On Duterte's closure of Boracay for 6 months

"Boracay island is state property. Thus, the state may decide what to do with it, close it down or take it over."

What is wrong, or correct, with this statement?

In the wall of Rotary PDG Jimmy A. Cura who defends the total closure of Boracay for 6 months, Bobi Tiglao commented there and posted his paper and asked me if he is correct or wrong in his arguments, http://www.manilatimes.net/supreme-court-2008-decision-boracay-state-property/381678/

My comment:

"Boracay is state property." Tiglao is correct. Maybe as it is a legal issue and I am no lawyer to comment on the legal technicalities of it.

"state which has ownership of this once paradisiacal island. It therefore may decide what to do with it, close it down or take it over." Tiglao is partly correct and party wrong.

There is a difference between ownership of the land and ownership of the structures and development above the land. Like public forest land, owned by the state through the DENR but industrial forestry/ mature trees are owned by private individuals or an NGO or corporate entity that was authorized by the DENR to do tree planting, growing and harvesting, subject to taxes and charges upon harvest.

The same way in Boracay, the land maybe owned by the state but the structures, hotels, restaurants, shops on top of it are owned by private individuals and enterprises. These entities were recognized and allowed by various govt agencies -- LGUs (barangay, municipal, provincial), SEC, DTI, BIR, DOT, DENR, DOH, BFP-DILG, etc -- to put up businesses there. 

If the state via the Du30 government decides to "close it down or take over", the state may do so -- ONLY upon proper compensation of the costs and investments made by private enterprises.

If one will insist on zero compensation, just close it down or take over, that is dictatorship and large-scale state robbery.

In quotation are additional points from Gov. Jimmy A. Cura:

"Bobi’s point in his well-written article is meritorious"

--> No. There was nothing in Bobi's article considering compensation for private enterprises, especially compliant ones. Hence, Bobi's paper just supports dictatorial closure, no justice to private enterprises.

"those who put up structures in complete disregard of the law are hardly entitled to invoke the protection of the very same law"

--> Then by extension, those govt agencies that allowed the building of those structures, that gave permits and renewed permits annually, that collected taxes, fees and charges year in and year out, should also be closed, if not abolished.

From JJ Soriano the other day:

"To set aside all fears about the real motives for the Boracay closure I move to ask the government to appoint Former Environment Secretary Gina Lopez to be the private sector co-Chair of the Boracay Rehabilitation Committee"

I commented that there should be just compensation for the affected businesses and jobs, short- or long-term displacement.

JJ countered that "it should be net of their payment for their contribution to the damage of Boracay."

Weird. People think that ALL enterprises there have negative externalities to Boracay, no one contributed positive externalities? Millions of people who went there and been coming back again and again only "enjoyed" negative externalities?

Now see these news reports -- that Boracay is an agri land, not a tourism-hotels-bars-golf course land. And there are many farmers there, not hotel workers, boatmen, traders and vendors.

http://newsinfo.inquirer.net/981162/duterte-boracay-to-be-a-land-reform-area-for-farmers-after-closure

https://www.philstar.com/headlines/2018/04/10/1804530/land-reform-eyed-boracay-casinos-banned

For those who support the total closure for 6 months with little or zero compensation, something to clap and celebrate for you and Digong.

http://newsinfo.inquirer.net/980950/news-boracay-business-employment-aklan-closure-shutdown

  

Meanwhile, an id... Jojo Estrada posted this in Gov. Jimmy's wall...

No discussion, only name-calling. If this is posted in my wall, I will reprimand the person or delete the comment. I expect Gov Jimmy A. Cura to do something about name calling in his wall but he did nothing, kept silent and retained it. "Is it fair to all concerned?" Oh well...

Finally, posted by Yendor Aloid today -- transcript of PRRD press con on boracay:

TRACTORS FOR BORACAY

PRRD: Now if you are asking of a financial help, we are—I’m going to sign the proclamation of calamity and we can make available about 2 billion of assistance. But these are only for the poor Filipinos. I will not spend any single centavo for those inns there, hotel owners or motels. At iyong magagandang bahay, do not expect me to pay anything. That money is only intended for the Filipino. Iyong mga foreigners neither reparations or renumerations. Eh sila iyong pumasok diyan, they should know na bawal. Iyong 2 billion diyan and the other help of—each department has its own contingency plan. So mayroon magtulungan kami.

But master plan wala akong master plan diyan, linisin ko muna iyan kasi agricultural iyan. So maybe after that, I’ll give the farmers—i-land reform ko na iyan mas mabuti pa. I’ll tell you now. I-land reform ko lahat iyan then I’ll give it to the farmers. Me, I’ll give them the tractors, iyong ano—agricultural eh. Eh ‘di ibigay ko muna sa—bago ano iyang—well sabihin ninyo, how about the business? Well, I’m sorry but that is the law. The law says it is forestal/agricultural. Why would I deviate from that? Do I have a good reason to do the what? What? Mga casino? Who owns the casino? Hotels? Big ones. Who owns them? Eh mga mayaman pati iyong mga dayo. Eh agricultural man kaya iyan, eh ‘di ibigay ko sa farmers.

You want to know now? I’m going to read the announcement. It is going to be a land reform area for the Filipinos. Now, if they want to build something there, they can build in a floating—unahin ko iyon, lilinisin ko lang naman, ibalik ko sa Filipino iyong lupa nila.

---

PRRD: Walang akong plano diyang casino-casino. Tama na iyan kasi sobra na. May casino dito, casino doon. Give it to the people who need it most. That is an announcement: It will be a land reform area, period.

Agri Econ 23, Why forever Agrarian Reform should stop

I am reposting portions of a presentation by Dr. Raul Fabella made at UPSE in May 2014. I agree with his arguments -- the endless, forever extended deadline of agrarian reform (AR) or forced land redistribution should end. It is now 44 years since the Marcos AR program in 1972, longer if AR programs in the 50s and 60s by previous administrations are counted.

Forever AR is a major source of uncertainty for agri business development and modernization. For instance, you buy and convert a 10 hectares low-productivity farmland, spend huge amount of time, years and money. When the land has become productive and you start earning big to get some returns for your investments and hard work, pay for some loans, the Department of Agrarian Reform (DAR) people can suddenly come in from nowhere to tell you that your land will be forcibly redistributed by the government to your workers. The government will pay of course, but at lower rates and valuation dictated by the state, not at prevailing market rates and prices.
---------------

The Record

* By 2014, CARP shall have distributed 5.05 million hectares, leaving but 321 thousand hectares or an accomplishment rate of 99%.

* 2.6 million farmers shall have gained some form of ownership to an average 1.2 hectares, shall have acquired and distributed 16% of the total Philippine land area of 30 million hectares.

* Japan’s vaunted land reform distributed only 1.76 million hectares of its total 37 million or 4.7%.

* Taiwan distributed 0.5 million hectares of its total of 3.62 million or 14%.

- (Adriano, 2013)

2008 APPC Study: “Land Reform, Rural Development and Poverty in the Philippines: Revisiting the Agenda”

• Per Capita Income: Income of ARC members with land was greater than income of ARC members without land. Income of Non-ARC members with land is greater than income of Non-ARC members without land;  Land ownership seems to matter.

• But when other factors are controlled for, neither being an ARB nor being an ARC member explains differences in income per capita.

• This implies that “land ownership via CARP” is an “inferior type ownership.”

• Our hypothesis: inferiority is associated with Section 27 and Section 6 (the land ownership ceiling of five hectares) of CARP.

• Being an ARB correlates negatively with access to formal credit even though land ownership correlates positively. This shows the property rights frailty of CARP.

• Conclusion of APPC Study

“Twenty years later, the results of the Comprehensive Agrarian Reform Law (CARL) launched in 1988 were below expectations. Productivity growth in agriculture has been low by regional standards and poverty still plagues rural areas. Total agricultural factor productivity has grown only 0.13% per year during 1980-1998, compared to 0.87% per year in Thailand and 1.49% in Indonesia…”

Design Flaws

• Unequal exchange: The productivity of land depends in its capacity to command financing. CARL effectively outlawed that capacity, making the land conveyed to the beneficiaries “effectively inferior” to that bought at market price from the landowner.

• Entrepreneurship Myth – give a tenant a piece of land and he/she morphs into an entrepreneur. Self-selection be damned.

• Coase Theorem be damned! Section 6 (ownership limit) and Section 27 effectively outlaw land asset exchange.

• The market be damned! The state supplants the market as arbiter of efficient use of assets.

• Economic size: If the land (3 hectares) is not “economic size” for a crop and location, it is a high-default risk, loses the capacity to command credit and is worth less than as part of a larger credit-worthy parcel.

The beneficiary is short-changed and condemned to fail! Economically unviable property rights are not stable.

• Size Economies: if economic size farm for a crop in a vicinity is > 5 hectares, consolidation will go underground (up to 100% in some villages) where property rights are unstable.

(India’s land ceiling ranges from 4-21 hectares depending on state; Sri Lanka’s is 20 hectares; and Cuba’s is 67 hectares!)

• Comprehensiveness: Same rules for all crops, whereas successful, templates stopped at rice lands! The Marcos effect?

• Consequences: Private capital flight; Sumilao as parable; a permanent credit crunch in the agricultural sector; low investment rate due to unstable property rights and no scale-up possibility. High rural poverty!

Private Capital Flight from Agriculture

Ratio of Total Bank Lending Share to Share in GDP: Agriculture

 1980, 60%;  1990, 50%; 

2000, 35%;  2010, 19%.

Quo Vadimus?

• No farm land ownership limit for publicly-owned firms listed with the PSE.

• Allow efficient farmers to own up to x > 5 hectares of agricultural land.

• Allow banks operating in rural areas unlimited ownership of land.

• Finish converting Collective CLOAS to individual CLOAS.

• A progressive farm land tax vice LAD.

State Capacity and Failure

• When a state overreaches, the result is a state failure: actions by government makes market failures look like God’s gifts.

• The Philippines widely recognized as a weak state: does too many things badly; too many windows for waste and corruption; it should do fewer things well.

• Poverty Reduction by sticking to basics: better courts of law, better highways, better overall governance, cheaper and more stable power supply.

The 1662 Book of Prayer expresses best the relation between societal health and state overreach:

“We have left undone those things which we ought to have done; and we have done those things which we ought not to have done. And there is no health in us.”

-----------

See also:

Agri Econ 5: Land Reform Without Timetable is Wrong, July 01, 2010

Agri Econ 9: On Agrarian Reform and Agri Credit, April 29, 2013

Agri Econ 14: NO to Further Extension of Agrarian Reform, July 03, 2014 

Agri Econ 20, On NFA-BOC Campaign for Expensive Rice, May 19, 2015

Agri Econ 21, Rice protectionism as poverty-maximizing policy, September 25, 2015

Agri Econ 22, Why "peak food" hypothesis is wrong, December 25, 2015

Agri Econ 14: NO to Further Extension of Agrarian Reform

Three weeks ago, there was a report that after President Noynoy Aquino met with several farmer leaders, he was persuaded to have another extension of agrarian reform (AR) in the Philippines, from end-June 2014 (last weekend) to another two years, mid-2016.

This is wrong. Endless extension of forced land redistribution is wrong. Agrarian reform in Japan, S. Korea and Taiwan took only three years or less, zero extension. Here, it is 42 years now, plus two more years? Then extend again when the next administration comes to power?

If one has 10 hectares or more of inherited land from his parents, or he bought an idle and unproductive land for a bargain, and he wishes to jump into agri-business, most likely he will postpone doing it and keep the land idle in the meantime, or use it for pasture, other low value land use, just pay the real property tax at the municipal or city hall. Because if he develops it into high value crops farming, the Department of Agrarian Reform (DAR) will soon knock on his door to say, "As reward for making your idle land become productive, your land will be forcibly taken from you and be redistributed to your workers at low, DAR-valuation price."

When former President Marcos issued his AR program in 1972, it was "land to the tillers". I think it was in the Comprehensive AR Law (CARL) of 1998 that it was expanded to "land to the landless workers" as well.

Endless, no time table AR and forced land redistribution is among the major reasons why agricultural investment and development in the PH is low. There is high uncertainty of government coming in to forcibly take the land away from agri-businessmen and be given to workers who may have little or zero entrepreneurial skill and interest.

The populists and AR campaigners do not realize the damage to rural development of their advocacy. Rural entrepreneurship is not for everyone. If AR did not work well in the PH after 42 years, what makes the advocates think that it can work for the next two years or more?

Even if AR in the PH will be implemented for the next 100 years, it will not work, and some people will always blame the "landed elite", never the AR beneficiaries themselves, never the AR implementers, never the bleeding heart campaigners. 

Assume that you are the landowner of 10 or 20 hectares that you inherited from your parents. Assume further that you voluntarily give away the land to me and a few other workers at a low price, and it so happens that I and my fellow AR beneficiaries' entrepreneurial skill will not even allow us to have a successful sari-sari store. So what do we do with the land that you gave? Most likely, something like 99 percent, we sill sell it to someone else so we can pay back the small price that you charged us, plus it can give me some money to buy a tricycle, expand my house or move elsewhere, plus buy a flat tv, new ref, etc. Then I go back to being a landless person. And AR is defeated.

Repeat: entrepreneurship is not for everyone. If people see or count some successful entrepreneurs, they do not see or count those who tried but folded after a few months or years. 

When I was working at the House of Representatives in the 90s, I talked to one Congresswoman from Northern Mindanao. She said that a large rubber plantation in Basilan was successfully AR'ed, meaning the entire land was successfully and forcibly redistributed to the rubber workers. End of good story? No.

The rubber workers know little about marketing, finance and selling their produce, like who can buy their rubber at a good price and good terms, what new technology to maximize rubber output, and so on. What the AR beneficiaries did, they cut the big, mature rubber trees and planted bananas. And since the land may be conducive for rubber but not for bananas, output was low and so they were back to subsistence farming, but they are small landowners at least. End of somehow good news? No.

Subsistence farming means low income, means poverty. So some of these ex-rubber workers started selling their land. And they are back to landless workers. So AR has been defeated. From poor landless workers to brief small landowners and back to poor landless workers, despite successful land redistribution, despite all the good intentions.

Meanwhile, Dr. Raul Fabella of UPSE wrote a paper, CARPER: A time to let go in BusinessWorld early this year.

CARP Extension with Reform (CARPER or RA 9700) which extended the 1988 Comprehensive Agrarian Reform Law (RA 6657) will itself expire in June 2014. By the end of 2012, 4.49 million hectares shall have been acquired and distributed. That figure represents 84% of the 5.37 million hectares targeted for distribution.

By 2014, the CARP shall have distributed 5.05 million hectares, leaving but 321,000 hectares or an accomplishment rate of 99%. By then 2.6 million farmers shall have gained some form of ownership to an average 1.2 hectares of land (this column owes much to Dr. Fermin Adriano’s “Sustaining the Momentum of Inclusive Growth in the Post-CARP Scenario”). One can argue that CARP and CARPER represent one gargantuan obeisance to the principle of equity: 202,000 hectares acquired and distributed per year for 25 years!

S. Korea did its own AR program in the 50s or early 60s, in just three years or less. Entrepreneurship plus modern technology allow the S. Korean farmers to have  high productivity. See this youtube clip. Rice planting, evenly spaced, is done by a small tractor.

It can be done too here in the PH, if corporate, large-scale and high tech farming is allowed and not demonized. 

On another note, there is a similar debate in S. Korea as in the Philippines -- to retain rice protectionism. Consumers want cheaper rice via rice trade liberalization, rice producers (or perhaps agri NGOs and other protectionist NGOs, accredited rice importers) want expensive rice via trade protectionism. Contained in this news report.

Protectionism is wrong. It penalizes the consumers, the majority of the population. And even rice producers themselves are net consumers on some months, like when they have a bad harvest, or a strong storm or huge pest attack damage their crops.

---------- 

See also:
Agri Econ 9: On Agrarian Reform and Agri Credit, April 29, 2013
Agri Econ 11: Protecting Land Properties by the Poor in India, April 22, 2014
Agri Econ 12: Presentation at WASWAC-BSWM Seminar, May 13, 2014
Agri Econ 13: What and Where to Plant, Nature vs. Government Planning, June 24, 2014

Agri Econ 13: What and Where to Plant, Nature vs. Government Planning

Rice trade liberalization, not rice protectionism and "anti-smuggling" campaigns, is a better alternative for the Philippines, Indonesia, Malaysia and other countries. What to plant where, nature itself provides the clue.

This is a good report from the International Rice Research Institute (IRRI), Rice self-sufficiency: A question ofgeography? It observed that

In theory, the reasons why the exporting countries might have more rice area per person could be that their land is more suited to growing rice (as opposed to other crops), cropping intensity (the number of crops planted per unit of agricultural area) is greater, more land is used for agriculture, or more land is available per person (low population density).  

Empirically, the proportion of total crop land devoted to rice, which is a measure of the suitability of land for growing rice, explains rice production per person across countries almost perfectly (the R2 of a simple linear regression is 0.92; see Fig. 1). Thus, the importers are all to the lower left of the figure, while the exporters are to the upper right.

Some folks would say, “My grandfather was a farmer, my father was a farmer, therefore I should be a farmer too."  

Yes, but while one's grandfather and father were rice farmers, he can be a vegetable farmer, or chicken or goat farmer. Very often, governments waste resources, like forcing rice "self-sufficiency" policy and compromising other policies and taxpayers' money. The endless agrarian reform (only 2-3 years in Japan, S. Korea, Taiwan) that is now 42 years, counting only from 1972 Marcos' agrarian reform, is mainly premised on encouraging or forcing rice self-sufficiency. That IRRI paper should help douse cold water in the minds of the rice protectionist groups. 

An American friend based in Iloilo, Bruce Hall, made a good observation early this year. He wrote,

Why is rice smuggling even a crime? Food should be a cheap as possible. If that means that I buy my rice from a poor farmer a thousand miles away in another country rather than hundreds of miles away, so be it. What is important is that food is cheaper so that the poor can afford to eat. Already 1/3 of Filipino children are underweight or under-height.

Another good article, from the Philippine Rice Research Institute (PhilRice) last January 14, 2014,  PhilRice Calls for Rice Competitiveness toCurb Smuggling

According to the two PhilRice economists, domestic price of rice was up to 75% higher than average global rice prices in 2000. The gap reduced in 2008, but price differential widened again to around 30% in 2012 mainly due to higher import tariffs (of about 50% beyond quantitative restrictions quota) and higher production costs... 

The economists say that Free Trade Agreements with ASEAN countries next year will force the government to reduce trade barriers which in turn will minimize rice smuggling in to the Philippines.

It's good that some government researchers are mindful not to keep punishing us average rice consumers with government-created expensive rice policy.

If global food production must double within 4 decades or so while the land area for agri cultivation generally remains the same, then productivity must increase 2x. More science, more genetic modification, more free enterprise will be needed. Chart from WEF.

Meanwhile, this policy of retaining quantitative restrictions (QR) for rice is wrong. See the news report today here.

I think the Philippines is the ONLY member-country of WTO that retains the QR. All other rice importing countries have converted their QRs into tariff. Even socialist China shun QR for their rice imports. And socialist Vietnam enjoys free trade of rice and other agri commodities. 

And this report last week.

(IRRI) last year said that global rice prices have been spiraling downward last year due to the excess production in major exporting countries like Thailand and India." Yet PH rice prices last year jumped. Rice protectionism is wrong. I wonder why a Liberal government still entertains protectionist policy. 

I think it is National Food Authority (NFA) protectionism and bureaucratism that is at the root of this expensive rice problem when rice prices should be going down. Of course the never-ending agrarian reform and dislike of corporate rice farming also contributes to the problem.

----------------

See also:
Agri Econ 9: On Agrarian Reform and Agri Credit, April 29, 2013
Agri Econ 10: On Rice Price Spikes, September 29, 2013
Agri Econ 11: Protecting Land Properties by the Poor in India, April 22, 2014
Agri Econ 12: Presentation at WASWAC-BSWM Seminar, May 13, 2014

Agri Econ 9: On Agrarian Reform and Agri Credit

Below are some exchanges that I and some friends made last January 18-20, 2013 in my facebook wall. Posting their comments with their permission.
------------- 

Tibs Filbert Arsenal Arceño Hi noy, for me one main factor why local harvested rice have higher prices compared to other asian countries is land ownership. As practiced, most land planted w/ rice are being owned by absentee landowners. Since these lands are cultivated by tenants, workers or renters—a portion of price of produces are considered before taking into account the base price for the market. While in Vietnam majority of rice farmers are landowners. So we end up paying absentee landowners a part of the rice we eat even though they do not take part of the actual production. i believe that agrarian reform is still key to development in the countryside. 

Nonoy Oplas Not really Tibs. Local rice production simply cannot keep pace with rising population (1.7 million a year net of death and migration). Rising rice prices -- along with prices of tilapia, chicken, galunggong, pork, house rental, school tuition fees, etc. -- are natural. Rice farmers themselves want higher price for their palay too as they have rising needs for their households. What is objectionable is using more tax money for agri cronyism like what the NFA is doing.

On agrarian reform, it is among the main sources of agri business instability. You develop an ugly, marginal, cogonal land into a mango orchard or banana, pineapple, rambutan, etc., and when you succeed in making that land productive, DAR people will come to you to say that they will forcibly redistribute your land to your workers. You will not be happy when that happens, so many agri business ventures are postponed, or kept at low key levels.

Shakaru Macht Well, Nonoy, Tibs has a point. For more information, please read Henry George. He has an elegant book entitled Progress and Poverty. Its premises explain how poverty exists despite economic growth. Inequality of access, possession and ownership of natural resources - in particular land is emphasized here.

By the way, I fully agree with you not having forced land transfers, nor practicing the agri-cronyism done by the SUPER-REGULATORY BUREAUCRACIES of our government, who are given virtually divine powers who uses or benefits to what. It's not only inefficient - but also gives undue advantage to the special interests like the big farms and haciendas...

Tibs Filbert Arsenal Arceño yet it could be an additional income for the rice farmers if they own the land. just imagine about 15-25% of the income goes to the absentee landowner.

noy how about a discussion on the rise of the bombay/turko sector and its effect on our economy especially on our SME's. one day you see a turko collecting 5/6 among market stall owners riding a motorcycle. after 5 months he's already using a brand new adventure or a vios. after another 5 months, he is now riding a high-end hi-lux pick-up. how come they end up successful in their business? how come that turkos----who cannot speak our dialect and are oftentimes held-up--- succeed?

Nonoy Oplas Some absentee landlords extract exorbitant rents, some simply lose their lands to land grabbers, rich and poor alike. Squatting for instance, is land grabbing. If a land owner is seldom seen in his property, chances are that farmers won't pay the regular rent while other people will start building houses, other structures in the land.

About the Bombay/Turko lending, they fill up certain sectors of the credit market. In formal sectors like banks, borrowers like those in palengke must go to them, fill up certain forms, present a collateral, convince the bank officers that they have the capacity to pay back, do transactions only on weekdays and non-holidays. In the Bombay system, it's the entire opposite: the lenders go to the borrowers, do not require loan application form, do not require collateral, only word of mouth recommendation from other borrowers, do transactions 7 days a week incl holidays. The bank officers are holed up in air-con, fully guarded place, the Bombay endure heat, dust, rain, traffic, muggers and hold uppers. The admin cost of lending and collecting to each small borrower is high. I am not justifying that their 20% per month interest rate is good, it's just how the lenders would value their effort and risks endured. Which also reflects the failure of the government banking regulation system that force the formal lenders like banks to become extra careful, resulting in their inability to serve the micro but numerous borrowers.

Business Bureaucracy 3: Their Rules and Life

I tweeted these "bureaucracy rules". Now I will elaborate or give examples on them. Bureaucracy here means government bureaucracy.

1. Once a bureaucracy is created, its 1st act is to perpetuate itself. It has no allowance for self-destruction someday.

2. When one coalition of governments and bureaucracies don't work to one's advantage or agenda, create a new one.

3. If threatened w/ abolition, bureaucracy's main defense is counting d no. of bureaucrats who'll lose job, social tension.

4. Before the main mandate is accomplished, create new functions, prgrams and "needs" to perpetuate itself forever.

5. Create one admin or regulations order, monitor how ineffective it is, create a revised regulations order, monitor...
-------

On #1, this is a universal rule of the bureaucracy in possibly all countries and governments. And this largely explains why many bureaucracies, from local to national governments, to multilateral and inter-governmental bodies, keep expanding.

On #2, good examples are the new US government initiatives, the Partnership for Growth (PFG) and the Trans-Pacific Strategic Economic Partnership (TPP). Many if not all countries invited for this new economic coalition are also members of the Asia Pacific Economic Cooperation (APEC). Since the US does not get all its demands and economic agenda from APEC, then it created a new coalition where member-countries and governments will be indebted to it for such new "initiative" and thus, agree to a number of US government demands and political-economic agenda.

On #3, many agencies, departments and bureaus whose mandate has been outdated or irrelevant, cannot be abolished because they have already packed those offices with many employees and directors. Abolishing the office would means several dozens, if not hundreds or thousands, of bureaucrats who will be displaced.

On #4, one option for the bureaucracies whose original mandate has become outdated, is to expand its mandate so that it will remain "relevant and needed." One good example is the Department of Agrarian Reform. The Comprehensive Agrarian Reform (CARP) was enacted in 1988 and was given 10 years to be implemented. DAR is supposed to evaporate once CARP has been fully implemented. Then CARP was not fully implemented for various reasons, so it was extended for another 10 years, to end in 2008. Then it was not fully implemented again, extended again for another 5 years, until 2013. It is safe to assume that there will be another 5 years (or longer) extension as DAR has created more programs like "urban land reform" and there is no limit to those urban land redistribution.

On #5, this is how various Administrative Orders (AOs), Executive Orders (EOs), Republic Acts (RAs) and other laws and regulations keep expanding. The previous regulations allow certain loopholes for the regulated sectors and businesses, so the next administration and officials create new regulations and orders to amend and revised the previous ones. And another change of administration and officials would mean new changes and revisions to recent revisions.
---------

I wrote this last December 16, 2009:

Unemployment and Statism

The National Statistics Office (NSO) released yesterday its October 2009 Labor Force Survey (LFS), http://census.gov.ph/data/pressrelease/2009/lf0904tx.html.

One ugly result is this: Out of 45.08 million Filipinos in the labor force, 2.72 million were unemployed, and 6.88 million were underemployed (have jobs but need additional work, mainly to augment current small income).

That's a total of 9.6 million Filipinos were either jobless and poor, or have jobs but feel poor enough and look for additional work and additional income. They constituted 21.3 percent of those in the labor force.

Now, there are also people who can be economically productive, but are not looking for a job, mainly because they think they can't find a job anyway. Or they may find a job but not at a salary that they wish to receive. So either they become idle ("tambay"), or pursue new studies to acquire new skills. Say an engineering graduate who cannot be hired as an engineer, so he studied BS Nursing to be hired as a nurse abroad someday, where expected income is a lot higher than local jobs.

For this group of people, they are not part of the labor force at the time of the survey. And this has the tendency of not worsening the already bad unemployment situation.

Who hire workers? The entrepreneurs, the investors, the capitalists. Local or foreign, corporations or single proprietors (or partnerships). They are the main job creators.

"Wait, wait, we are also job creators!" Say government. Oh Yes, thousands of government agencies and bureaucracies, national and local, also hire people. My estimate is that there are almost 4 million Filipinos who are working in government, both national and local government units.

But government hire people not as food producers or transporter of people, food, and other commodities. But mainly as politicians and their staff; as regulators and tax inspectors and collectors. The people who oftentimes give the entrepreneurs and private sector job creators a hard time.

So in a period of high unemployment and high underemployment, the best policy tool is to relax or abolish certain regulations and taxes that discourage the entrepreneurs, the capitalists and job creators. More job creation by private entrepreneurs in exchange for less bureaucracies and less taxes. But this is not happening. Rather, there is more bureaucratism, more regulation, more taxation.

Statism and heavy State intervention in business is a scourge. It drives millions of people to poverty and hopelessness.

I hope more people and voters will realize it in this coming national and local elections on May 2010. Then they will demand for a team of less interventionist candidates who will minimize and reduce the scourge of statism.

* See also:
Business Bureaucracy 1: Avoiding government: Egyptian experience, March 12, 2007
Business Bureaucracy 2: We don't need a new DICT bureaucracy, July 13, 2010
Welfarism 11: Bureaucratizing Entrepreneurs, April 11, 2011

Expats View 1: Some Drastic Government Moves

One of my favorite newspaper columnists is Peter Wallace, an Australian businessman who has been living and working here for more than three decades now. Peter writes a weekly column in Manila Standard.

Today, Peter's article is entitled, "A real to-do list",
http://www.manilastandardtoday.com/insideOpinion.htm?f=/2010/august/6/peterwallace.isx&d=/2010/august/6

Peter suggested the following to President Aquino:

1. Legalize jueteng you’ll never stop it. Bingo is legal, casinos are legal, why is just one form not? Legalize it, you can control it. Legalize it and the crime syndicates go bankrupt.

2. Abolish the National Food Authority use conditional cash transfers. With a debt of P177 billion, it’s a proven failure. Give the poor the cash to buy from a competitive market.

3. Mandate that all pork barrel funds should go to education and health.

4. Revive family planning and sex education in school ask the United States to provide free condoms again.

5. Add carriages to MRT-3 and reduce the number of buses on EDSA by half, controlled into the right-hand lane only LRT-7 will help greatly here.

6. Make English the primary language of learning but retain Filipino as a secondary language.

7. Negotiate power plants we know the cost. We need power NOW. Declare a state of emergency if necessary, because it is an emergency.

8. Order transparency in government a law can follow. All President Noynoy Aquino has to do is order all departments to open their books to anyone who asks.

9. Reduce cigarette taxes to one tier or, reluctantly, two the currently mangled law is depriving the government of billions. we need high taxes on cigarettes, they kill.

10. Increase VAT to 15 percent and greatly reduce personal income tax for salaries below P20,000 per month. I’d far rather pay tax when I spend than when I earn.

11. Scrap the idea of receipts and taxes for sari-sari stores they can come later, if at all. Let those with marginal incomes also maximize the use of what little they get.

12. Create a Department of Information and Communications Technology it’s going to be the biggest sector.

13. Split the Department of Environment and Natural Resources you can’t promote and regulate in the same office. The conflict this develops is emphasized by what’s happening in Tampakan now.

14. Scrap the Comprehensive Agrarian Reform program, 21 years was long enough it hasn’t worked and you need plantations, economies of scale in agriculture.

15. Resolve the Ninoy Aquino International Airport mess within 90 days, not 91 either through a final court decision or a unilateral decision by the Philippine government to just pay a fair price.
---------

Of the 15 items above, I support all except the following:

12. Create the DICT. It's another bureaucracy in the government, the BPO and ICT sectors grew even without a department in the past. Most new regulation on ICT becomes outdated within a year or less as that sector is very dynamic.

I haven't thought much on no. 4, revive family planning and sex education in public schools.

Agri Econ 5: Land Reform Without Timetable is Wrong

A number of people commented on the new Philippine President's inauguration address that he did not mention about land reform, that land reform is mandatory for social and economic development.

I countered that land reform with no timetable is junk. Land reform in the Philippines was first initiated by the government in the 60s. Then a "new" land reform was implemented in the early 70s during the Martial Law period. Then another "new" land reform was implemented in 1988 when the new government took over from the dictatorship that ruled the country for 20 years.

The 1988 land/agrarian reform law, or the Comprehensive Agrarian Reform Law (CARL) has a timetable, that land redistribution should be over by 1998. By 1998, under another administration, the law was extended to end by 2008. By 2008, another extension was made. There is only extension to an extension.


The land socialists do not realize it. Try developing even 10 hectares of idle and grassland into a productive fruit orchard. After several years, when the land has become productive and you begin harvesting the fruits to recoup your effort, time and money, some bureaucrats from the Department of Agrarian Reform (DAR) will come to say, "we will redistribute your land to landless workers." It happened to a number of my friends. That is why land reform without timetable is formula for uncertainty. Land reform should have final-final timetable, zero extension.

Land socialists think it is a crime to own an agricultural land even 5 or 10 hectares out of their hard work and years of savings. That is why they believe that the government should confiscate those lands and give to the landless. They really believe that it is wrong and a crime to own some productive "means of production."

Japan, Korea and Taiwan land reform was successful because it was done in one sweep. Just a few years and it's over. Not 30 or 50 years as in the case of the Philippines, and still no real timetable.

See also:
Agri Econ 1: Food Prices and Government, April 13, 2008

Agri Econ 2: Rice Laissez Faire vs. Subsidies, May 06, 2008

Agri Econ 3: Dr. Samran Sombatpanit and WASWC, July 03, 2008 

Agri Econ 4: Government Agricultural Interventions, October 21, 2008

Agri Econ 1: Food Prices and Government

My two articles last month and today...
----------

MARCH 19, 2008

Lent and food prices

Lent is among those big “retreat days” for Filipinos due to the 4-days weekend. Many of those living and working in Metro Manila and other big cities retreat “back to the provinces or far away municipalities” and enjoy less stressful life where the air is cleaner and food prices are cheaper. But not this year’s Lent, it seems.

Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.

The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.

A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.

So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.

Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.

Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.

Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.

Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.

Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.

Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.

So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.

The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.

---------

APRIL 13, 2008

Rice shortage due to government intervention

First of all, while many people who try to analyze the current food price hikes phenomenon call this as "rice or food crisis", I do not believe that it is already in a crisis situation. A "crisis" situation is where you have a 50-50 chance of either surviving or dying in a particular condition, say a patient in an intensive care unit (ICU). I'd go along with a few who simply call this a "rice shortage" problem that can be solved by more rice supply, both in the short- and long-term.

Most of the literatures that come out recently analyzing the problem in the Philippines and abroad blame the government for "not doing enough" -- ie, not intervening enough -- in earlier years. They mean the government did not: build more dams and irrigation canals, more warehouses and other post-harvest facilities; did not undertake more research and extension work; did not produce more subsidized fertilizers and hand tractors; did not provide more agri credit; did not reforest enough watershed areas; etc.

The list can be endless, depending on how statist the person who is talking of writing. That is, the more statist and socialist-oriented a person is, he's likely to say that government should "provide everything" for agriculture and the farmers. Of course they won't say that they also advocate that the government should also "take everything" from the people to finance those "provide and subsidize everything" projects.

I am of the opinion that government should not provide everything and take everything; not even provide many things and take away many taxes and fees. The reason why rice -- and other food crops' -- supply has not kept up with demand is precisely because of too many government intervention. People respond to incentives and shy way from disincentives. If there is not much profit from producing rice, then there will be less people who will produce rice, and there may be less land that will be devoted to planting rice.

When governments say they are increasing the budget for agriculture, the first thing that they increase is the number of personnel, consultants, and officials in their respective Ministry or Department of Agriculture, plus those in related agencies like Ministry or Department of Agrarian Reform, state agricultural colleges, etc. And those plenty of personnel will require more salaries, more bonuses, more offices, more trainings, more travels, more cars, and later on, more pension and retirement funds. Then some local governments follow suit, and expand their own local agriculture bureaucracies, financed from their local taxes and fees.

I think one of the important moves if societies are to improve their agricultural and food production capacities, is to abolish those Agriculture Ministries or Departments, and cut the taxes that the state collect from the private sector that finance those expensive bureaucracies. Since rational people would not want to be jobless for long and die hungry, many of those currently in government agricultural and related bureaucracies will likely become farmers themselves or become traders and/or processors of raw agricultural products. And this expands rice and food supply. When supply grows faster than demand, then the price will go down, and people will have lots of food at cheap and affordable prices, and there will be less hunger and malnutrition in society.

But when government Agriculture Ministries or Departments are abolished, who will build the dams and irrigation canals? The warehouses and post-harvest facilities? Who will do more rice and agri crops R&D? Who will provide cheap credit, and so on?

Good question, and the quick answer is -- the productive people themselves. For one, many of those infrastructure and facilities are currently being provided by the private sector, and they are being operated despite zero taxes financing, at least in the Philippines.

When people know that there is an agency whose job is to provide lots of subsidies to them and they won't go to prison if they cannot pay back those subsidized credit, subsidized fertilizers, seeds and hand tractors, then they will get and abuse those government services without necessarily raising their farm output. For instance selling a few bags of fertilizers and seeds to other people and use the proceeds to drink and party.

Okay, abolition of those monster Ministry or Department of Agriculture is unpalatable and unacceptable due to big political risks. Then the next move will be drastic reduction of those bureaucracies, including privatization of some of their attached agencies and bureaus. In the Philippines for instance, the privatization of the government grains trading monopoly, National Food Authority (NFA) has long been proposed and discussed. The cost to taxpayers, as well as price distortion due to its trading monopoly function -- for many years, it is the grains importation monopoly; and in some municipalities, it is the single biggest buyer of farmers' palay (unmilled rice) output.

Rice shortage that result in high rice prices will naturally create incentives for farmers of other crops to shift back to producing rice. And other investors, including micro- and small businessmen, will flock to a sector (like rice) that experience high prices and high profitability, and leave those sectors that experience low income, if not losses.

Market failure, as some statists call this, always invite and create market solutions. The "failure" or displacement is temporary, the same way that high profitability in one sector is also temporary once entry of other players and competitors is not hindered -- a contestable market situation.

It is government failure that needs to be corrected by going back to the market, and not by "more government" intervention.