should be spared from further government encroachment and heavy regulations. These sub-sectors include the HMOs, hospital and clinic expansion and branching, and medical education. Protection of the public is best assured by competition among players and brand or corporate integrity, not more government taxation, regulation and sometimes, cronyism.
I saw a doctor through my health maintenance organization (HMO). After a routine check-up, my doctor prescribed some antibiotics and adviced me to take plenty of fluids. I got well. After a few weeks, partly due to some late night Christmas parties and reunions I attended and the persistent cold wind, my cough came back.
The other doctor in the same HMO suspected there could be something wrong because my cough came back in a matter of weeks. So he requested for a chest X-ray; he did not prescribe any medicine but advised me to take more water and juice and wait for the result. When I went back to him after a few days with the X-ray result (which said my lungs were clear), my cough has subsided. He said that I should continue drinking lots of fluid, no medicine, go home and get more rest. I got well.
And this leads us to at least three important points.
One, when a person is sick, the first thing that he would do is to see a physician, not buy any medicine. After the initial check up, the physician may not even prescribe a medicine yet and request for some diagnostic tests (blood test, urine test, x-ray, etc.), wait for the result, before prescribing (if necessary) any medicine.
Two, it is important to get a private HMO (many companies here do this). Physician visits, certain diagnostic tests and hospital stay when necessary, are covered. This gives some peace of mind to people. For many poor people who do not have health insurance when they get sick, the first thing they do is to self-medicate: go for some herbal products, buy the “usual” and cheap medicines, and see a doctor only when the pain gets worse, perhaps because they bought counterfeit medicines or took medicines that were inappropriate or could trigger some side effects to their other diseases.
Three, competition among private HMOs make their services to their clients more efficient and fast. What often harms the pockets of patients is not medicine prices, but the cost of diagnostic tests, clinic or hospital stay, and the physicians’ and other health professional fees, especially if one goes through surgery.
So if diagnostic tests, physicians’ fees, hospital stay are among the expensive aspects of public health care, do we expect new laws and government regulations like “Cheaper diagnostic tests law”, “Cheaper physician fees law”, “Cheaper hospital stay law”, along the lines of the recently-enacted “Cheaper medicines law”? Will we see price control in diagnostic tests, physician fees and hospital stay, the same way that the government enacted medicine price control? And will we see the retention of VAT, import tax, import documentary stamp tax and other taxes on hospital/clinic laboratory and medical equipment, high corporate and personal income taxes on hospital and health professionals’ income, the same way that the government retained those multiple taxes on medicines while pontificating that it wants “cheaper medicines”?
The HMO sector should be spared from current and future attempts at more government regulations. Regulations by nature mean prohibitions. They are meant to create paralysis, even temporarily. Government regulators say, “Don’t move, don’t start anything, until you pay various taxes and fees, until you get our signatures and permits first.”
There are not many private HMOs in the Philippines. Private HMOs are non-mandatory, which force these private companies to deliver efficient services at more affordable costs to attract more clients. The Philippine government’s health insurance monopoly, PhilHealth, is mandatory and corporate membership and registration is done by force. And since it is a political institution created by law and funded by mandatory -- not voluntary, contributions, we would hear lots of political intervention, inefficiencies, even corruption charges.
A monopolist with guaranteed income from forced contributions can afford to be lazy and inefficient since there is very little possibility of losses. And should huge losses show up later, there is no possibility of bankruptcy because there are always billions of pesos of tax money to bail it out.
The medicine sub-sector of Philippine health care system has been lost to huge government intervention and regulations. From patent confiscation (through compulsory licensing, government use and parallel importation) to medicine price control, to generics only for government physicians plus many other provisions, the extent of government intervention is wide.
It is important therefore that the other sub-sectors of the country’s health care system should be spared from further government encroachment and heavy regulations. These sub-sectors include the HMOs, hospital and clinic expansion and branching, and medical education. Protection of the public is best assured by competition among players and brand or corporate integrity, not more government taxation, regulation and sometimes, cronyism.
Thursday, January 08, 2009
Philippines' Top 1,000 corporations, 2007
The list was released by BusinessWorld last November 25, 2008.
The Top 30 and their gross revenues in Billion Pesos were as follows:
Rank; Corporation; Gross Revenues; Sector
1. National Power Corp. (NPC) 316.65 – power generation and transmission
2. Petron Corp. 212.93 – petroleum mfg.; 40% State-owned
3. Manila Electric Co. (Meralco) 198.80 – electricity distribution
4. Pilipinas Shell Petrol Corp. (PSPC) 164.70 – petroleum mfg.
5. Texas Instruments (Phils.) Inc. 144.21 – electronics mfg.
6. Phil. Long Distance Tel. Co. (PLDT) 80.54 – telecoms
7. Chevron Phils. Inc. 77.89 – petroleum mfg.
8. Smart Communications, Inc. 75.03 – telecoms
9. Nestle Phils., Inc. 73.06 – powdered or condensed milk mfg.
10.Phil. Associated Smelting & Refining Corp. (PASAR) 68.76 – metals mfg.
11. Mercury Drug Corp. 64.02 – drugs retail
12. Globe Telecom, Inc. 61.31 – telecoms
13. Toshiba Info Eqpt. (Phils.), Inc. 54.74 – computers mfg.
14. Zuellig Pharma, Inc. 52.98 – pharmaceuticals
15. Banco de Oro Unibank, Inc. 50.67 – banking
16. Panasonic Communications Phils., Inc. 50.12 – computers mfg.
17. Fujitsu Computer Products Corp. 46.14 – computers mfg.
18. Toyota Motor Phils., Inc. 43.44 – motor vehicles
19. Metrobank & Trust Co. 40.29 – banking
20. Samsung Electronics Phils. 38.96 – computers mfg.
21. American Power Conversion (APC) 38.00 – accumulators/batteries mfg.
22. National Food Authority (NFA) 37.86 – grains trader and regulator
23. San Miguel Foods (SMF) 36.36 – chicken broiler producer
24. Bank of the Phil. Islands (BPI) 36.28 – banking
25. San Miguel Corp. (SMC) 35.86 – food and beverage
26. Supervalue, Inc. 35.57 – retail supermarket
27. NXP Semiconductors Phils., Inc. 33.45 – electronics mfg.
28. First Gas Power Corp. 30.81 – power generation
29. Philip Morris 30.29 – cigarettes mfg.
30. Fortune Tobacco Corp. 29.60 – cigarettes mfg.
Largest Companies in the following sectors, 2007:
Rank Corporation Gross Revenues
A. Mining and Quarrying
37. Chevron Malampaya LLC 24.00
78. Coral Bay Nickel Corp. 13.53
97. Philex Mining Corp. 11.44
B. Manufacturing
B1. Canning/Packaging fruit products
38. Dole Philippines, Inc. 23.88
89. Del Monte Phils., Inc. 12.38
B2 Manufacture of drugs and medicines
40. United Laboratories, Inc. 23.07
67. Wyeth Phils., Inc. 14.37
96. Bristol-Myers Squibb (Phil.) Inc. 11.64
135. GlaxoSmithkline (GSK) 8.37
The Top 30 and their gross revenues in Billion Pesos were as follows:
Rank; Corporation; Gross Revenues; Sector
1. National Power Corp. (NPC) 316.65 – power generation and transmission
2. Petron Corp. 212.93 – petroleum mfg.; 40% State-owned
3. Manila Electric Co. (Meralco) 198.80 – electricity distribution
4. Pilipinas Shell Petrol Corp. (PSPC) 164.70 – petroleum mfg.
5. Texas Instruments (Phils.) Inc. 144.21 – electronics mfg.
6. Phil. Long Distance Tel. Co. (PLDT) 80.54 – telecoms
7. Chevron Phils. Inc. 77.89 – petroleum mfg.
8. Smart Communications, Inc. 75.03 – telecoms
9. Nestle Phils., Inc. 73.06 – powdered or condensed milk mfg.
10.Phil. Associated Smelting & Refining Corp. (PASAR) 68.76 – metals mfg.
11. Mercury Drug Corp. 64.02 – drugs retail
12. Globe Telecom, Inc. 61.31 – telecoms
13. Toshiba Info Eqpt. (Phils.), Inc. 54.74 – computers mfg.
14. Zuellig Pharma, Inc. 52.98 – pharmaceuticals
15. Banco de Oro Unibank, Inc. 50.67 – banking
16. Panasonic Communications Phils., Inc. 50.12 – computers mfg.
17. Fujitsu Computer Products Corp. 46.14 – computers mfg.
18. Toyota Motor Phils., Inc. 43.44 – motor vehicles
19. Metrobank & Trust Co. 40.29 – banking
20. Samsung Electronics Phils. 38.96 – computers mfg.
21. American Power Conversion (APC) 38.00 – accumulators/batteries mfg.
22. National Food Authority (NFA) 37.86 – grains trader and regulator
23. San Miguel Foods (SMF) 36.36 – chicken broiler producer
24. Bank of the Phil. Islands (BPI) 36.28 – banking
25. San Miguel Corp. (SMC) 35.86 – food and beverage
26. Supervalue, Inc. 35.57 – retail supermarket
27. NXP Semiconductors Phils., Inc. 33.45 – electronics mfg.
28. First Gas Power Corp. 30.81 – power generation
29. Philip Morris 30.29 – cigarettes mfg.
30. Fortune Tobacco Corp. 29.60 – cigarettes mfg.
Largest Companies in the following sectors, 2007:
Rank Corporation Gross Revenues
A. Mining and Quarrying
37. Chevron Malampaya LLC 24.00
78. Coral Bay Nickel Corp. 13.53
97. Philex Mining Corp. 11.44
B. Manufacturing
B1. Canning/Packaging fruit products
38. Dole Philippines, Inc. 23.88
89. Del Monte Phils., Inc. 12.38
B2 Manufacture of drugs and medicines
40. United Laboratories, Inc. 23.07
67. Wyeth Phils., Inc. 14.37
96. Bristol-Myers Squibb (Phil.) Inc. 11.64
135. GlaxoSmithkline (GSK) 8.37
Sunday, January 04, 2009
IMF socialism
I wrote this last April 3, 2008:
IMF socialism
In a news report today in Manila Times, the headline news in its Business section is "IMF calls for higher taxes, more cuts in fiscal perks",
http://www.manilatimes.net/national/2008/apr/04/yehey/business/20080404bus1.html.
The top IMF bureaucrat in the country, Mr. Reza Baquir, the IMF resident representative, is referring to higher excise tax -- most likely on tobacco and alcohol products. If the IMF will also advocate increasing, instead of abolishing, excise tax on gasoline products, then they're really a bunch of shameless bureaucrats who just live off on endless taxes for their salaries and perks. But he or any other IMF official made no mention about excise tax on gasoline, so no comment at the moment.
They are also proposing "improved tax administration". Meaning those multiple taxes, many of which you won't even hear or being imposed in the country's richer neighbors like HK, Singaporeare and Malaysia, should be strictly imposed and collected.
I'm sure the IMF bureaucrats are aware of the WB-IFC's annual study, "Doing Business". In that study, in collaboration with top auditing, tax and law offices in each country being surveyed, the number of procedures, number of days, costs, etc. of opening a business, closing a business, paying taxes, etc. are being tallied and countries are ranked who are the most bureaucratic and who are the most business-friendly.
The Philippines is always among those most bureaucratic, most number of taxes and fees, among Asian countries. The IMF bureaucrats, along with their counterparts from the WB, ADB, USAID, etc. who also attended the recent Philippine Development Forum (PDF) are aware of these.
And the IMF officials, along with their local counterparts called "local consultants" are not even in the mood to call for reduction of number of taxes and strict implementation of those that will be retained. I mean, why should the Philippines have 47 different taxes for medium-sized firms when HK would have only 4, Singapore only 5, Japan only 13, and even socialist Vietnam has 32 and socialist China has 35? The IMF and their local counterparts would be calling for "better tax administration" so that all those 47 taxes will be collected from the struggling Philippine enterprises? Good grief!
The leftist groups -- from the socialist to national democrats to other variants -- are wrong when they attack the IMF (and WB) for being a "neo-liberal" institution. At the end of the day, the leftist groups and the IMF, along with other UN agencies, have one thing in common: they all love high taxes, more government subsidies and intervention, less personal responsibility. Make many services as "government responsibility", close but not too close, to socialism.
In socialism, government socializes housing, health care, education, pension, transportation, etc. And the poor become "equal" with the otherwise rich people. But the state also socializes the people's pockets and savings, their dreams and aspirations. So many people would rather be lazy and irresponsible because if they work hard and earn big, the state will socialize their income anyway. If they're lazy and poor, the state has socialized education, health care and housing ready for them.
IMF socialism is cute. Their bureaucrats get tax-free income, tax-free importation for their luxury cars, and they live off on taxes, that is why they have to call for higher taxes, less tax holidays, and better tax administration.
IMF socialism
In a news report today in Manila Times, the headline news in its Business section is "IMF calls for higher taxes, more cuts in fiscal perks",
http://www.manilatimes.net/national/2008/apr/04/yehey/business/20080404bus1.html.
The top IMF bureaucrat in the country, Mr. Reza Baquir, the IMF resident representative, is referring to higher excise tax -- most likely on tobacco and alcohol products. If the IMF will also advocate increasing, instead of abolishing, excise tax on gasoline products, then they're really a bunch of shameless bureaucrats who just live off on endless taxes for their salaries and perks. But he or any other IMF official made no mention about excise tax on gasoline, so no comment at the moment.
They are also proposing "improved tax administration". Meaning those multiple taxes, many of which you won't even hear or being imposed in the country's richer neighbors like HK, Singaporeare and Malaysia, should be strictly imposed and collected.
I'm sure the IMF bureaucrats are aware of the WB-IFC's annual study, "Doing Business". In that study, in collaboration with top auditing, tax and law offices in each country being surveyed, the number of procedures, number of days, costs, etc. of opening a business, closing a business, paying taxes, etc. are being tallied and countries are ranked who are the most bureaucratic and who are the most business-friendly.
The Philippines is always among those most bureaucratic, most number of taxes and fees, among Asian countries. The IMF bureaucrats, along with their counterparts from the WB, ADB, USAID, etc. who also attended the recent Philippine Development Forum (PDF) are aware of these.
And the IMF officials, along with their local counterparts called "local consultants" are not even in the mood to call for reduction of number of taxes and strict implementation of those that will be retained. I mean, why should the Philippines have 47 different taxes for medium-sized firms when HK would have only 4, Singapore only 5, Japan only 13, and even socialist Vietnam has 32 and socialist China has 35? The IMF and their local counterparts would be calling for "better tax administration" so that all those 47 taxes will be collected from the struggling Philippine enterprises? Good grief!
The leftist groups -- from the socialist to national democrats to other variants -- are wrong when they attack the IMF (and WB) for being a "neo-liberal" institution. At the end of the day, the leftist groups and the IMF, along with other UN agencies, have one thing in common: they all love high taxes, more government subsidies and intervention, less personal responsibility. Make many services as "government responsibility", close but not too close, to socialism.
In socialism, government socializes housing, health care, education, pension, transportation, etc. And the poor become "equal" with the otherwise rich people. But the state also socializes the people's pockets and savings, their dreams and aspirations. So many people would rather be lazy and irresponsible because if they work hard and earn big, the state will socialize their income anyway. If they're lazy and poor, the state has socialized education, health care and housing ready for them.
IMF socialism is cute. Their bureaucrats get tax-free income, tax-free importation for their luxury cars, and they live off on taxes, that is why they have to call for higher taxes, less tax holidays, and better tax administration.
Telecomm: Competition vs. Regulation
I wrote this last May 26, 2008:
Competition vs. Regulation
There's a strong and noisy move on the part of the government -- from malacanang to DOTC, NTC, to the House and Senate -- to force the 3 telecomm companies to make SMS or texting free, they will charge only on voice calls. In addition, there are also proposals to bring back the "cap" on earnings these firms are allowed to make.
This looks cute, especially for us consumers. We can expect that the 50 or 60 million texts/day will rise to 100 or 200 million texts per day. One can send again dozens of jokes or quotes or anything everyday, they're free anyway.
The telecomms companies' cell sites will be swarmed with millions of texts everyday. They need to put up more cell sites to back-up existing ones, but with little revenue as people will reduce their voice calls and send free texts, they'll have less money to build new cellsites. So the old problem of messages either delivered several minutes or an hour delayed, or not delivered at all, can come back. When the public will complain why their messages are delivered late or none at all, do they have the right, or at least the moral ascendancy, to complain? If someone asks me to deliver 5 kilos of rice or fish to his relative about 5 kms away and he pays me nothing and he's not even my friend or relative, can he complain if i don't do his "request"?
There are only 3 telecomms firms in this country of about 40 million cellphone subscribers. Singapore with only 4 million people has about 5 competing telecomms companies. I dont know the figures in other countries. My point is that there is little competition here among telecomms firms. If Gokongwei did not put up a 3rd option for the consumers, I wonder what would be the rates of Smart and Globe now, perhaps 10% or 40% higher? So people should be thankful of Gokongwei? maybe yes, but maybe not. Because when his firm became the 3rd player, there was no more 4th or 5th player anymore. So competition is again limited.
Who limits competition? Who says one can or not do telecoms business here? The government, in particular, the NTC and DOTC. So now, the ones who limit competition is the one who are attempting to force those they have allowed to do business to provide certain free services, etc.
Regulation allows the regulators to behave as if they own the firms that they are regulating, even if they are not the owners of those firms. Ownership and control are 2 different things. One need not own something but if he has control of that thing, he can do whatever he wants. Like a family driver. He does not own the car, but if he decides to drive on his own and visit his friends without the knowledge or permission of his employer, he can do it. If he gets caught though, that's another story.
So the NTC and the government as a whole, do not own the 3 telecomms companies. But they are the regulators -- they're the ones who gave franchise, the ones who stipulated what are contained in the franchise, etc. Hence, they can control the behavior of the firms they are regulating. And there are stiff penalties, political or otherwise, if those regulated will not follow the wishes of the regulators.
My beef is that if we have a contestable market situation in telecomms industry (and all other sectors or industries and sub-sectors), "right-pricing" of any service will not be a problem. Existing players cannot be complacent and charge high rates and make big profit for long because there will be new players who will come in to take advantage of the high profitability of that industry, by offering consumers even better services for the same price, or offer the same quality of services at a lower price. If the industry profitability declines to a minimum due to a big number of players and competitors, some players might close shop and potential players will be discouraged from coming in. In short, it is competition, not government regulation, that will discipline all players in a sector.
But government bureaucrats and politicians do not see it this way. For them, only them -- not the profit hungry companies -- can protect the public. But politicians and bureaucrats produce nothing, not even a single kilo of nails or rice or fish. They produce tons of paper work and regulations. It's those private enterprises that produce all the things and services that we need, from ballpens to shoes to hamburgers to cars to computers, to laundry to hair cut, etc.
If we have more producers competing with each other, society will be more well-off, there will be more food, more cellphones, more telecomms companies, more spas, etc. And if we have less regulators and politicians, we will have less monopolies/oligopolies, less taxes, less regulations/accreditations/inspections, etc.
-------
I got 3 comments from friends in my earlier article, "competition vs regulation". Here they are, along with additional points.
(1) From Eunica:
"Thing is, in regulation, regulatory bodies normally lose sight of what they are created for- which is to promote competition and regulate where it is necessary. in fact this is the battlecry of regulation when privatisation in the UK started with just one wave of Margaret Thatcher's magic wand in 1979. but it seems to me that most regulatory agencies have veered away from this and now functions mainly to regulate. It would be important to note though that proponents (1983) envisaged a short-term form of regulation only since they thought that after 5 years or so, the regulatory regime would have (and inevitably) brought about competition already (which did not materialise entirely in UK and elsewhere).
"Critiques would still say that regulation is too costly for businesses and for the government. and it is so true...
"Showing the costly and rigorous processes of regulating firms, however, might not be enough to disprove the merits of regulation especially of natural monopolies. And maybe it is true that competition is still the solution. But in a contestable market, we can only "mimic" the results of a perfectly competitive market through second-best pricing. Ramsey pricing also ensures that integrated firms do not exercise their gained market power by setting the price between the Incremental cost and the Stand-alone cost (proving the absence of cross-subsidisation ).
"As to why we can only mimic competitive results and this is not the world's biggest secret, is mainly because there is no such thing as perfect competition. It is only an assumption."
Eunica put a number of good points, but I would like to comment only on a few things.
First, "no such thing as perfect competition; it is only an assumption".
I say there is perfect competition, at least in a particular locality. The case of retail petroleum products is one example.
In some areas where gas stations are quite close to each other, you will observe price similarity for diesel and gasoline products from amongst Shell, Caltex, Total, Petron, other players. Should there be differences, it's only 5 or 10 centavos. Why so?
a. homogenous product -- whether sold by total or petron or shell, a diesel is the same for all gas stations.
b. many buyers, many sellers -- thousands of motorists-buyers, many gas stations.
c. perfect information -- a motorist knows that the price of diesel or gasoline is about the same among neighboring gas stations; gas stations know that motorists are "canvassing" the price of their competing gas stations.
d. price taker -- the many buyers and many sellers think they're all "small enough" to influence the price of the petrol product.
Bulk buyers like operators of big bus lines (say victory bus) operate outside the gas stations-ordinary motorists market. They go directly to petrol wholesale dealers, not the retailers. So those bulk buyers dealing with wholesalers are on another level of competitive markets.
2. How "less regulation" should it be?
Actually, I believe that for many industries, there should be zero, nada, government regulation. Firms operate on brand or trademarks, and firms protect the name and reputation of that brand, and consumers hold on to that brand for product quality and price stability. Take the fastfood chains. Whether it's jollibee davao or jollibee cubao or jollibee tuguegarao, the food quality and price are the same. There are perhaps 1,000+ shops or branches of jollibee (and mcdo, chowking, starbucks, etc.) nationwide, and we don't hear a single case of food poisoning.
Hence, there is zero need actually for "health and sanitation permit" from local governments for those shops because those fast food chains are scared of any news of any food poisoning.
What government should over-regulate are those killers, rapists, land-grabbers, kidnappers, hold-uppers, bombers, drug pushers, extortionists, etc.
Entrepreneurship and job creation is not a criminal activity that needs lots of regulations, from brgy clearance to mayor's business permit to BIR, SEC, DTI permits, etc,
In microeconomics, one important concept is "contestable market". Here, entry and exit of firms (ie, opening and closing a business) should be as free as possible. Government regulations, especially complicated, costly and time-consuming ones, say 2 months or more to finish all business permits, already kill the attainment of a contestable market.
The beauty of a "contestable market" is that it is a regular, daily, reminder to incumbent firms that they cannot be complacent anytime anywhere. Once profitability is big, say during a city or barangay fiesta, new players can come in anytime to snatch up any surplus profit in the industry or locality. But incumbents have the advantage of being a "mainstay" player and if they have a good reputation, say a clean hotel with honest staff, people will stick with it despite the presence of new players (say homestays that charge nighly rates).
Back to "no such thing as competition" , one important criteria to have a perfectly competitive market, is a homogeneous product as reference point for both buyers and sellers. Any change in the product, say small-medium- large criteria for tomatoes or fruits, that already constitutes "product differentiation" and you have 3 or more heterogeneous products already. For gasoline stations for instance that offer same price of diesel and gasoline along with their competitors, the "product or service differentiation" consists of having cleaner restrooms, more polite and friendly gasoline boys, bigger and cooler convenience store, etc.
(2) From Ted:
"An oligopolistic environment breeds an inelastic demand for a product. While SMS is definitely an "elastic" service, i still see a "threshold of elasticity" where even with a cost involved, people still send sms messages, albeit not as much as in a free environment. But again, "there is no such thing as a free lunch". What telecom companies will lose in sms revenue by making it free, they will find other means to preserve their bottom line and ROIs in the long run.
"I also believe the telecom industry is not as oligopolistic as perceived. Competition is the name of the game, even if there are only 3 players. I would see it more as monopolistic competition, where there are differentiation of products. Why, if it were really oligopolistic, these telecom companies wouldnt have to spend so many millions advertising their services and getting actors and actresses to endorse them on TV, right?
"And yes, I agree that there should be less regulation and more competition. But telecommunications is an area where historically, governments - be it a socialist, totalitarian, capitalistic or pure democracies (as the U.S. touts itself to be) need to have some level of control and regulation, supposedly for the common good of the population and the nation as a whole."
I agree with Ted that the local telecomm industry is on a monopolistic competition, not oligopoly, market structure, because of the reason he gave -- high ads costs by the 3 competing firms to attract subscribers. But I am still wondering why can't they bring down the cost of local or national voice calls, when they can offer only P4-P5 per minute for international calls, why P7.50 per minute for local and national calls, at least for call to 2 other network.
My hypothesis is the NTC or DOTC regulations, i just dont know what are those, that keep local calls and SMS expensive.
Competition vs. Regulation
There's a strong and noisy move on the part of the government -- from malacanang to DOTC, NTC, to the House and Senate -- to force the 3 telecomm companies to make SMS or texting free, they will charge only on voice calls. In addition, there are also proposals to bring back the "cap" on earnings these firms are allowed to make.
This looks cute, especially for us consumers. We can expect that the 50 or 60 million texts/day will rise to 100 or 200 million texts per day. One can send again dozens of jokes or quotes or anything everyday, they're free anyway.
The telecomms companies' cell sites will be swarmed with millions of texts everyday. They need to put up more cell sites to back-up existing ones, but with little revenue as people will reduce their voice calls and send free texts, they'll have less money to build new cellsites. So the old problem of messages either delivered several minutes or an hour delayed, or not delivered at all, can come back. When the public will complain why their messages are delivered late or none at all, do they have the right, or at least the moral ascendancy, to complain? If someone asks me to deliver 5 kilos of rice or fish to his relative about 5 kms away and he pays me nothing and he's not even my friend or relative, can he complain if i don't do his "request"?
There are only 3 telecomms firms in this country of about 40 million cellphone subscribers. Singapore with only 4 million people has about 5 competing telecomms companies. I dont know the figures in other countries. My point is that there is little competition here among telecomms firms. If Gokongwei did not put up a 3rd option for the consumers, I wonder what would be the rates of Smart and Globe now, perhaps 10% or 40% higher? So people should be thankful of Gokongwei? maybe yes, but maybe not. Because when his firm became the 3rd player, there was no more 4th or 5th player anymore. So competition is again limited.
Who limits competition? Who says one can or not do telecoms business here? The government, in particular, the NTC and DOTC. So now, the ones who limit competition is the one who are attempting to force those they have allowed to do business to provide certain free services, etc.
Regulation allows the regulators to behave as if they own the firms that they are regulating, even if they are not the owners of those firms. Ownership and control are 2 different things. One need not own something but if he has control of that thing, he can do whatever he wants. Like a family driver. He does not own the car, but if he decides to drive on his own and visit his friends without the knowledge or permission of his employer, he can do it. If he gets caught though, that's another story.
So the NTC and the government as a whole, do not own the 3 telecomms companies. But they are the regulators -- they're the ones who gave franchise, the ones who stipulated what are contained in the franchise, etc. Hence, they can control the behavior of the firms they are regulating. And there are stiff penalties, political or otherwise, if those regulated will not follow the wishes of the regulators.
My beef is that if we have a contestable market situation in telecomms industry (and all other sectors or industries and sub-sectors), "right-pricing" of any service will not be a problem. Existing players cannot be complacent and charge high rates and make big profit for long because there will be new players who will come in to take advantage of the high profitability of that industry, by offering consumers even better services for the same price, or offer the same quality of services at a lower price. If the industry profitability declines to a minimum due to a big number of players and competitors, some players might close shop and potential players will be discouraged from coming in. In short, it is competition, not government regulation, that will discipline all players in a sector.
But government bureaucrats and politicians do not see it this way. For them, only them -- not the profit hungry companies -- can protect the public. But politicians and bureaucrats produce nothing, not even a single kilo of nails or rice or fish. They produce tons of paper work and regulations. It's those private enterprises that produce all the things and services that we need, from ballpens to shoes to hamburgers to cars to computers, to laundry to hair cut, etc.
If we have more producers competing with each other, society will be more well-off, there will be more food, more cellphones, more telecomms companies, more spas, etc. And if we have less regulators and politicians, we will have less monopolies/oligopolies, less taxes, less regulations/accreditations/inspections, etc.
-------
I got 3 comments from friends in my earlier article, "competition vs regulation". Here they are, along with additional points.
(1) From Eunica:
"Thing is, in regulation, regulatory bodies normally lose sight of what they are created for- which is to promote competition and regulate where it is necessary. in fact this is the battlecry of regulation when privatisation in the UK started with just one wave of Margaret Thatcher's magic wand in 1979. but it seems to me that most regulatory agencies have veered away from this and now functions mainly to regulate. It would be important to note though that proponents (1983) envisaged a short-term form of regulation only since they thought that after 5 years or so, the regulatory regime would have (and inevitably) brought about competition already (which did not materialise entirely in UK and elsewhere).
"Critiques would still say that regulation is too costly for businesses and for the government. and it is so true...
"Showing the costly and rigorous processes of regulating firms, however, might not be enough to disprove the merits of regulation especially of natural monopolies. And maybe it is true that competition is still the solution. But in a contestable market, we can only "mimic" the results of a perfectly competitive market through second-best pricing. Ramsey pricing also ensures that integrated firms do not exercise their gained market power by setting the price between the Incremental cost and the Stand-alone cost (proving the absence of cross-subsidisation ).
"As to why we can only mimic competitive results and this is not the world's biggest secret, is mainly because there is no such thing as perfect competition. It is only an assumption."
Eunica put a number of good points, but I would like to comment only on a few things.
First, "no such thing as perfect competition; it is only an assumption".
I say there is perfect competition, at least in a particular locality. The case of retail petroleum products is one example.
In some areas where gas stations are quite close to each other, you will observe price similarity for diesel and gasoline products from amongst Shell, Caltex, Total, Petron, other players. Should there be differences, it's only 5 or 10 centavos. Why so?
a. homogenous product -- whether sold by total or petron or shell, a diesel is the same for all gas stations.
b. many buyers, many sellers -- thousands of motorists-buyers, many gas stations.
c. perfect information -- a motorist knows that the price of diesel or gasoline is about the same among neighboring gas stations; gas stations know that motorists are "canvassing" the price of their competing gas stations.
d. price taker -- the many buyers and many sellers think they're all "small enough" to influence the price of the petrol product.
Bulk buyers like operators of big bus lines (say victory bus) operate outside the gas stations-ordinary motorists market. They go directly to petrol wholesale dealers, not the retailers. So those bulk buyers dealing with wholesalers are on another level of competitive markets.
2. How "less regulation" should it be?
Actually, I believe that for many industries, there should be zero, nada, government regulation. Firms operate on brand or trademarks, and firms protect the name and reputation of that brand, and consumers hold on to that brand for product quality and price stability. Take the fastfood chains. Whether it's jollibee davao or jollibee cubao or jollibee tuguegarao, the food quality and price are the same. There are perhaps 1,000+ shops or branches of jollibee (and mcdo, chowking, starbucks, etc.) nationwide, and we don't hear a single case of food poisoning.
Hence, there is zero need actually for "health and sanitation permit" from local governments for those shops because those fast food chains are scared of any news of any food poisoning.
What government should over-regulate are those killers, rapists, land-grabbers, kidnappers, hold-uppers, bombers, drug pushers, extortionists, etc.
Entrepreneurship and job creation is not a criminal activity that needs lots of regulations, from brgy clearance to mayor's business permit to BIR, SEC, DTI permits, etc,
In microeconomics, one important concept is "contestable market". Here, entry and exit of firms (ie, opening and closing a business) should be as free as possible. Government regulations, especially complicated, costly and time-consuming ones, say 2 months or more to finish all business permits, already kill the attainment of a contestable market.
The beauty of a "contestable market" is that it is a regular, daily, reminder to incumbent firms that they cannot be complacent anytime anywhere. Once profitability is big, say during a city or barangay fiesta, new players can come in anytime to snatch up any surplus profit in the industry or locality. But incumbents have the advantage of being a "mainstay" player and if they have a good reputation, say a clean hotel with honest staff, people will stick with it despite the presence of new players (say homestays that charge nighly rates).
Back to "no such thing as competition" , one important criteria to have a perfectly competitive market, is a homogeneous product as reference point for both buyers and sellers. Any change in the product, say small-medium- large criteria for tomatoes or fruits, that already constitutes "product differentiation" and you have 3 or more heterogeneous products already. For gasoline stations for instance that offer same price of diesel and gasoline along with their competitors, the "product or service differentiation" consists of having cleaner restrooms, more polite and friendly gasoline boys, bigger and cooler convenience store, etc.
(2) From Ted:
"An oligopolistic environment breeds an inelastic demand for a product. While SMS is definitely an "elastic" service, i still see a "threshold of elasticity" where even with a cost involved, people still send sms messages, albeit not as much as in a free environment. But again, "there is no such thing as a free lunch". What telecom companies will lose in sms revenue by making it free, they will find other means to preserve their bottom line and ROIs in the long run.
"I also believe the telecom industry is not as oligopolistic as perceived. Competition is the name of the game, even if there are only 3 players. I would see it more as monopolistic competition, where there are differentiation of products. Why, if it were really oligopolistic, these telecom companies wouldnt have to spend so many millions advertising their services and getting actors and actresses to endorse them on TV, right?
"And yes, I agree that there should be less regulation and more competition. But telecommunications is an area where historically, governments - be it a socialist, totalitarian, capitalistic or pure democracies (as the U.S. touts itself to be) need to have some level of control and regulation, supposedly for the common good of the population and the nation as a whole."
I agree with Ted that the local telecomm industry is on a monopolistic competition, not oligopoly, market structure, because of the reason he gave -- high ads costs by the 3 competing firms to attract subscribers. But I am still wondering why can't they bring down the cost of local or national voice calls, when they can offer only P4-P5 per minute for international calls, why P7.50 per minute for local and national calls, at least for call to 2 other network.
My hypothesis is the NTC or DOTC regulations, i just dont know what are those, that keep local calls and SMS expensive.
Pol. Ideology 11: Liberalism, Democratism & Authoritarianism
In periods of foreign occupation and colonization, launching a political movement for national independence and collective freedom was easy because the enemy – the foreign conquerors – were very clear. Thus, launching an anti-Spanish, then anti-American, then anti-Japanese colonization in Philippine history was a bit easy. What was difficult was launching a successful armed uprising as colonizers always have military superiority.
In periods of internal tyranny and local dictatorship, however, launching an anti-authoritarian movement is difficult because not only are there more enemies – the local tyrants, they are also more established locally and are of the same skin color and genes as the oppressed. Police and military harassment is also more extensive.
In periods of no explicit dictatorship but nonetheless extensively corrupt administration, launching an anti-corruption, anti-authoritarian movement is even more difficult as the enemy because the culture of corruption is less tangible compared to say, abusive and imposing armies under a dictatorship. Also, the culture of corruption tends to be "democratically dispersed" from national to local bureaucracies, and from the Executive to Legislative and Judicial branches.
So various political parties vying for political power and control of the State would position themselves as advocating for democracy and good, non-corrupt government. And almost all political parties, old or new, would consider themselves as "democrats" to hopefully get political acceptance and support from many voters and citizens.
The challenge to competing political parties that consider themselves as democrats, is how to distinguish themselves from other parties, aside from the political personalities that head them. So the liberals would call themselves as "liberal democrats", the nationalists as "nationalist democrats" or "Filipino democrats", the welfarists as "social democrats". Some would add religious adjectives and call themselves as "Christian democrats", "Muslim democrats", even "Evangelist democrats". Even the communists in the country fighting against "imperialism and feudalism" would call themselves as "national democrats".
So what do those political adjectives and ideological labels signify? For instance, what is "liberalism" , "nationalism, "democratism" , "authoritarianism" ? How are they different from each other? One very important test to define and to differentiate these and other political concepts and/or ideologies, is how and where they would put liberty in their scheme or vision of a social order.
Authoritarianism and its cousin ideologies or practices (totalitarianism, dictatorship) have deep-seated beliefs that people are irrational and are not capable of personal and collective improvement if left on their own. A strong and enlightened political leadership can guide and navigate the energy and resources of people towards achieving a particular social ideal and political order as envisioned and decided upon by the authoritarian political leadership. In short, liberty is concentrated in the hands of the few political leaders and people, as individuals or as a collective, will be stripped of a big portion of their liberty and freedom.
Democratism despises the above idea because of the great danger that it will lead to abuses and large-scale corruption that can push a society towards economic underdevelopment and political persecution and tyranny. Thus, the political will of the majority over the minority, the desire and aspirations of the many should prevail in society. In short, collective liberty should prevail over individual liberty.
Liberalism, while it shares with democratism in rejecting authoritarianism, does not believe that individual liberty should be sacrificed at the altar of national or collective liberty in many cases. The primacy of individual liberty and responsibility is at the heart of this political philosophy. Now, will liberalism later morph or evolve into authoritarianism because of its rejection of the dominance of the collective over the individual?
Not a bit. The big difference between liberalism and authoritarianism, despite their shared belief in not bowing to the "will of the majority" at all times, is that the former does not prescribe coercion, whether by the individual or the collective, over other people. There is deep belief in the principle of subsidiarity, volunteerism and the role of civil society, and non-role of big and intrusive government in the lives of people.
The big danger of "majority rule" and democratism, is the use of coercion by the majority to pursue their desires and aspirations. For instance, if the majority will desire socialism or expensive welfarism to legislate and institutionalize social equity, then this will result in large-scale confiscation of the income, savings and liberty of the hardworking and efficient people, the tax money and resources to be distributed to the majority. And a big portion of the majority can afford to be lazy and irresponsible because even if they will not work and drink everyday, the State will assure them of "quality" health care, housing, education, nutrition, and so on.
So if hard work is to be penalized by high income confiscation and laziness is to be rewarded with endless subsidies, society will see less work and more irresponsibility. And this is a perfect formula for social stagnation if not disorder. Pretty soon, democratism and "majority rule" can slowly morph into authoritarianism.
Liberalism or whatever political philosophy that promotes individual liberty and responsibility, and despises the use of institutional and political coercion to attain certain social ideals, is the best antidote to authoritarianism and its silent and creeping ally, democratism.
(For more discussions of the principle of subsidiarity, civil society, dangers of majority rule, rule of law, and related concepts, see the author's various papers at www.minimalgovernme nt.net).
* See also:
Pol. Ideology 7: Individualism, Entitlement and Freedom, April 30, 2007
Pol. Ideology 8: Ideas on Liberty, September 15, 2007
Pol. Ideology 9: Liberty and Choice, Atlanta and HK Conferences, June 09, 2008
Pol. Ideology 10: Joe Stiglitz and the Market, December 16, 2008
In periods of internal tyranny and local dictatorship, however, launching an anti-authoritarian movement is difficult because not only are there more enemies – the local tyrants, they are also more established locally and are of the same skin color and genes as the oppressed. Police and military harassment is also more extensive.
In periods of no explicit dictatorship but nonetheless extensively corrupt administration, launching an anti-corruption, anti-authoritarian movement is even more difficult as the enemy because the culture of corruption is less tangible compared to say, abusive and imposing armies under a dictatorship. Also, the culture of corruption tends to be "democratically dispersed" from national to local bureaucracies, and from the Executive to Legislative and Judicial branches.
So various political parties vying for political power and control of the State would position themselves as advocating for democracy and good, non-corrupt government. And almost all political parties, old or new, would consider themselves as "democrats" to hopefully get political acceptance and support from many voters and citizens.
The challenge to competing political parties that consider themselves as democrats, is how to distinguish themselves from other parties, aside from the political personalities that head them. So the liberals would call themselves as "liberal democrats", the nationalists as "nationalist democrats" or "Filipino democrats", the welfarists as "social democrats". Some would add religious adjectives and call themselves as "Christian democrats", "Muslim democrats", even "Evangelist democrats". Even the communists in the country fighting against "imperialism and feudalism" would call themselves as "national democrats".
So what do those political adjectives and ideological labels signify? For instance, what is "liberalism" , "nationalism, "democratism" , "authoritarianism" ? How are they different from each other? One very important test to define and to differentiate these and other political concepts and/or ideologies, is how and where they would put liberty in their scheme or vision of a social order.
Authoritarianism and its cousin ideologies or practices (totalitarianism, dictatorship) have deep-seated beliefs that people are irrational and are not capable of personal and collective improvement if left on their own. A strong and enlightened political leadership can guide and navigate the energy and resources of people towards achieving a particular social ideal and political order as envisioned and decided upon by the authoritarian political leadership. In short, liberty is concentrated in the hands of the few political leaders and people, as individuals or as a collective, will be stripped of a big portion of their liberty and freedom.
Democratism despises the above idea because of the great danger that it will lead to abuses and large-scale corruption that can push a society towards economic underdevelopment and political persecution and tyranny. Thus, the political will of the majority over the minority, the desire and aspirations of the many should prevail in society. In short, collective liberty should prevail over individual liberty.
Liberalism, while it shares with democratism in rejecting authoritarianism, does not believe that individual liberty should be sacrificed at the altar of national or collective liberty in many cases. The primacy of individual liberty and responsibility is at the heart of this political philosophy. Now, will liberalism later morph or evolve into authoritarianism because of its rejection of the dominance of the collective over the individual?
Not a bit. The big difference between liberalism and authoritarianism, despite their shared belief in not bowing to the "will of the majority" at all times, is that the former does not prescribe coercion, whether by the individual or the collective, over other people. There is deep belief in the principle of subsidiarity, volunteerism and the role of civil society, and non-role of big and intrusive government in the lives of people.
The big danger of "majority rule" and democratism, is the use of coercion by the majority to pursue their desires and aspirations. For instance, if the majority will desire socialism or expensive welfarism to legislate and institutionalize social equity, then this will result in large-scale confiscation of the income, savings and liberty of the hardworking and efficient people, the tax money and resources to be distributed to the majority. And a big portion of the majority can afford to be lazy and irresponsible because even if they will not work and drink everyday, the State will assure them of "quality" health care, housing, education, nutrition, and so on.
So if hard work is to be penalized by high income confiscation and laziness is to be rewarded with endless subsidies, society will see less work and more irresponsibility. And this is a perfect formula for social stagnation if not disorder. Pretty soon, democratism and "majority rule" can slowly morph into authoritarianism.
Liberalism or whatever political philosophy that promotes individual liberty and responsibility, and despises the use of institutional and political coercion to attain certain social ideals, is the best antidote to authoritarianism and its silent and creeping ally, democratism.
(For more discussions of the principle of subsidiarity, civil society, dangers of majority rule, rule of law, and related concepts, see the author's various papers at www.minimalgovernme nt.net).
* See also:
Pol. Ideology 7: Individualism, Entitlement and Freedom, April 30, 2007
Pol. Ideology 8: Ideas on Liberty, September 15, 2007
Pol. Ideology 9: Liberty and Choice, Atlanta and HK Conferences, June 09, 2008
Pol. Ideology 10: Joe Stiglitz and the Market, December 16, 2008