Thursday, August 19, 2010

Illusion of conflict bet material economy and services sector

(Note: this is my article today at

Improvement in productivity in the agriculture and industry sectors will necessarily spur the growth and expansion of the services sector. The latter not only provides the transportation and financial infrastructures for the growth of the former, it also creates new sub-sectors that expand the market for more agricultural and industrial production.

Some people though keep selling a lousy idea of conflict or contradiction between "Physical economy" and the Services sector. That the reason why poverty is high, why many economies are so crisis-prone, is because of the “stagnating physical economy with ballooning services sector.” Thus, government should further regulate the services sector and government should support and subsidize further the agriculture and industry sectors.

There is zero contradiction between the two groups of the economy. People in the education, health, media, consulting, and other sub-sectors of the Services sector; produce zero electronic product like a circuit or cell phone or laptop. But they create the demand for more new cell phones, new laptops, new iPods, etc. as these electronic products are among the main “means of production” of these people in the services sector.

The car manufacturing industry can grow only if the service economy that uses those cars also grows: taxi, rent a car, company car, hotel and tourism car, and personal car. There are banks and financial intermediaries that allow the car buyers and users to purchase those cars. Through bank financing and related schemes, the car manufacturers have the peace of mind to produce and sell those cars to people who only have a fraction of the money needed to buy the whole new car, and expect to be paid in full after sometime.

As the recent global financial turmoil is not yet over, certain groups and sectors in society keep blaming free market capitalism as the main source of the crisis. But look again: hundreds of millions of people use web-based email addresses and online networking like Yahoo and Yahoogroups, Google and Googlegroups, MSN, Facebook and Tweeter.

Users of such facilities pay zero tax or zero registration fees. Such facilities are 100 percent a product of free market capitalism. Yahoo is fighting hard with Google, Facebook, Multiply, and other online networking companies. So all of them, all without exception, are giving free use of their facilities to the public, and make money somewhere.

It is not entirely free lunch, of course, as those online networking sites and search engines keep some personal information for their own corporate purposes. But people enter on a voluntary basis. They were not coerced to sign the agreement; they were only interested in having free email address, in having access to quick group messaging, and so on.

When the poor complain of expensive dress, expensive shoes, expensive food, expensive-everything in the malls or other shopping areas, they do not go to Malacanang or DTI or other government agencies to demonstrate and demand that government will impose dress price control, shoes price control, food price control, etc. No. Only socialists and statists always think of running to the government to seek for more state intervention and more state regulation.

The poor go to Baclaran, Divisoria, Quiapo, tiangge-tiangge, and seek the cheap dress, cheap shoes, cheap food, that they need. There is zero politics, zero street demonstrations needed. And they go home happy that somehow they were able to buy something. And they work again to save and go back to buy cheap commodities the next time. And there is order in society.

How can the poor be pacified in such a way? By free market capitalism. The expensive retailers are not in Baclaran or Divisoria; they are in Greenbelt, SM, Robinsons, etc. There is a place for everyone.

People just do not realize it. Without free market capitalism, life is lousy and idiotic. See North Korea for instance.

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