Fat-Free Econ 11: GDP Growth and Private Sector Role

* This is my article yesterday in TV5's news portal,
http://www.interaksyon.com/article/33570/fat-free-economics-private-sector-not-government-responsible-for-surprise-growth
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Economic growth is mainly due to the efforts and hard work of the people in the private sector, people who enter in voluntary exchange and trade, and not by endless regulation and subsidies by the government.

This is proven once again by the first quarter 2012 gross domestic product data released by the National Statistical Coordination Board. The Philippines registered a 6.4 percent GDP growth, considered as “second fastest growth in Asia” this year, next to China. Here is the latest data for Asia.

The National Economic and Development Authority in its official statement said thus:

Growth for the quarter was supported by accelerated government spending (including for infrastructure and CCT spending), low prices which supported household consumption…Construction (3.6%) surged due to the upbeat performance of public construction (62.2%), which offset the contraction in private construction (-9.9%)…. Robust government consumption (24.0%) was driven by the strong momentum in spending for maintenance and other operating expenditures (MOOE) of the government… The government’s effort at fleshing out lump sum funds and the advanced procurement activities of government agencies facilitated the hefty year-on-year growth for public construction (62.2%).

This self-congratulatory statement by the government through NEDA is understandable since they are the ones that report out these data.

But contrary to NEDA and NSCB pronouncements, the rather high GDP growth last quarter mainly came from more private sector spending and hard work, via high private consumption expenditures, or household final consumption expenditures as termed by the NSCB.

PCE constitutes 70 percent of GDP. At such a high level, even if government consumption, capital formation or investments, and net exports will slow, if PCE grows fast, GDP can grow fast.

In the first quarter 2008-09, PCE and GDP, respectively, grew by 1.9 and one percent; in 2009-2010, four and 8.4 percent; in 2010-2011, 5.9 and 4.9 percent, and in 2011-2012, 6.6 and 6.4 percent, respectively.

Over the past four years, PCE has pulled up the overall GDP growth, except in 2010, an election year. That year, 1Q growth was pulled up by government consumption which grew by an astonishing 21.4 percent, resulting in GDP growth of 8.4 percent.

If PCE is the main driver of GDP growth, what drives high PCE? The most obvious candidate is from OFW remittances. Last year, more than $20 billion came in via official channels as monitored by the Bangko Sentral ng Pilipinas. The actual amount should be larger as people bring in cash and checks when they come home, or their friends and officemates from abroad come home. For January-March 2012, some $4.84 billion were already remitted, higher than January-March 2011 level of $4.59 billion. It is safe to project some $21.5 to $22 billion in remittances this year based on past trends.

The other main sources of high foreign exchange inflows into the country that translate into more PCE,are tourism - both foreigners and returning Filipinos - and the fast-growing sectors like business process outsourcing.

There are several points and lessons to note before the public will be hoodwinked into believing government’s self-congratulatory pronouncements on economic growth.

One, hard work and efforts by the people in the private sector both here and abroad (the OFWs), and not more regulation, subsidies and taxation by the government – local and national - bring economic growth, despite trying times regionally and globally.

Two, continued economic uncertainties in Europe and North America because of their huge public debt burden as a result of decades-long fiscal irresponsibility and over-spending, presents a good opportunity for the Philippines. Invite those entrepreneurs, investors and professionals looking for other places to invest, to come to the Philippines via less bureaucracy and less taxes.

Three, as an offshoot of the removal from office of the heavily tainted former Chief Justice of the Supreme Court, government should focus its energy and resources more on transparency and accountability, to enforce the rule of law, protect and enforce private contracts and private property rights.

Giving jobs to the unemployed and underemployed, lifting the poor from poverty, can be done by the private sector and the poor if they help themselves. Giving endless perks to a thick layer of the bureaucracy, giving endless subsidies to people including those who hardly help themselves, is not a good way to give justice to the people who prop up 70 percent of the economy and are endlessly taxed for so doing.
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See also:
What's wrong with economics?, July 18, 2009

Inequality 8: On Sustainable Inclusive Growth, June 23, 2011

Fat-Free Econ 1: Macroeconomics for Micro Concerns, March 08, 2012
Fat-Free Econ 2: Determinants of Private Consumption Expenditures, March 14, 2012

Fat-Free Econ 6: Foreign Aid and Tricycles

Note: this is my article yesterday in TV5's news portal,
http://www.interaksyon.com/article/29289/fat-free-economics-foreign-aid-public-debt-and-tricycles)

There is a new loan from the Asian Development Bank (ADB) for the Philippine government worth $300 million to manufacture and distribute some 100,000 electric tricycles (e-trikes) nationwide.

My beef about these 100,000 new tricycles is one, what we need in this country is more high passenger volume vehicles like buses and trains, not more tricycles. Small-population economies like Singapore, Hong Kong and Taiwan do not even have tricycles or jeepneys, how much more an economy with a population approaching 100 million in about two years.

But the local government units (LGUs) ensured the perpetual existence of tricycles by granting them route monopolies. Route A from the municipal proper to Barangay A is to be monopolized by tricycle operators and drivers association (TODA) A. Jeepneys, air-con vans or mini-buses are banned and prohibited from putting up any competition to the tricycle monopoly A. The same goes for TODA B, TODA C, etc. for route monopoly B, route monopoly C and so on.

If LGUs do not create route monopolies for tricycles, then competing public transportation like air-con vans in urban centers, and jeepneys in rural areas can easily fill the transport gap that is monopolized by tricycles. Tricycles would follow a natural death if ordinary folks and commuters are simply given more choices, more options in public transport, not more monopolies.

A second issue is the additional public debt that we would incur from creating these monopolies. Interest payments alone constitute around 20 percent of the annual budget of the national government, principal amortization excluded.

A third concern is if e-trikes are really cute, really financially viable, why not leave it to the market and see if operators will take on the business even without a taxpayers' subsidy. We taxpayers will pay for those 100,000 new tricycles through NEDA-DOE-DOF and LGUs. And the beneficiaries are most likely the political supporters of mayors and governors in the recipient LGUs, as well as supporters of the current administration. If these e-trikes will get zero taxpayers subsidy, then thank you. Unfortunately, I have not seen any document saying that this is the case considering that there is heavy government involvement in the planning and implementation of this project.

A fourth issue is the electricity bill of those e-trikes, which will be borne again by taxpayers through LGU recharging stations. If operators or their drivers will recharge at home, then thank you. If it's us taxpayers, no thank you.

A fifth issue is maintenance and replacement of old and depreciated lithium batteries. Will this be charged to taxpayers, or to private operators with zero tax subsidy?

A sixth issue is the endless rent-seeking and energy/transportation rackets all in the service of "saving the planet." I have three questions for the defenders and propagators of this campaign:

One, where are those scientific data showing that natural factors -- the sun, galactic cosmic rays, water vapor, clouds, volcanoes, other natural greenhouse gases (GHGs) -- are ruled out, are categorically denied, as drivers and contributors to the earth's climate change?

Two, is there no such thing as global cooling, only global warming? No natural climate cycles of warming-to-cooling and back, only "unprecedented, unequivocal man-made warming?"

Three, was there no medieval warm period (MWP) of nearly 600 years of warmer temperatures than the past century's warming? Was there no little ice age that followed after the MWP and preceded the past century's warming?

Any bright idea - if it is indeed a bright one - will survive and prosper if it is financed through voluntary exchange in the market, not through tax subsidies. The system of reward and punishment, of expansion and bankruptcy, is the best regulator and disciplinary tool among market players.

If things are provided at heavy subsidies, there is little incentive to make them sustainable. Instead, people would become complacent, and the original project will be slowly abandoned.

From e-trikes to e-jeepneys and e-buses, only political rent-seekers and their political supporters stand to gain. It is a dubious yet vicious cycle with no end in sight.
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Meanwhile, here is the ADB's youtube propaganda of those e-trikes,
http://www.youtube.com/watch?v=n1mVrZJZCOQ

And here are some details on this project at the ADB website,

http://pid.adb.org/pid/LoanView.htm?projNo=43207&seqNo=02&typeCd=3

Loan Name	Market Transformation Through Introduction of Energy Efficient Electric Tricyles
Country	Philippines
Project Number	43207- 02
Source of Funding/Amount[Proposed]	Clean Technology Fund-IBRD US$1.00  million Ordinary Capital Resources US$300.00  million

The interest rate and other terms for this new fiscal irresponsibility project is not included in the above project data sheet.
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See also:
Foreign Aid 12: WB Corruption of Civil Society, March 23, 2011

Foreign Aid 13: Freedom from Borrowing, July 05, 2011 

Foreign Aid 14: ADB's Electric Tricycles, April 07, 2012

Fat-Free Econ 3: Mining and Environmentalism, March 15, 2012
Fat-Free Econ 4: Unemployment, Good and Bad News, March 22, 2012
Fat-Free Econ 5: Property Rights and Policy Lefts, April 04, 2012

CSOs and State 10: The Role of Civil Society

Sometime in mid-November 2001, I had a debate with Mr. Nicanor Perlas in the KOMPIL yahoogroups/ Mr Perlas was a known environmental and civil society organizations (CSOs) leader in the country then. He ran for President in the 2010 national elections as an independent, with no established political party to support him. He lost naturally, along with other candidates from small and non-established political parties.

The debate started with his critique of then NEDA Deputy Director General (DDG) Popo Lotilla over certain decisions of the Philippine Agenda (PA) 21. Since the focus of this paper is on the theoretical debate on the role of civil society, I removed discussions that focused on details of the debate then. I copy-pasted Mr. Perlas’ postings in pilipinasforum yahoogroups and that’s where a friend, Ozone Azanza was able to read and made counter-arguments against his points.

Here are the snipped exchanges:

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Dear Mr. Perlas,

You said,

the PCSD and PA21 take, head on, the challenge of globalization in the framing of its agenda, policies, and programs. In this way, the Philippines has a powerful alternative to the neo-liberal, radical free market approach of the World Bank, IMF, and WTO, an approach the NEDA is beholden to, an approach that is starting to collapse rapidly worldwide.

The beneficiary of liberal flows of capital and international NGO funds consider free market as "an approach collapsing rapidly worldwide.” 

In a number of papers and discussions, Mr. Perlas defines civil society as "an institution to challenge the totalitarianism of the state and the market". To which I don’t really buy. For me,

a. Markets - individual producers and traders, individual firms and consumers, from prehistoric times to the present - make the world go round.

b. State - an invention to correct market failures, address harmful "externalities", provide "public goods".

c. Civil society - an invention to correct state failures and inefficiencies, later lambast market's self-correcting mechanisms (such as de-monopolization of industries through deregulation & more competition).

Thus, I find the PCSD's composition - 16 from govt., 9 from civil society, 2 from labor (hence, 2 more for civil society), 2 from business - rather weird. The government bureaucrats and many self-styled civil society leaders outvoting business who provide jobs, who produce & trade the goods and services that give sustenance to the other 2 groups. And this set-up is almost "ideal, second to none", according to Mr. Perlas.

-Nonoy Oplas

I agree with you, Noy. There may really be some extreme positions that the civil society group of Mr. Perlas would want Deputy Director General (DDG) Popo Lotilla to endorse to the Office of the President. And of course, the good DDG would not be anybody's lap dog. As one of the only two real recognized experts in international law (the other would be Commie Haydee Yorac?) of course he would have to view things bearing the Philipines' various commitments in the international arena. The problem with SOME civil society groups/watchdogs is they act like kalesa horses. They can see well up ahead, but their peripheral visions are restricted. In a globalized market setting, nations can not be saddled by NIMBYism and other restrictive tendencies. The world is changing, and we have to change with it.

-Ozone Azanza