Saturday, May 30, 2009

Decentralization 4: Local Taxes and Provincial Airports

Posting here two related articles...

(1) Local Taxes and Decentralization

The Congressional Planning and Budget Department (CPBD), the economic think tank of the Philippines’ House of Representatives, recently produced a paper entitled “Public Sector Government and Decentralization in the Philippines”, authored by the office Executive Director, Dr. Romulo “Jun” Miral, Jr. CBPD was my former office for 9 years in the last decade, and Jun is my friend.

The paper was reported in at least one newspaper, “House think-tank pushes stronger taxing powers for local governments” by Iris Gonzales, May 10, 2009.

Jun argued that local governments must be given stronger taxing powers or at least commensurate to the expenditure functions assigned to them, that while major expenditure functions have been devolved to local governments, the National Government (NG) continues to have exclusive authority over productive and broad based taxes.

Jun wrote further, “Government resources continue to be centralized, resulting in common pool problems and local governments remain very dependent on National Government transfers and the direct provision of devolved services. This undermines local autonomy and government accountability.”

The NG collects huge amount of money from income tax (personal and corporate), value added tax (VAT), import tax, excise tax (alcohol, tobacco and petroleum products, the so-called “public bads”), documentary stamp tax, franchise tax, travel tax, motor vehicle tax, etc. The various NG agencies also collect their own charges and fees – passport fee, driver’s license fee, NBI fee, police clearance fee, terminal fee, irrigation fee, etc.).

Local government units (LGUs) collect mainly real property tax (RPT), community residence tax (individual and corporations), business license taxes and fees (fire department fee, health and sanitation permit fee, garbage collection fee, building and electrical permit fee, business plate fee, etc.).

If one will visit a typical business enterprise (say a restaurant or computer shop), one will notice about a dozen compliance certificates from various NG agencies and LGUs, and business plates. The business plates issued by the barangay or village, and city or municipality, would normally include the name and face of the barangay captain, and city or municipal Mayor, respectively. That will give someone who is aspiring to become a start-up entrepreneur, the maze of government bureaucracies that he/she will face every single year. Consider also the monthly, quarterly and annual taxes and fees to be paid to all of those agencies, the cost of compliance, and one can possibly be terrified and would rather decide to operate as an informal and small or micro enterprise.

Back to LGU-NG taxation. Jun is proposing that to achieve a more effective government decentralization, the NG and LGUs can do joint taxation of major taxes such as income tax. I am glad that unlike many economists in the NG and multilateral institutions like the IMF, WB and ADB, Jun did not propose further gouging the pockets of Filipino taxpayers. Instead, he proposed that “To accommodate the additional taxes to be imposed by local governments without increasing the overall burden on taxpayers, NG tax rates could be commensurately reduced.”

I would add that some NG taxes should be abolished or drastically cut. This will have two important positive impact. First, it will put the Philippines on the league of modern Asian economies who are attracting big investors and entrepreneurs via tax competition – Hong Kong, Singapore and Dubai. Malaysia and Brunei are attempting to join this league too. Second, the “savings” by individual and corporate taxpayers will allow them some breathing space to pay any additional taxes and fees to be collected by LGUs. A competition among LGUs can happen – who has the best peace and order situation, who has the cleanest streets and parks, who has the most competitive and reasonable local taxes, etc. And people and firms can “vote with their feet” by moving to LGUs that offer the most business-friendly policies and projects. And leave those cities or municipalities or provinces whose LGUs have parasitic and extortionary policies.

But this is easier said than done. Many agencies in the NG, especially the Office of the President and Congress, are experienced parasites. They will never let go of those multiple and duplicating taxes and fees that feed their entrenched bureaucracies and give them enough arbitrary powers that force entrepreneurs to kneel before them and make “amicable settlements”.

(2) Globalization and Provincial Airports

While most people have elaborate definition of globalization, I have a simple one: Globalization = Mobility. Mobility of people, capital, technology, culture, sports and music across the country and across the globe.

Such mobility of people, their goods and services across islands, countries and continents, is facilitated by various modes of transportation – land, sea and air. For long distances covering hundreds or thousands of kilometers away, air transportation is the most cost effective and time saving. For the Philippines, an archipelago and geographically detached even from its nearest neighboring country, the presence of various airlines – both domestic and international, is very crucial. By extension, the presence of various international airports is equally crucial. International airlines can only come in if there are good and reliable international airports that can handle their huge airplanes and huge volume of passengers and cargo.

For a country with more than 7,000 islands and a population of nearly 92 million (12th largest in the world), and an estimated 8 million to 9 million living abroad, there should be plenty of international airports across the country. Currently there are only nine: 4 in Luzon (NAIA, Clark, Subic and Laoag), 3 in Mindanao (Davao, Gen. Santos and Zamboanga) and 2 in the Visayas (Mactan-Cebu and Kalibo). Some of these international airports do not get frequent international flights, like the one in Kalibo.

I think more international airports should be developed out of existing domestic airports. In particular:

1. Tuguegarao airport to serve the Cagayan Valley region and neighboring provinces in the Cordillera region.

2. Legaspi or Naga airport to serve the Bicol region which has a big population too and has several island-provinces like Masbate and Catanduanes.

3. Iloilo airport to serve Panay Island’s four provinces plus the island-province of Guimaras. Kalibo airport serves mostly the tourists going to Boracay island. It’s not a big and modern airport but it has a long runway that can accommodate big airplanes, unlike the airport in Caticlan.

4. Bacolod-Silay airport to serve Negros Occidental and Negros Oriental provinces. The former is among the five biggest provinces in the country in terms of population outside of Metro Manila.

5. Tacloban airport to serve the Eastern Visayas region and its six or seven provinces.

6. Cagayan de Oro or Butuan airport to serve the Northern Mindanao and Caraga regions, including the island-province of Camiguin and Siargao island. Both islands are famous for tourism.
By saying international airports, the above-proposed airports need not serve flights going to and from the US, Europe and Australia. What is important is to accommodate flights going to and from the country’s selected Asian cities like Hong Kong, Singapore, Seoul, Tokyo, Taipei, Bangkok and Kuala Lumpur. One or two flights a week for any or all of those Asian destinations would be enough. And if one is going to several destinations in North America, Europe, Australia-NZ, South America and Africa, all those Asian cities mentioned have direct flights to the big cities of the above-mentioned continents.

Recently, the Regional Development Council of Western Visayas asked the Civil Aviation Authority of the Philippines (CAAP), formerly the Air Transportation Office (ATO), to open the Iloilo airport to international flights. The Council also told CAAP that it wants to retain at least 10% of the P200 per passenger airport terminal fee. I have been to Iloilo airport several times as my wife is from Iloilo City, and I can say that this airport is modern enough – typical glass and steel structure of modern architectures, and should be able to handle limited international flights. For now, I have several points to make.

One, if a national bureaucracy like CAAP will drag its feet for long, like in deciding whether to allow international flights at the Iloilo airport or not, then local governments will have no way of implementing their collective plan and program. This is another proof that decentralization of political and economic powers is not yet fully implemented. Certain bureaucracies in Metro Manila still decide what is good or bad for those in the provinces.

Two, CAAP gets the entire terminal fee collections of provincial airports. I did not know this before. I thought ATO, now CAAP, gets only a certain percentage from the terminal fee collections from those provincial airports. This is a huge collection, actually. Last year, toll and terminal fee collection was P215 million, and is projected to rise to P236 million.

Three, airports need not be owned and operated by governments. A consortium of private corporations including airlines should be allowed to buy and develop existing airports, or create a new one. Anyway, there are several government agencies that can regulate such privately-owned airports, including the CAAP, the provincial and city or municipal governments, and perhaps the Civil Aeronautics Board, among others.

To help encourage provincial and regional development, let the local government units compete with each other in developing and modernizing their own infrastructure facilities (roads, airports, seaports, etc.), improve the peace and order situation, and even engage in tax competition when necessary. The goal is to attract plenty of investors and visitors who will create plenty of jobs and entrepreneurial opportunities for their people.

The continuing centralization of power in the hands of certain national government agencies is a hindrance to the development of some local governments, a hindrance to faster globalization and economic integration of the people in the provinces with other cities and countries around the globe.

See also: Decentralization 3: Challenges to Local Government, November 18, 2008

Friday, May 29, 2009

CL, greed and shampoo

I got a comment from one reader on the subject of A(H1N1) and compulsory licensing (CL). He said that CL will "taper the greed of these 'innovator' companies.... Medicines should not be treated like any commercial item for sale. CL is the equaliser of the poor countries.... New diseases are golden opportunities for these companies to make more money. I even suspect that some viruses and diseases are created for this purpose."

For us non-producers of a particular material good (medicines, cellphones, shoes, etc.), we can only surmise that the "reasonable" price of something should be only 70% or 30% or just 1% of its actual retail price, and that the greed factor is more than 100%, more than 1,000%, or more than 15,000%. As consumers, we want things to be as cheap as possible, free whenever necessary. So we hate to see something that we deem to be "expensive", even if that expensive thing or service can save our lives or the lives of the people we love, and we conjure or surmise the above figures even if we know very little about the entire research and production process.

With continued use and issuance of CL, it is possible that it will taper the greed factor of innovator pharma companies. It is also possible that the latter will focus their research capability in producing better drugs for skin whiteners, gargles and mouthwash, shampoo, breast or penis enlargers, libido enhancers, etc. Here, if you are an innovator, you will make huge money with zero threat of confiscation of your invention. But if you make an effective medicine against AIDS or swine flu (or dog flu, cat flu, horse flu, etc. in the future), there is always a threat of confiscation of your invention. So you take huge risks.

This conspiracy theory that certain viruses and diseases were created by the innovator companies so that they will make more money, is really fascinating. It's like rightist political parties and politicians were encouraged by the leftist political parties so the latter will have something to lambast and attack. Or those extreme sports and full-body contact sports were invented by orthopedic hospitals and their doctors so that more people will have broken legs, arms and collarbones, and they will make lots of money.

Yes, we need to take a stand against greed. That is why the number of innovator companies should be in the hundreds, not in the dozens. I would like to see hundreds of them slashing each other's throats to develop more blockbuster medicines to beat their rivals, then us consumers and patients will benefit with plenty of choices. I checked the PhRMA website, the organization of innovator pharma companies in America. I counted only 30 such innovator companies. Whereas there are hundreds of hotel chains, of fastfood chains, of dress designers and manufacturers, etc.

India alone has about 22,000 pharma companies. Great. It's just that about 99 percent of them perhaps are generics and copycat manufacturers. The European Council estimates that about three-fourth of all counterfeit medicines circulating around the world are originating from India. This is not the kind of competition that I want to see -- thousands of manufacturers producing cheap but unsafe medicines.

Counterfeit Drugs 2: IPN Report on Fake Drugs in Poor Countries

Early this week, the International Policy Network (IPN,,  a think tank based in London, released its new report, “Keeping it Real: Combating the spread of fake drugs in poor countries”. The 28 pages long paper is also co-sponsored by 18 international think tanks from 18 countries, including Minimal Government Thinkers.

The new Report has some figures that can be shocking to patients. Among these are the following. One, fake tuberculosis and malaria drugs alone are estimated to kill 700,000 people a year. That’s more than 1,900 deaths per day and equivalent to four fully laden jumbo jets crashing every day. Two, the WHO estimates that counterfeit drugs constitute up to 25 per cent of the total medicine supply in less developed countries (LDCs). Three, 68 percent of artesunate (anti-malaria) drugs in Laos, Myanmar Cambodia and Vietnam contain insufficient active ingredients, rendering them less effective, if not totally useless, in curing the sick. Four, about 75 percent of imported counterfeit drugs come from India, according to one European Commission estimate; and China is also a significant producer of counterfeit drugs.

These figures are significant because the new “Cheaper Medicines Law” (RA 9502) has a provision legalizing “parallel importation” of locally-patented medicines, and the premise of this provision is that cheaper medicines to be imported will come from India, home to some 22,000 small drug producers, many of whom are informal.

Since the foreign manufacturers (Indian, Chinese, others) are different from the wholesalers, importers and local retailers, i.e., they are not one and the same company but several different companies, tracing of who will be accountable if the imported drugs are counterfeit or substandard that can result to adverse effects to the patients, will be difficult.

One of the dangers of taking fake drugs is failure to provide effective treatment. The Report says “as fake drugs usually contain insufficient bioavailable active ingredient, a patient who believes he is addressing his disease is in fact going untreated. The disease thus progresses, often leading to death, especially in children and the elderly.”

I attended this morning a round table discussion on "Quality issues in delivery of health care services: A Policy perspective” at the AIM Conference Center. The event was sponsored by the Health Policy Network (HPN) project of the Center for Legislative Development ( and was attended by mostly NGO leaders. A 30-page long paper entitled “Equity Issues in Access to Quality Health Care: A Policy Perspective” by the event organizer was also distributed to the participants.

Access for all to quality health care. This is a vision dreamed by almost all people in the world and is thus perfectly rationale. But resources are limited, the supply of well-trained doctors and other health professionals, the supply of good quality hospitals and clinics with sufficient laboratories and diagnostic instruments, the supply of safe and effective medicines and vaccines, are limited. While the demands for such health services and medicines are unlimited.

This is where the initial problem of access to quality health care arise. Add the fact that some people are too irresponsible to take good care of their own body and that of their own family, like those who drink and smoke heavily, take illegal drugs and fatty foods excessively, live in dirty places and do not observe personal hygiene, get into frequent fights, have sedentary and promiscuous lifestyle, etc.

Then add the fact that many governments think that medicines and health care are just like any other commodities like beer, hamburger and movies that must be slapped with multiple taxes and fees. That government corporations engaged in health insurance are accountable to the President and top politicians, and not to private citizens who were coerced to contribute to the health insurance funds.

One concept that was emphasized by the HPN is that for health care to be accessible, first it must be made available and second, it must be affordable. That is, available + affordable = accessible. While this may be correct in many cases, it does not mean that this will lead to “quality” health care which is the ultimate goal of all those public policies that people are talking about.

Take the case of those medicine warehouses managed and owned by some local government units (LGUs). During the MeTA forum last January in Manila, a World Bank-Philippines staff showed – complete with pictures – some of those medicine warehouses by big cities and provinces, where rats, garbage, useful and expired medicines are mixed in one room, often with no stable temperature control, some do not even have a thermometer to monitor room temperature.

Here, those medicines are available. They are more than affordable, they are distributed free. The poor patients in those LGUs therefore, have “access” to medicines. But do they get “quality” medicines that can cure them from their illness and diseases? Probably Yes, but probably No, and some may have contracted new diseases and complications if they happened to take substandard, expired or garbage-contaminated drugs.

It is not enough that there should be “more government budget for health care” as demanded by many sectors in society. Money can buy us subsidized or free medicines, safe and counterfeit alike, and money can also give us lazy and irresponsible government personnel who dispense expired and contaminated drugs.

More than bigger government taxation, regulation and intervention in health care, what is needed more is individual and parental responsibility for preventive health care, plus a competitive business environment where private health care providers and medicine producers can compete with each other in providing the safest and most reliable drugs and health care services to the people with varying health needs and varying financial resources.

Meanwhile, a physician friend thanked me for my paper on counterfeit drugs. She said that "there is a need to strengthen regulation and implement/add requirements to ensure product quality."

For me, more than regulation and government accountability, I want to see more corporate responsibility, that medicine producers and sellers should be directly accountable for all the products that they sell, no one else will be answerable should some things screw up later. Because counterfeit drugs is a very serious and criminal offense. A patient who waits for the medicine to cure him is actually waiting for his illness to mutate and evolve into a more dangerous disease because the medicine that he took was a fake or substandard.

And this is a big issue in parallel importation. If company A imported a cheap but countefeit medicine and the patient here died or developed a new diseases, that company should not say, "Oh I didn't know it was counterfeit, I only bought it from wholesaler X which he got from manufacturer Y in India. You should run after them, not me."

Whoever brought in the medicines, they alone should be accountable. If something bad happens to the patients who bought and took the drugs they sold, the importer and/or seller alone should go to the prison bars and pay indemnity to the affected patients, no one else. BFAD can only do so much, or it can even be possibly corrupted by some pernicious importers. Counterfeit or substandard drugs are sold dirt cheap because there was very little or zero research and innovation involved. By selling cheap, that alone will appeal to many poor patients, especially those who pinned their hopes in the "cheaper medicines law".

If corporate accountability is very clear and transparent, then I think counterfeiting can be drastically minimized. BFAD then will focus its limited resources and manpower on regulating those food and medicinal products produced and sold by enterprises which have hazy brand integrity.

Counterfeit Drugs 1: On the Growing Fake Drugs Worldwide, December 21, 2007

Tuesday, May 26, 2009

Sex video and abused OFWs

Below is a posting from one of my discussion list, The author is a friend working in the Middle East, Cynthia Diaz. Cynthia gave me permission to post this in my blog.

May 21, 2009

Video of an actress involved in consensual sex with her boyfriend show up on the internet and everyone from our president to our senators jump up to be seen expressing their outrage about it. On the other hand, Filipinas are being held as virtual sex slaves by the hundreds in countries in the Middle East and elsewhere and our President shows up in these countries asking for investment, improved trade ties and permission to send more OFWs. I think our sense of proportion here is seriously warped.

I do not want to see more restrictions slapped on our kababayans who seek jobs outside of our country, but I believe our government needs to get serious about immediately stepping in to demand action when there is abuse against them. Unfortunately that only seems to happen when some sordid story happens to inconveniently show up on TV Patrol or in the Inquirer. Then you see ambassadors begin to take action and Loren Legarda personally fly in to jump before the cameras and talk about how dedicated she is to the protection of our OFWs. Afterward they all fly out and the matter is dropped.

Do you guys know that every Philippines embassy in the Middle East has a basement or a few rooms set aside which houses hundreds of “runaway” housemaids and other workers? I remember for a while in Kuwait alone there were over 400 ‘runaways’. While the reasons they run away are diverse, many of the girls end up there after escaping from severe beatings, rapes by their employers or the sons of their employers and even torture. At least those are the lucky ones who have managed to ‘escape’ or who have not ended up as ‘unknown Asian female’ in the cold tray of a morgue.

Even managing to escape to our embassy is not the end of the story for most of these workers since they generally can’t leave the country without passports and in some countries without ‘exit visas’. You see, when a worker comes to many of the countries in the Middle East the first thing their employers do is to confiscate their passports. The passports are not returned until the employer is willing to let the employee go home. A worker’s passport is stamped with a residence permit which designates who the employer is and also has the country entry stamp in it. Even if the Philippines embassy issues a new passport or travel documents to a 'runaway', they will still not be allowed to exit at the airport without the residency stamp and being able to show the original entry stamp. The OFWs are generally advised at the embassy to go back to the house that they managed to escape from and beg for their passport back. If the employer decides to refuse, claims they don’t have the passport, demands a steep ‘fee’ to release the worker, or decides to send the OFW to jail on a trumped up charge, there is nothing they can do.

The matter is further compounded when the employer seeks to protect himself and files some made up charge with the police against the OFW such as having stolen money or abused the children. The word of the local employer is always taken far more seriously than a foreigner from a third world country. Unfortunately this is also codified within Islamic Sharia law in which the testimony by one Muslim man can only be refuted by that of at least two women witnesses. It then becomes even more difficult when the worker’s residence permit expires and then the OFW bis also liable for ‘overstaying’ charges of $10 per day or more depending upon the country. In the end, the OFW is caught in a catch 22 and can only leave if they beg the forgiveness of their employer, pay some exorbitant ‘release fee’ and then pay whatever fines that may have accrued against them. It is either that, or take their changes by appearing in court and possibly being sent to jail, or simply staying in hiding in the basement of the embassy.

Hey, I feel sorry for Katrina Halili, but if our President and Bong Revilla want to be outraged they should come to the Middle East and spend 5 minutes talking to one or two of the hundreds of Filipina “runaways” hiding in the basements of our embassies.

Although this story of "basements for problematic OFWs in every middle east embassy" may be a known thing for many, it was the first time that I heard of such story, that is why I asked Cynthia's permission to post her story.

Top government leaders are among the big-gun parasites who benefit from every single Filipino who work abroad and send back $, Euro, rial, yen, etc. into the country. Even if foreign investments and tourism revenue will decline, there will always be lots of foreign exchange reserves in the central bank and local banks because of OFW remittances.

The remittances come into the economy mainly in the form of private household consumption (C) in the equation, GDP = C + I + G + [X-M].

C comprises about 70% of GDP. So even if investments (I), govt consumption (G) and net exports (X-M) are down but if C is big, GDP will still grow. And malacanang and top govt leaders proclaim that as "economic growth under their administration" .

I think that many Filipinos have high entrepreneurial spirit, thanks to the lesson from Chinese entrepreneurs in the country and in our neighbors in the region (HK, Taiwan, China, Singapore, etc.). But no thanks to various government bureaucraces, taxes and fees that treat start up entrepreneurs as potential criminals with multiple inspections, paper submissions and payment even before they can start a business. So many Filipinos with entrepreneurial potential end up working abroad.

Sunday, May 24, 2009

Childcare 2: Rotary DTP Vaccination

I belong to a small club, the Rotary Club of Taguig Fort Bonifacio of RI District 3830 and we do not have much community projects. But my District Governor when I was a Club President in RY 2006-07, Past District Governor (PDG) Rafael "Butch" Francisco, has a kind heart for our less privileged countrymen.

Yesterday, PDG Butch celebrated his birthday, May 23, among several thousand children 4-6 years old and their parents (mostly mothers), in Dipteria-Tetanus-Pertusis (DTP) vaccination project. It was held in Pasay Sports Plaza. I wasn’t there yesterday, but this morning, May 24, I attended the 2nd day of the activity. It was held in Malibay Sports Gym, also in Pasay.

The two-days activity was jointly sponsored by the Rotary Club of Pasay North, D3810, and Rotary Club of Paranaque East (RCPE), D3830. Funding for this rather expensive but worthy project mainly came from PAGCOR, Where PDG Butch is the President, in coordination with VAXEN, a young but big distributor of vaccines in the country. Other rotary clubs from D3830 also pitched in various support like food and drinks for the hundred-plus people involved in the 2-days activity.

The Pasay City government also extended support by mobilizing the city health and social welfare departments, their staff moving house to house to distribute pre-registration forms for families with children 4-6 years old. I think this is an efficient system. First, only parents or guardians of children 4-6 years will be given the registration form, and only the targeted beneficiaries, Pasay residents, will be served. Well if the sponsors bought vaccines for 4,000 children and 10,000 will come from various cities, then you will have logistical nightmares and thousands of disgruntled parents and guardians who will say more bad things than good about Rotary.

When I arrived at Malibay Sports Gym a little past 9am, there were hundreds of parents with their respective children already. I immediately went to Gov. Butch to greet him a (belated) happy birthday. As time goes, more parents with their toddlers were coming.

PP Rene Aquino of RCPE served as the MC. He briefly introduced what the project is all about, and what the vaccines can do for their children. The parents/guardians and their toddlers happily greeted Gov. Butch on his worthy birthday project.

PDG Butch (3rd from left) with RCPE guys.

Then the vaccination started. A long line of eager parents who will save some P1,000 for the vaccine if purchased in commercial clinics, was formed. There were 4 tables with 2 health personnel in each table, so 8 toddlers can be served at the same time. And this is where “children’s drama” unfurled.

Although about 70 percent of the children did not cry during the “injection”, a portion of the 30 percent who cried really cried wildly! I surmised they were already crying and resisting while queuing, and their screaming was directly proportional to their distance to the attending health personnel holding the syringe. That is, 2 meters away, the cries were loud. When they were face to face with the health staff, they were screaming to the top of their lungs, really huge teardrops, waggling and kicking, and looking at the health personnel as if the latter are the most evil persons on Earth!

Since I was finding out how I can help since the city welfare staff are in charge of making the long lines in order, I just went to those children who cried the loudest. I did not intend to pacify them because I knew they won’t listen to me since they do not know me, so I went to hold their waggling and kicking feet! When the “injection” is over – usually in just about 3 seconds – these children were wondering if all their resistance was worth the very brief pain of the needle. I was kidding their mothers or guardians, “mas mahaba pa ang iyak kesa injection ah”, to which they nodded smiling or laughing.

PDG Butch was walking around distributing lollipop candy to children who finish the “injection”. By that time, even those who cried wildly were already pacified. The parents were obviously very happy – you can see it in their eyes and smiles – that their toddlers now have protection against those 3 dangerous diseases.

With the quick and systematic vaccination process, the vaccination was over in about an hour covering several hundred, or perhaps a thousand, children. But the team did not leave since there were still other parents with their toddlers coming. They will wait and do their work until 3pm today, the designated closing time. I heard that the volume of children yesterday was much larger than today.

Projects like this makes you proud of being a Rotarian. When I got out of the sports gym, I realized I needed a haircut. Ahh, there’s a barber shop nearby...

Saturday, May 23, 2009

Politics of envy in telecoms

In societies where political and economic policies are driven by envy, there is both explicit and implicit hatred when companies become very big, when some people become very rich. This politics of envy states that “People and companies should not become very big and very rich in poor countries; there are so many poor people, jobless and unemployable people. We are a pro-poor government, so we will confiscate as much revenues and income from those very rich companies and give to the poor.”

In such a situation, the “guardians” of the pro-poor government are always on the look-out which sectors of the economy are prospering faster than the average sectors and macro-economy. After they have gathered some data, they will come to propose, if not directly enact, measures that will put more regulations, more taxation, in the “richer” sectors.

One of the “richer” sectors in the Philippines is the telecommunications sector. Only three companies (Smart, Globe and Sun) are providing telecoms service to 40+ million subscribers. That sector is indeed very profitable based on several indicators – annual gross and net income declared, huge spending in advertising, and so on.

So this sector is always getting the attention of government regulators like Congress, National Telecommunications Commission (NTC), and Commission on Information and Communications Technology (CICT). Late last year, there was a strong pressure to force the 3 telecomm companies (telcos) to make their text messages (or SMS) to the public free, and they will collect only on voice calls. Currently, the charge is Php1 per text message, but due to some competition among the three players, they all provide certain promos, like unlimited text for only Php20 at particular hours of the day (or night). In my case, I buy the Php500 pre-paid card for only Php490, and there are 85 free texts. So I pay Php490 and get Php585 worth of call and text load, that’s around 20 percent discount.

That pressure by NTC, Congress, the Office of the President (OP) and other government agencies and some consumer groups did not prosper. I myself was not in favor of such move. Because that would mean the current two billion texts per day on average will become four or eight billion texts per day as people will resume sending unlimited jokes or other less important messages, the cell sites will be swarmed, and the old problem of messages either delivered late or not delivered at all, affecting the important messages, will come back. So telcos will be compelled 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, telcos will have less money to build new cellsites. And the problem of late message delivery or undelivered messages will become permanent. Then the public will have little or no moral ascendancy to complain. If someone asks you to deliver xx kilos of rice or fish to his relative about five kilometers away and he pays you nothing and he's not even your friend or relative, can he complain if you don't do his "request"?

Recently, the NTC, CICT and some Committees in the Philippine House of Representatives are proposing two measures: (a) peg the text messaging fee to only Php0.50 per text, and (b) telcos will pay “broad spectrum fee” of Php0.05 for every transaction (text message, voice call, etc.) to the NTC, and the latter will use such collections to buy a metering device, said to cost US$30 million, to monitor the telcos’ actual revenue streams.

This is another proposal driven by envy. Look, there are only three major telecom players in the country serving more than 40 million subscribers (out of 91 million population. Singapore with only four million people (and perhaps three million subscribers) has about five competing telcos. Why will various Philippine government bureaucracies pounce on three telcos, instead of deregulating the industry so that there will be six or more competing telcos in the country? Invite Verizon and AT&T of the US, Orange of UK, many other big telecomm firms abroad, to come and provide more attractive services to the Filipino telecomm consumers. More competition almost always means cheaper price, wider options and better services to the consumers.

But I think those big telcos abroad know that the Philippine telecomm industry is heavily regulated, it is difficult to come in without political patronage, and there are plenty of taxes and fees to pay on top of “regular” taxes like income tax and VAT. Such additional taxes and fees are franchise tax, supervision and regulatory fees (SRFs), spectrum users fee (SUF), among others.

The politics of envy always results in a monopolistic or oligopolistic industry structure in a given economy. Sometimes there can be “monopolistic competition” industry structure, but the number of players in a particular sub-industry is generally few. This immediately narrows the range of option for consumers.

I myself want the cost of text messages and voice calls to become lower, I am a consumer. I do not want “free” text messages because that might result in bad services (like undelivered important messages due to crowding of cell sites’ capacity), nor do I like high costs for such services. A Php0.25 or Php0.50 per text message on average (assuming all existing promos will be abolished after such price cut) is fine with me. But I believe that such will be made possible only by having more competing telcos, and not government limiting the industry to only three players then squeeze their hands to obey the envious and parasitic desires of the State and its bureaucrats.

Global Cooling vs. Global Money and Power

It’s now one month since the “Earth Day”. April and May are normally the two hottest months of the year. But these two months saw the early onset of rains and typhoons. Last month, typhoon “Dante” killed about 24 people in Bicol. Early this month, typhoon “Emong” killed about 50 people in north Luzon, especially in western Pangasinan.

I got temperature data from the Philippine government’s weather bureau, PAGASA. The average maximum temperature in PAG-ASA’s Science Garden station for April from 1998 to 2008 was 34.8 Celsius. From 34.7 C in April 2007, it dropped to 34.5 C in April 2008 (cooling of 0.2 C) and probably to only 31 C in April 2009, or a cooling of around 3 Celsius!

One chart ( shows downward trend in global temperatures from 2002 to 2008, whereas carbon dioxide (CO2) emission kept on increasing. There are two important implications here. First, there is global cooling going on, not warming. And second, CO2 is innocent, it is not guilty, for all the charges of being the “main” contributor to so-called global warming.

Another chart from another source ( covering a 30 years period, 1979 to 2009, shows the same pattern – CO2 keeps on increasing while global temperatures fell starting 2003 until the present.

Unfortunately, the political clutter of anthropogenic global warming (AGW), now more conveniently termed as “climate change” since the AGW proponents silently recognize there is indeed cooling, continues. The cap and trade bill is hotly debated in the US Congress. Then there is the “World Business Summit on Climate Change” in Copenhagen this weekend, organize by the Copenhagen Climate Council. And early this week, the UN Framework Convention on Climate Change (UNFCCC) released the first Negotiating Text of the Copenhagen talks this coming December. And on June 1, another round of UN-sponsored talks by environment and climate change ministers around the world will be held in Bonn, Germany.

There is big money involved in continuing the global warming hysteria. Consider for instance these figures on how much power and money is involved in carbon cap-and-trade business. One, estimated carbon cap-and-trade business that changed hands in 2007 was $63 billion, rose to $120 billion in 2008, EU and Japan alone. The US, Australia, Korea, China, etc. not included there yet. When these countries participate in such emission trading, watch the number to easily reach a trillion dollars per year. One estimate puts the value at $3 trillion by 2020, assuming that all big emitters, rich and poor countries alike, will sign the post-Kyoto Copenhagen climate

Two, US President Obama's planned carbon tax will be around $80 billion/year, federal government alone, and on top of existing environmental and petroleum taxes. Excluded there are carbon tax by some states like California. Three, Russia is reportedly planning to sit on $56 billion worth of carbon credits until after 2012 rather than sell them in the trading market created by the Kyoto global-warming treaty. Four, India, China and other developing countries are gearing up for the $300 billion climate change fund (about 1 percent of rich countries’ GDP). Five, even tiny Dubai is targeting to corner about $5 billion of carbon emission trading for the Middle East and north African markets.

In some of the recent public hearings in the US Congress on cap and trade bill, many of their guests were bankers – Goldman Sachs, Bank of America/ML, AIG, Morgan Stanley, etc. So some of the architects of the recent housing bubble will be coming in to develop a new carbon bubble in the future. And solar farms and wind farms are reaping huge benefits from government subsidies and carbon credits even if they produce very little electricity. In the US for instance, despite several billion $ of government support and subsidy to renewable energies like solar and wind since the 70s, such energy sources currently produce only about 0.6 percent of total US energy production.

Here at home, the local ethanol and biodiesel businesses will be making plenty of money as Filipino motorists will be required to buy ethanol 10 percent (E10) and gasoline 90 percent mixture starting next year I think. Also biodiesel 5 percent (B5). The conversion of some agricultural land in the country from food crops and animal feeds to ethanol and biodiesel production partly contributed for the recent food price spikes. This trend is expected to continue in the coming years.

The cap and trade for carbon is actually a parasitic scheme being imposed on everyone in this planet. The scheme would look like this.

After each government has determined their carbon emission cap or limit by 2020 to 2050, environmental bureaucrats in each country will come in. For instance, in the US they will say. "Delta Air, Continental, American and other airlines; AT&T, Verizon and other telecom companies, these are your respective carbon cap for the following years up to 2020. Hilton, Hyatt, Mandarin, Intercon and other big hotel chains; Walmart, Boeing, Amtrak, Greyhound, etc.; GM, Ford, Toyota, Honda, BMW, etc., these are your respective carbon limits, etc. If you exceed your cap, you have to buy from other companies, here or abroad, or we will penalize you, at least expose and shame you."

Just imagine the army of new bureaucrats who will monitor each of the several million big and medium companies in America alone, who will get penalized, how to implement the penalty like naming and shaming those who exceed their carbon cap and yet did not buy from those with excess credits, etc.

Now, where will companies get the money to buy excess carbon credits from other companies? From their consumers and the public. For those who did not exceed their carbon cap, where will they get the money to buy expensive technologies to drastically cut their carbon emission? From their consumers and the public. Where will the government get money to hire those big army of new environmental bureaucrats? From the taxes of the public.

And the public end up paying more and more, prices of almost everything becoming more expensive, companies will be scrimping on other production costs like labor just to survive, unemployment will rise. Will this "save" the planet, the real goal? Not a bit.

It is important to dispel the global warming hysteria because it is no longer true. So much of our energy and resources are spent on preparing for global warming, on fighting a non-existent enemy, because of climate science becoming political science by the UN, national governments, certain business interests and international green NGOs intent on pushing ecological central planning.

Private institutes and think tanks that help dispel the warming hysteria need to be supported by the public. The Civil Society Coalition on Climate Change (CSCCC, and Heartland Institute ( are among the big coalitions and institutes that perform this job. Heartland for instance is sponsoring the “3rd International Conference on Climate Change” on June 2, 2009, at Washington DC.

If current cooling will worsen – and some physicists and geologists are projecting that the cooling will last for the next 30 years – then later we might be encouraged to produce more carbon emission, to produce more GHGs.

But this is not likely to happen. So many governments, NGOs, companies, even scientists, have already taken huge personal and political stake in global warming hysteria. There is big money and big power that will be removed from them if the world will realize that all those warming hysteria and political schemes are not true.

Last week, May 17, 2009, I wrote this:

Global Warming is Dead

Below is a news report, written not by a journalist, but by a physicist. The author most likely was there at the 2nd intl. conf on climate change in NYC that I also attended last March 8-10. The title of his paper is self-explanatory: “global cooling has arrived, global warming is dead.”

Last May 14, PAGASA officially announced what many Filipinos already saw: "rainy season is here". I thought that the rainy season started a month ago already. At least 2 typhoons hit the country in the "summer" month of April alone (local names "Crising" and "Dante").

If CO2 emission has nothing to do with climate change, and CO2 is not responsible for either global warming or global cooling, then why the hell are we all REQUIRED to buy ethanol 10% (E10) and gasoline 90% mixture starting next year I think? Also biodiesel 5% (B5) and regular diesel 95%?

Who made lots of money from such warming hysteria? And how many people got hungrier because of that stupid conversion of agri land to produce food, rechanneled to produce ethanol and biodiesel, resulting partly in high food prices starting last year?

The crime of global warming hysteria is slowly being unfolded. But many people, national politicians and the UN IPCC especially, have too much political and business interests to protect, so they continue lying and fooling the public.

Pouring cold water on global warming

Global cooling has arrived. Global warming is dead.

By Terri Jackson
Wednesday, 13 May 2009

There is now irrefutable scientific evidence that far from global warming the earth has now entered a period of global cooling which will last at least for the next two decades.

Evidence for this comes from the NASA Microwave Sounding Unit and the Hadley Climate Research Unit while evidence that CO2 levels are continuing to increase comes from the Mauna Loa Observatory in Hawaii.

Professor Don Easterbrook one of the principle speakers at the recent World Conference on climate change held in New York in March this year attended by 800 leading climatologists, has documented a consistent cycle of warm and cool periods each with a 27 year cycle. Indeed the warm period from 1976 to 1998 exactly fits the pattern of climate changes for the past several centuries long before there were any CO2 emissions. Greenland Ice core temperature measurements for the past 500 years show this 27 year cycle of alternating warm and cool periods. Recently the global temperature increased from 1918 to 1940, decreased from 1940 to 1976, increased again from 1976 to 1998 and has been decreasing ever since….

Nearly ten years into the 21 century it is clear that the UN IPCC computer models have gone badly astray. The IPCC models have predicted a one degree increase in global temperature by 2011 with further large temperature rises to 2100. Yet there has been no warming since 1998 with a one degree cooling this year being the largest global temperature change ever recorded. Nasa satellite imagery from the Jet Propulsion Laboratory in California has confirmed that the Pacific Ocean has switched from the warm mode it has been in since 1977 to its cool mode, similar to that of the 1945-1977 global cooling period.

The evidence that the earth is in a cooling mode rather than a warming mode is there for all to see. the RSS(Remote Sensing System) in Santa Rosa California has recorded a temperature fall of two to three degrees in the Arctic since 2005, while US Army buoys show an increase in Arctic ice thickness to 3.5 metres. North America has had two of its worst winters for sixty years with the temperature in Yellowstone Park falling to a staggering minus 60 degrees....

Tuesday, May 19, 2009

Hayek 11: Rule of law and rule of the lawless

August 18, 2008

A paper written by a friend and fellow columnist in, former Cong. Neric Acosta, has an interesting title, "Rule of Law, Rule by Law". The two sets of words differed only in the use of "of" and "by" but that alone spells a difference equivalent to the difference in economic condition between a developed and free economy and an underdeveloped, dictatorial economy.

In the definitions given by Neric in his article, he wrote "Rule of law... constrains state power and government arbitrariness in its decision-making. Rule of law also means equality before law, which denotes procedural and formal justice… The rule of law does not therefore only serve to limit government's abuse of its powers, but also helps make its policies more rational or intelligent. No leader or government, as such, should be above the law."

Whereas "rule by law" is "When a government seeks to consolidate its hold on power or avoid accountability by manipulating institutions and using legal instruments to suppress dissent or harass opponents… When special interests circumvent the law or where the court system is weak and justice is for sale, rule of law is patently defied or ignored."

His paper was inspired by the World Justice Forum (WJF) that he attended in Austria. The WJF defines "rule of law" on four principles: (a) accountability of governments officials; (b) the laws are "clear, publicized, stable and fair"; (c) the process by which the laws are enacted, administered and enforced is "accessible, fair and efficient"; and (d) the laws are upheld and access to justice is provided by "competent, independent and ethical law enforcement officials".

I am a Friedrich Hayek fan and reader of his political philosophy, particularly his book, The Constitution of Liberty(1960, U. of Chicago Press). Hayek was an Austrian economist, who later became a political and legal philosopher. The subject of "rule of law" is comprehensively discussed in several chapters of that book, and I wrote two papers on Hayek's book and philosophy: "Hayek Reader 1: Liberty and Rule of Law", and "Hayek Reader 2: Liberty, Spontaneity and Easterly". Both are posted in the MG website.

Despite the deep political and legal discussions that Hayek devoted on subjects like "rule of law" and "liberty", one will appreciate him when he narrows and simplifies his definitions. For him, "rule of law" means no exception. The law applies to everyone – governors and governed, rulers and ruled, administrators and the administered – and exempts no one. For me, this is a very beautiful and very simple definition of "rule of law", and yet it is this simplicity of definition that often evades the understanding of the people who love to recite and repeat this phrase over and over.

I think the definition provided by the WJF on the four principles of "rule of law" looks winding and a bit convoluted. Well, this is from the perspective of a non-lawyer or non-government official. The Hayekian simple but strict definition of "no exemption" to rule of law implies that the number of laws in society should be as few and as transparent as possible. If there are 10,000 or more different laws (tax laws, budget laws, traffic laws, criminal laws, social security laws, labor laws, environmental laws, investment laws, trade laws, and so on, by local, national, or international government bodies and agencies) it will be impossible for law enforcers to understand, much less remember, all of them, see any contradiction between or among some of them – and if a contradiction in provisions does occur, to decipher which laws are "superior" to the others, etc. It should be even more difficult for ordinary citizens to comprehend even one percent of all those laws and regulations.

Needless to say, the proliferation of thousands of different laws, both old and new, would immediately result to a degeneration and later, non-implementation of the spirit of the rule of law. The "rule by law" discussed by Neric is a deliberate move, therefore, by those in government precisely to make a mockery of the rule of law. Since there are thousands of laws to remember and implement, making plenty of exemptions to those laws will be inevitable. Making exemptions to the coverage of the law, meaning unequal application of the law to already unequal people, would worsen any social inequity and result in the further trampling of individual rights and freedom of those who are in the bottom of the social pyramid.

Laws, by definition, are prohibitions – a system of NOs. Because there is no need to codify into laws things that are impossible to prohibit. Thus, there are no "air breathing laws" because breathing is a natural way for people to live and one cannot make any prohibition on breathing. But there are "air pollution laws", meaning there are prohibitions and restrictions in polluting the air. And when we say "traffic laws", these are certain prohibitions on the use of the road, like "no left turn", "no U-turn","no right turn on red light", "one-way street, no counter-flow", "no parking", "cars not allowed on days ____", and so on.

For many developing countries, mockery of the rule of law is more common. "Rule of men", of people making different rules that apply only to ordinary citizens – the governed, the ruled and the administered – but exempt the rulers, the governors, the administrators and their friends, is not unusual.

The "rule of the lawless" is very common in traffic rules. While ordinary motorists are being watched, even harassed and penalized for certain violations like "beating the red light", the rule makers and "law enforcers" in government are allowing themselves and their friends all sorts of exemptions: they can drive counter-flow on one-way streets, park in "no parking" lanes and streets, make left-turn on "no left turn", go straight even in red traffic lights, etc. Among the worst violators of traffic rules are traffic enforcers and government personnel themselves – police cars, vehicles with red plates (meaning government-owned vehicles), vehicles with single- or double-digit plate numbers (6 for Cabinet Secretaries, 7 for Senators, 8 for Congressmen/women, etc.). Private cars where the drivers or owners are high police or military or government officials are also among the lawless vehicles on the road. Also armored vehicles by private security firms.

The higher the political position, the higher the lawlessness being practiced. In traffic rules, the President of the country, his/her family members, and their security escorts, the Presidential Security Group, are the worst violators of traffic rules. For this group of people, there is no "rule of law". They can park their big vehicles even in the narrowest streets where "No parking" signs are staring in their faces. Name any traffic rule and they will violate it with full impunity.

Aside from lawlessness in traffic laws, the rulers and supposedly guardians of the rule of law are equally lawless in handling public funds, in making various prohibitions and in exempting as many friends and supporters, bribe givers and dispensers of various favor. The rulers make laws against "illegal gambling" and allow illegal gambling left and right, in exchange for bribes. The rulers make laws against prostitution and allow prostitution houses left and right in exchange for bribes. The rulers make laws against illegal drugs, against illegal mining, against air pollution, and so on, then allow all those they declared as illegal, in exchange for bribes.

In economic policies, the rulers make laws against free trade then allow trade smugglers left and right. The rulers make laws against piracy of intellectual property rights (IPR) then they turn around and enact laws or administrative regulations that legalize confiscation of IPR and patents. They make laws against corruption and large-scale robbery then they leave some trails pointing to acts of corruption, robbery and treachery. The list of lawlessness can be endless but the bottom line remains: more laws mean more lawlessness. Disrespect of the rule of law results in economic underdevelopment, or at least limits economic growth.

Societies will be better off if there are less laws. Many of the thousands of old and current laws can be abolished or consolidated among each other. We should have very few laws but these should be transparent – laws that apply equally to everyone and exempts no one. This "rule of law" will discipline people, both governors and governed, both rich and poor, and force the State to focus on its single most important function: to ensure the citizens' right to life, right to private property, right to liberty. Then, order and stability in society will not be far behind.

Hayek 10: Hayek and Keynes

July 9, 2008

(Continuation of the exchange)


This is a good post of yours and there is more clarity of the logical basis of what you have been advocating these days. I have been reading Hayek's New Studies (1978) with chapters or lectures on philosophy, politics, economics and history of ideas. I chose the book because such combination of topics will show you how they are stringed together. Indeed they are a great man's writings. A very short chapter was devoted to his recollection of Keynes as his friend and professional colleague. He has less respect of the economics of Keynes, and reading through part of his philosophy on how knowledge is produced and his critique on Keynes’ theory of demand-side macroeconomics, I can very much appreciate the man.

Caution is always a good trait in embracing what appears to be a solution to economic problems such as those in the Philippines. Hayek has demonstrated this 'caution' by deciphering the basic philosophy of how knowledge is produced and generalized into a theory and then into an application. I’d rather have this discipline because for me, the problem in the Philippines is not just economics, but it is rooted as well in politics and culture. The equilibrium in our markets as defined in supply and demand are very much defined by our attitudes - trust, practice of freedom, attitude towards authority, among others. Hayek said that social scientists, including economists, easily assume knowledge and expertise when we actually knew so little on how order and chaos are produced and reproduced in economics and social situations. The statistics or econometrics discipline cannot fully capture how a social order came to such and how the equilibrium of a market was attained.

Bill Easterly said, what can World Bank and IMF economists offer to developing countries in terms of development is, Nothing. But he never said that we should not study what these economists are saying. This has been Hayek's point in discovering that it is impossible to master the knowledge of social sciences, but still we learn what parameters we can approximately measure while leaving other parameters to evolve into their own equilibrium.

-- Joey

Hi Joey,

Hayek wrote about the virtue of spontaneity and its contribution to social progress; hence, he never believed that some bright men and women should be authorized to control and regulate people so that these “bright” guys can plan and dictate public policies that they think are “good” for the people whose lives they have already controlled and regulated. And Keynes’ economics is along the lines of command and control, like government hiking taxes, then government will distribute the confiscated money to certain sectors favored by the politicians and high State officials, or to sectors that are more vocal and more organized in their lobbying.

-- Nonoy

Hayek 9: Hayek and Easterly

July 9, 2008

The following are some comments on Hayek and his writings by a friend and former classmate in a graduate program at the University of the Philippines, School of Economics (UPSE), Joey Sescon. Joey is now teaching at the Ateneo de Manila University. After Joey’s comments, my counter-comments follow. I am posting these exchanges with Joey’s consent, of course.

July 5, 2008

Noy, I think current thinkers consider Hayek in the lines of great thinkers such as Adam Smith, Marx, Keynes among others. Unfortunately, I have not read him yet. Hayek was Keynes’ intellectual rival if we go by the economic and state roles since the great depression in the 1930s. Keynesianism was a vogue while Hayek's ideas were vanished into the sidelines for decades and only in the 1970s did his writings and teachings resurrected with much vigor at the time of the first phenomenon of “stagflation” (a recession with inflation, because normally, inflation only happens with strong growth such as what is happening now in Asia). But even before the 1970s, Milton Friedman in the 1950s – 60's was already a member of the small circle of group that Hayek formed. In that group they have set (and have known from the very start) that theirs is a long intellectual struggle. To think that Keynes and Hayek were together in Cambridge during the War (II) and the two climbed together the Cambridge Tower as watchmen to sound the alarm for incoming German bomber planes. Hayek was M. Thatcher's idol (ideas) in implementing the successful reforms in the UK.

To me ideas are ideas and they may be correctly and successfully applied at certain context and time period such as Keynesian ideas’ success in the 1950s till the early 70s. I cannot imagine libertarian principles to become solutions after the great depression in the 1930s. Hayek has of course commented on the 'bad' effects of this success in the long term. Well, we may share the same passion in reading people's ideas on human societies and the world, although I can see you are more active. Now my favorite is reading economists such as Dani Rodrik, Jeffry Sachs, William Easterly who always criticize Jeffry Sachs, other noted economists such as Michael Spence, and Martin Wolf of course in Financial Times.
Below is a statement from William Easterly on individual freedom and development quoting Hayek. Also from Martin Wolf. You see, there is irony in East Asian successful growth and development and freedom, just think of China.


"Individual freedom" is not a simplistic slogan or a recipe; it is extremely difficult to understand, much less for societies to achieve. As Hayek pointed out, the institutions that support individual freedom are "grown," not "made" (the latter seems to rule out an important role for development experts). It is true that "freedom" is oversold as an instantaneous panacea by some of its more zealous ideologues (which I am not), but that does not change the long-run relationship between freedom and development.

As for the oft-repeated "China exception" to the relationship between individual freedom and development, it is once again a question of changes versus levels. The LEVEL of individual freedom is associated with the LEVEL of per capita income (development) in the long run. It follows that it could very well happen that a big CHANGE in freedom such as occurred in China (certainly in economic freedom, and even in political freedom compared to totalitarian Mao) would be associated with a big CHANGE in per capita income (rapid economic growth).

Martin Wolf:

I would also like to take this discussion a little deeper. At one point in my life, I read almost everything had Hayek written on freedom. It was evident (at least to me) that there was a deep internal contradiction.

Hayek believed that freedom worked, because it allowed the right kind of social and economic evolution. Hayek also believed that evolution was the right way for a society to develop. So what is one to say if societies evolve away from freedom? Should one conclude that the absence of freedom was good because it had evolved or insist, instead, that freedom was good because it allowed the right sort of evolution.

Much the same contradiction is buried in Bill's view. Should one recommend freedom as a strategy because it is the right approach? Or should one not recommend it because doing so would interfere in social evolution? The former is indeed a recommendation, however hedged around it may be. The latter amounts to saying that whatever is must be good, because if it were not good it would not be.

Joey Sescon (he he):

Just kidding Noy because I have not read Hayek but I have read Keynes and Marx, I will reserve my thoughts. But ponder for example, the Keynesian view is an episode - successful cure and part of evolution?

-- Joey

Joey, many thanks for this!
Some clarifications and counter-comments here.

First, the "Hayek Reader" that I wrote and posted was about Hayek the political philosopher, not Hayek the economist, of which at one time he was an Economics Nobel prize winner. His economics dabbling I think was more on monetary policy, and which I have not read myself.

So if you will read my essays on Hayek Reader, it was about "dangers of majority rule", "rule of law means no exception", and "safeguards of individual liberty". Nothing on investments and trade, nothing on monetary and fiscal policy, or inflation and interest rates, or unemployment and supply-demand.

Second, statism and socialism was the "in" ideas almost anywhere in the world from the start of the 20th century up to post WW2. People have seen the dirtiest side of colonialism, capitalism and feudalism during and after the industrial revolution, so many intellectuals were in no way inclined to believe and persuade the workers and the jobless that entrepreneurship and inequality as a result of capital accumulation was a desirable social order. That partly explains why Karl Marx's ideas were so reverberatingly powerful and why Lenin was able to mount a successful socialist revolution in Russia. Developed countries that time like Germany and Italy have to conquer other countries through WW1 and WW2 in order to expand, say double or quadruple their economic wealth. There were not much “knowledge economy” that can help improve people’s productivity across all sectors.

Having said those things, may I now turn to quotes from Bill Easterly and Martin Wolf that you posted.

I cannot understand why Easterly would say that "individual freedom is extremely difficult to understand." As I noted in my essays in the "Hayek Reader" paper, Hayek has a very simple definition: "freedom or liberty is absence of coercion". What's so difficult to comprehend there? If one says individual freedom is "extremely difficult to attain", I would agree because again, quoting Hayek, "coercion is a matter of degree". If Mr. X's son would want to watch tv all night and not work on his assignment, and Mr. X will turn off the tv and force him to finish his homework, the son can cry "coercion by his father". At the individual level, ie, the son's perspective, this could be true. When Mr. X wants sex with his wife but the wifey says she will agree to sex only if he will agree to enroll their 2nd son to a more expensive school and Mr. X is not inclined to do so, he can cry "coercion by the wife" and this could be true at the individual level. Hence, coercion is a matter of degree, from micro to macro levels.

About Easterly’s statement that "the LEVEL of individual freedom is associated with the LEVEL of per capita income in the long run", I have some reservations in the validity of this statement. Compare an aspiring entrepreneur in developed France and his counterpart in underdeveloped Philippines.

In the former, there are plenty of government regulations that an entrepreneur MUST follow (labor laws, environmental laws, social security laws, health laws, animal rights laws, etc) and those regulations are more strictly enforced and implemented. With plenty of bureaucracies to face if one is an entrepreneur, many people would rather become "employee forever" and demand lots of "labor rights" like 35-hours work-week, 8 to 10 weeks paid leave, 1 year maternity leave, health insurance to cover all members of the family, etc. It's a lot safer to become an employee forever than become a start-up entrepreneur and face all the various bureaucracies every year.

In the Philippines, there are also lots of government regulations, but such are not strictly enforced. One can be a jeepney driver in the morning and sell bar-b-q, “balut”, other street foods at a corner stand in the afternoon, without paying too many regulatory fees or pay extra income tax. Here, the LEVEL of individual freedom to become a start-up entrepreneur is higher than that in developed France (although the level of productivity among French entrepreneurs are much higher than those in the Philippines). So Easterly's thesis can be wrong in this aspect.

On Martin Wolf, I would find it theoretically difficult if not impossible, to say that "societies evolve away from freedom." If people cannot have the freedom of entrepreneurship -- that classic profession where you produce something very useful to society and people will flock to you and you become rich, could be filthy rich; and if you produce something next to useless, people won't even come to you and you slowly die of bankruptcy and hunger -- how could society evolve for the better? Evolve backwards from homo sapiens to homo erectus, maybe.

At the practical level, if Wolf was referring to China of "society evolving away from freedom" since China remains a one-party, communist party monopoly state, the term "away from freedom" is not correct. During Mao and the "Gang of 4" and the "cultural revolution", to be an entrepreneur and businessman was equivalent to being an exploiter, while to be a peasant and communist party member was equivalent to being a liberator. In the late 70s when Deng Xiaoping and his gang of "revisionists" came, it was reversed to "to be rich is glamorous" and so entrepreneurship and "limited capitalism" was allowed, the rest is history. Was it evolution "away from freedom"? I do not think so.

-- Nonoy

July 8, 2008


Only a few great men/women live fully on their philosophy in thoughts and in practice. On the other extreme, a great many people live giving up philosophical musings since they have to live and survive, or simply happy to live life as it is.

It is hard to argue when I have not read Hayek – his philosophy and economics. However, I assume that other great thinkers and philosophers as good as Hayek, they are most consistent in their philosophy, from tools of analysis to application. That is what makes them great for their ideas are not compartmentalized (or disjointed). So the Hayek philosopher is the same as the Hayek economist, i.e. I expect that logically his thoughts on monetary and fiscal policies will follow his thoughts on politics and philosophy. When he resented Keynes’ ideas despite its success in post WW II (the Bretton Woods era), he must have seen what was coming in the long run based on his basic philosophy and premises on freedom and society and then the economic arrangement that goes with it.

Philosophy as you may have appreciated deals at the most abstract level. But it is the power or logic behind social or economic theories, the analysis and then the solutions or conclusions. It can withstand one or two centuries and may even converge with other philosophies and thoughts. Think about minimal government and the “withering of the state” idea by Marx and Engels, or in parallel the most perfect competition and perfect information theory of consumers and buyers in all markets that presupposes no need of a state. They are three thoughts with a hairline of conceptual and operational differences emerging from extremely opposite philosophies. If we assume these three thoughts reaching the same end or social goals, then these three thoughts differ only in advocating the means to attain the same social end. 

Ok, since as you said most people/intellectuals in early 20th century believed in 'statism' and socialism having seen the ugly beginnings of capitalism, it is understandable that they cannot be persuaded towards a freer society of entrepreneurs, capital accumulation, and inequality. This is Wolf's example of people and societies evolving away from 'freedom'. Are we to say that they were wrong? Socialism has failed eventually (it was exactly predicted by Hayek) but statism in different forms (even at the beginning of socialist Russia) had succeeded in bringing development in Europe and in East Asia in the form of Keynesian and Lenin's statism. Expectedly, it is on the retreat afterwards because after some development, people demand more freedom from coercive powers of the state. 

To Hayek (and to you), freedom is simply the absence of coercion. I can fully comprehend that point allows the right kind of social and economic evolution. It will most likely help institutions that support individual freedom to grow. But still, there is the contradiction that people at some period are willing to sacrifice some freedom to gain something in return. Consider development as freedom by Amartya Sen, the philosophical basis of UN's human development index and reports. 

The other side of the argument is that people are willing to sacrifice as long as there is less coercion and more freedom. An argument that flips back was Lee Kuan Yew's critical comment a decade ago of the Philippines having too much freedom (the American way he said), that is why it has not develop as fast as Singapore, Malaysia, Taiwan, Korea, and China, countries that have very strong 'coercive states' at the start to fast track development. Are we to say then that the Philippines is right because we have more freedom from the state compared to our neighbors since 1986? The right answers maybe found in one to two decades from now (a good end may justify the means), but it does not make someone less right if s/he tries to answer based on what happened in the past 22 years in our region.

Easterly's definition of individual freedom is saddled with complexities of development as freedom (like Amartya Sen's) as compared to Hayek's. I'm sure Hayek has a purpose to simplify the meaning of freedom as a means. Freedom not just from coercion but freedom such as capability – a normal person has more freedom to move than a sick person. Being sick or disabled is not coercion I am sure; same as capability of a rich person and a poor person, assuming they were not coerced in the beginning to become rich or poor. Easterly's freedom is the average freedom (Sen's meaning) of society and not that simplification as Hayek's degree of coercion. There is a study and data involved in Easterly's freedom and level of income. 

As to China, your point is the same with Easterly's claim that from Mao's time, it has evolved to more freedom after Deng's leadership and an increase as well of Chinese per capita income. However, Wolf's statement may refer to China during Mao which can be interpreted as an evolution "away from freedom". The point is that people at some point in history embraced less freedom as a choice, maybe to trade for some stability, leadership, among others and that is also freedom of choice.

-- Joey 

Hi Joey,
Thanks again for these insights.

My understanding of Marx and Engels' idea of "withering away of the state" is that of a developed communist society where the expectation is, "from each according to his ability, to each according to his needs". 

This is impossible, even at the level of theory, because different needs of different individuals can never be fulfilled and provided by a collective, say the government. For instance, person A's "need" is a big house with plenty of cars for his beautiful but egoistic wife that he loves so much; person B's "need" is a pool of sports physicians, wind tunnel laboratories, sprint consultants, various expensive medicines and food supplement, that will help him attain his goal of running 100 meters in just 8 seconds or less (note: current world record is 9.72 seconds), and so on.

The "withering away of the state" goal therefore, will not happen; on the contrary, the big state will stay forever because using it to deliver material wealth and individual freedom to the citizens, assuming that this is possible, will give philosophical ammunition to the state administrators that it should stay forever because it has delivered what it has promised. Compare that with the ideals of "limited / minimal government" that does not advocate zero government, but even a "strong government" on functions limited to just the protection of citizens' "right to life, right to private property, right to liberty". This is consistent with the Hayekian definition of "rule of law" as the main function of the state, where the state should institute laws that will apply to everyone and will exempt no one, both governors and governed.

Notice that those citizen rights explained above under a limited or minimal government condition, do not include the people’s automatic "right to jobs and unemployment benefits", "right to free education till university, right to free health care and hospitalization, right to free/subsidized housing", and so on. Because if these were automatic "rights", then some people can drink and party as much as they want, be lazy and do nothing, because they are "entitled" anyway to have free education for their children, free housing, free health care, etc.

The marriage of freedom and responsibility is among the central themes of Hayekian definition of liberty. Thus, people who are afraid of responsibility are afraid of freedom itself. 

If we are to extend this political philosophy to economics, it will be catastrophic, I would say, to a statist and interventionist government. Because an interventionist government hates personal responsibility; it wants everything to be "government responsibility" as much as possible. When government is big enough to give people everything they want, that same government will also be big enough to take everything that people have. 

For instance, the law on personal income tax is not "rule of law" but rather, "rule of men", because those working for UN, WB, ADB, IMF, WTO, OECD, USAID, etc. are not covered by mandatory withholding tax in the countries that they are working with. They are not even expected to pay income tax I guess, even if these people live off on taxes. In addition, many businessmen, professionals, those in the "informal sector", and many politicians in less developed countries, do not pay the "right" income tax, if they pay at all. So one Hayekian implication of this is that income tax, at least personal income tax, should be abolished because it violates the “rule of law” criteria. Governments should enact and implement only tax laws that will apply to everyone and will exempt no one. A consumption-based tax like sales tax or value-added tax (VAT) that applies to all sectors of the economy will be a good law. This could be the only useful tax law that need to be implemented, and all other taxes can be abolished or reduced.

About the ugly features of colonialism, capitalism and feudalism that I earlier mentioned, I failed to mention that these social and political conditions were mostly driven by statism itself. Colonialism was initiated not by British, Spanish, French or American companies, but by British, Spanish, American or French kings, monarchy and/or governments. Word wars 1 and 2 were initiated not by BMW or Deutsch Telecom or other German companies, but by the German state like Hitler's Nazi government. This means that the trajectory of German political evolution at that time was moving "away from freedom" and it produced not economic development as expected, but wars and devastation.

On the point of people surrendering a part of their individual freedom in exchange for greater individual freedom somewhere, I agree with it. The right to "do anything that one wants" is correct only if in the process, he does not step on the freedom of other people from doing the things they want. For instance, a person has the freedom to drink and party as much as he wants, but when he gets drunk, he has no more "freedom" to stab or shoot or sexually abuse other people because that is stepping on other people's "right to life, right to liberty".

That is why a rule of law under a limited or minimal government condition is the best socio-political set-up to encourage greater economic growth, more material wealth, more performance and innovation from the citizens. In this situation, people can work until midnight if they want, knowing that the State will ensure that there are no muggers, hold-uppers, robbers and rapists prowling the streets to victimize as many people as possible. Industrious people will not desire various subsidies from the State because they should be capable of providing their family's needs. A limited or minimal government will also not consider entrepreneurs and job creators as "potential criminals" by requiring them to secure so many licenses and permits, submit so many papers and certificates, and pay so many taxes and fees, before they can start their business. 

Nonetheless, I admire Easterly's critique of foreign aid philosophy by many governments of rich countries. His "White man's burden" book is among the modern classic readings for many liberty-oriented scholars and students.

-- Nonoy