Inequality 34, Eric Jurado on the richest 1%

Another good article from a friend, Eric. Reposting this.

The idol ofequality

February 01, 2018 at 12:01 am

By Eric Jurado

Aren’t we all supposed to be equal? And yet the gap between rich and poor just keeps growing. We need to maintain equality among people. Isn’t vigorous government action necessary to keep the playing field level—to keep the wealthy and powerful from taking more than their fair share and oppressing everyone else?

There has been a lot said and a lot written about income inequality—about how unfair it is that a few people are very rich and the rest of us aren’t; that the income gap between the wealthy and even the middle-class, let alone the poor, is so large.

There’s only one problem with this complaint.

It’s wrong.

Income inequality is actually a good thing—when it is the product of a free market economy.

And your own life proves it!

An economy is made up of millions of individuals making decisions about their own lives—where and how much they want to work, what they want to buy, and so on.

You are one of those individuals.

In a free society, you are free to pursue a path in life that you believe best suits your talents. That talent might be teaching, or making music, or banking, or starting a small business, or raising a family. Whatever it is, this freedom helps to make life enjoyable, exciting, and meaningful.

But it’s also an expression of inequality. This is simply because we’re all different. We have different talents, different temperaments, and different ambitions.

That’s okay because—again in a free society—we can seek out opportunities that play to our personal strengths; that distinguish us from others.

If you find what you’re really good at and work hard, you might have great success and make a lot of money. If you’re an outstanding athlete, I’ll buy a ticket to see you play. If you’re a savvy investor, I’ll give you some of my money to invest.

As long as you have the freedom to guide your own destiny, you have a chance to reach your full potential—achieving success, however you define it. But if someone, say, a government bureaucrat, told you that your ambition had limits, that there was a ceiling above which you could not rise, I doubt you’d be happy about it. You’d feel like you were in a straightjacket.

Forced equality means less opportunity to pursue what makes you individually great.

But what about the growing gap between the rich, the 1 percent, and the rest of us, the 99 percent, that one hears so much about? Isn’t that a bad thing?

Again, the answer is no.

Here’s why:

In a free-market economy, people become wealthy making what the rich enjoy today into something almost everybody can enjoy tomorrow. The rich are the test buyers.

Consider the cellphone. Now we all have them, but when Motorola manufactured the first one in 1983, it was the size of a brick, had a half-hour of battery life, reception was terrible, and calls were very expensive. It cost $4000. But if no one had bought that $4000 brick, there wouldn’t be a $40 cellphone today.

In the 1960s, a computer cost over a million dollars. Nowadays, thanks to billionaires like Michael Dell, we have incredibly advanced computers that cost us a few hundred dollars.

Remember what out-of-reach luxury flat screen TVs once cost? Only the rich could afford them. Today, your living room is essentially your own private cinema.

The free market is about turning scarcity into abundance. What was once available to the few is now available to the many. Wealth inequality is an important corollary to that truth.

So, should I resent the people who became wealthy because they have more money than I do, or should I be grateful for the economic system that allows them to enrich my life and the lives of millions of other people?

This feature of the free market—income inequality—can appear terribly unfair. But with a little further investigation, the real picture becomes clear. Income inequality makes what once seemed like impossible luxuries available to almost everyone; it provides the incentive for creative people to gamble on new ideas; it promotes personal freedom, and rewards hard work, talent, and achievement.

In sum, income inequality signals that individual liberty, opportunity, and innovation are all present in a free economy. Pretty good for something that’s supposed to be so bad.

Two final points:

The 1% Club is always open to new members. And you don’t have to be in the top one percent to have a very good life. And that, not the existence of the very wealthy, is what matters most.

Eric Jurado is a hedge fund manager. He covers economic and political issues with liberty as his guiding star.

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See also:

Inequality 31, Economics, politics and forcing equality, January 16, 2017 

Inequality 32, Free land distribution, free housing Kadamay, April 13, 2017 

Inequality 33, Decline in global poverty, October 16, 2017 

Pol Ideology 72, You love capitalism,. January 14, 2018

Inequality 33, Decline in global poverty

Cool, useful chart below. Global poverty has declined, significantly. To read it, choose a level of annual income on the vertical or y-axis and then use the blue and red lines to find on the horizontal or x-axis the corresponding share of the world population living with less than that income.

If you think the poverty line should be $1,000 per person per year, the 2003 line shows that 48% of the world population was below this poverty line; and ten years later, in 2013, 29% was below this line. A decline of 20 % points in one decade relative to this poverty line.

Source: "No matter what extreme poverty line you choose, the share of people below that poverty line has declined globally", April 05, 2017 by Max Roser, https://ourworldindata.org/no-matter-what-global-poverty-line

The rich are getting richer, the poor are getting middle class status. Not all of course but many of them. The poor used to ride bicycles or cow de carabao, now they ride motorcycles or 2nd, 3rd-hand cars.
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See also:

Inequality 30, Filipinos in Forbes' world billionaires, March 04, 2016 

Inequality 31, Economics, politics and forcing equality, January 16, 2017 

Inequality 32, Free land distribution, free housing Kadamay, April 13, 2017

Lion Rock 21, Dangers of Universal basic income (UBI) philosophy

The philosophy of universal basic income (UBI) is floated and discussed in many countries now including the Philippines. The philosophy is lousy because even the lazy or irrelevant-thinking people will have guaranteed universal income.

I am reposting a good article by a friend, Nick Sallnow-Smith, Chairman of The Lion Rock Institute (LRI) in Hong Kong. This was published in the LRI Newsletter, June 2017.

What are you worth?

Nick Sallnow-Smith

It is often suggested by those skeptical about the value of free markets, that to contribute to the community you need to be active in the world of charities, NGOs, or what is called “public service”. By implication, to work in the business sector is an indication of selfishness and greed. You are only out for yourself is the implied slur. This approach finds the idea of Universal Basic Income (UBI) very attractive because it is claimed it enables the detachment of the income you receive from the work you do. The promoters of this idea seem to find it self evident that this a “good thing” because people will be spared the drudgery of work and can instead follow their dreams to be creative, or make other life choices unconstrained by the need to earn income. Let’s examine if either of the elements of this argument make sense: that working in business is selfish, and that detaching income from what you do with your life is inherently desirable.

The growth in our standard of living since most human beings were engaged in subsistence farming is largely due to the division of labour; to specialisation in activities in which you are relatively more able than others. For this specialisation to be facilitated, we need a means to exchange our skills with the products and services produced by others. This means is money (whether gold, fiat money, shells and any other accepted exchange medium). Money does more than enable us to exchange with others, it provides a measuring device by which we can assess the cost of products and services against their relative value to us. But more than that, the market enables us to assess the relative value to others of the skills we have.

When I choose whether to be an artist or a banker or a tour guide, I know my own preferences for what I’d like to spend my time doing. The income I am offered by potential customers of my art, banking skills or tour guide work tells me the relative assessment by others of my prowess in these areas. I may still choose to be an artist, and settle for a low income if I love it enough, but market pricing tells me that the community would prefer me to stick to being a tour guide and not bother with my rather poor oil painting. By pricing my skills in a free market, my value to the community – what I am worth – is laid bare.

By contrast, if I work in a charity, NGO, or the public sector generally, there is no test of the value of what I do; certainly not one that enables relative value to be assessed. I might be a rather poor schoolmaster (actually in 1974 I was!) but since the students’ parents did not pay my wages, had no way to dispense with my services, and had no input into the process by which their children were taught, I had no information about whether what I did was valued at the level of my income, nor whether I would be contributing more to society as a barman.

Which is more selfish then? To offer your services in a competitive labour market and see how the community truly values what you do; or to take a position in those sectors which never submit you to a market test.

It is concerning to me that those who work in “public service” frequently imply that theirs is a more noble calling than the down and dirty private sector, where everyone is in it “only for the money”. In fact, the opposite is the case. Only if you subject yourself to the market test can you ever know whether the community of which you are a part, values what you do.

Let me turn now to the UBI idea, which is currently such a hot topic in policy debates about how to respond the feared loss of jobs resulting from AI. If what you do is detached from the income you receive, you sever completely any possibility of knowing whether what you do is of any value to the community. Indeed the policy proponents are claiming this severance is a benefit, that what we do should have no relationship to what others value in us. We should all be supported by the state so that we can do whatever we like, without regard to its value to society. This seems to me to be a policy of institutionalising the disregard of our value to the community. In answer to the question in my title, it does not matter what you are worth, say the proponents of UBI, it need never be measured. Many who disapprove of free market libertarianism claim it “atomises” the community, rendering us all completely separate uncaring individuals, alone in the social universe. Yet the opposite is the truth. Selling your skills in the market means you are taking account of what others value in what you do, while UBI is the truly “atomising” policy.

There is one last aspect of this which I believe to be of even more importance; the “self-worth” that any of us feels every day as a result of what we do. If others have valued what you do (apart from your own satisfaction in a job well done), you feel good. This is deeply important for the way communities are bound together. Not only have you found a way of selling your skills that gives you an income but you have done so in a way that is evidently valued by others. The baker whose cakes are wildly popular is not only happy to be paid for his efforts, his can and does take pride in being valued by his customers. If the future consists of millions of people detached from the feeling that what they did that day was valued, I fear there will be a serious deterioration in self worth and self reliance; the stuff of many apocalyptic sci-fi movies.

Of course proponents of UBI will argue that it will meet only “basic” requirements (let’s see how the demands for it to be increased are resisted before we are confident about  that). But the drive to find the best use of your skills for the community at large will still have been significantly eroded. You will be paid to be useless, not useful. It is suggested by common sense as well as economic theory that if you subsidise something you will get more of it. Communities should be very careful before they embark on large scale subsidisation of uselessness.

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See also: Lion Rock 18, Nick Smith as new Chairman of LRI, April 05, 2016 
Lion Rock 19, Not enough capitalism in Hong Kong, May 12, 2016 
Lion Rock 20, Hong Kong's labor welfarism and rising unemployment, July 08, 2016

Inequality 32, Free land distribution, free housing Kadamay

Free land, free housing, free education, free healthcare, free cash transfer, and so on. And soon free iPad, free tricycle or free car for the poor. 

If this is done in the Philippines or in any other country, then many people will stop working.Or they may work 6 days a week but also drink and party 6 nights a week and have zero savings. 100% formula to be poor. Then they will be entitled to those freebies that will not be given if they are not poor.

The targetted beneficiaries will expand every year, or every month. When anti-capitalism, anti-inequality NGOs, politicians, academics, etc. advocate that "If you are poor, you are entitled to lots of freebies", then more people will declare themselves poor, they will scream and curse if government does not give them the freebies.

About four decades ago, it was estimated that about 1/3 of the population was poor. Today, it is estimated that nearly 1/3 of the population is poor. And 3-5 decades from now, various measurements will say that nearly 1/3 of the population is still poor. Meaning the endless subsidies and various welfare programs will continue, and gov't will keep expanding the budget and public debt, will further raise taxes or create new ones, because "poverty remains high". Raket na, large scale.

Before, the poor were mostly walking or riding cows, horses and bicycles. Now the poor are mostly riding motorcycles, tricycles, e-bikes, jeepneys. Before the poor were using smoke signals or doves or snail mail to communicate, now they use cellphones with fb, twitter, emails. There is marked improvement in the quality of life of the poor yet by official measurements, "poverty remains high". Raket na, large scale.

I can understand new welfare programs, they are implicit and explicit admissions that some old but still existing welfare programs are not working and simply waste of taxpayers money. So if new welfare programs have to be created like the CCT, some old welfare programs should be abolished and defunded. This is not happening. The racketeers in these non-working programs create endless alibi that they are still relevant, and OP and Congress agree, so tuloy-tuloy ang over-spending, over-borrowing.

Now these two developments -- CPP-NPA-NDF negotiators in Europe who are mostly non-Filipinos anymore and have acquired European citizenship -- demand free land distribution to farmers. And squatters or illegal land settlers have moved further, became illegal housing settlers. And they were rewarded by the President, the houses they illegally occupied is given to them for free.

Many people are demanding for social revolution -- towards more citizen dependence on the state, towards more state worship. Society of batugan, tamad and irresponsibles. A government that's big enough to give everything you want will also be big enough to take everything you have.

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See also:

Inequality 29, More on Oxfam, squatters and a lamborghini, February 14, 2016

Inequality 30, Filipinos in Forbes' world billionaires, March 04, 2016 

Inequality 31, Economics, politics and forcing equality, January 16, 2017 

Pol. Ideology 70, Socialism and the politics of envy, April 08, 2017

Pol. Ideology 70, Socialism and the politics of envy

Why socialists are wrong :-) 

Many people yearn for equality, forced equality in society. If this is so, then anyone can demand that his/her monthly pay be at least 10% of what Mark Zuckerberg is getting even if they work only 4 hours and complain about work for the next 4 hours each day. And since tens or hundreds of millions will demand the same, then it will mean that Zuckerberg's average monthly income will shrink and continue shrinking because the politics of envy will assault his income and wealth, endlessly via government taxation.

Free people are not equal and equal people are not free. I did not invent that quote of course, but it rings correctly until now.

Now, this quote from Chomsky was circulated by some friends in fb last week. Lousy idea of course. 

Compare friendster and facebook capitalism: costs and rewards, bankruptcy and expansion are privatized while the benefits -- to us users of these social media, past and present -- are socialized. Friendster went bankrupt while facebook prospered. And many of us enjoy facebook (and youtube, twitter, google,...) capitalism, no tears though to friendster capitalism that sank. 

Another quote from Churchill. Yes, socialism promises equality... everyone equally poor except the top officials, military generals and business cronies of the communist party or dictatorship.

There is room and role for government in a free enterprise and free market economy of course. Societies need the rule of law function of government if they want to be stable and prosperous. The poor can work double jobs and come home late night if they need to without worrying that their houses and little investments are ransacked by thieves or land grabbers. Or their extra income is eaten by more taxes and mandatory fees.

From the Iron Lady. Yes, governments have no money of their own except what they take from the people in the form of taxes, regulatory fees, mandatory contributions, fines and penalties to their numerous regulations and prohibitions. These government revenues are split between the state bureaucracies and politicians, and the welfare beneficiaries/dependents.

Inequality is good, otherwise the lazy who work only 2 hours a day and the hard-working who toil 12-14 hours a day will have the same size of house in the same village. The lazy is subsidized with free or near-free housing while the hard working is penalized with lots of taxes and fees.

There are many examples showing that many people respect inequality. When they watch a big concert, some pay $2,000, others pay $1,000, $500,... $50. But those in the $50 tickets do not call for a social revolution to have forced equality, they just enjoy the show at a low price. For those who cannot afford even the $50 ticket, they can watch the show later on tv, youtube, facebook, and so on. 

Many big capitalists enjoy big money so they can give away/donate that big money someday. Examples are numerous personal and corporate foundations whose main function is to finance many good community or research projects that will uplift the lives of poor and needy people. Civil society in action, Meanwhile, these rich and highly entrepreneurial people create more companies, build more structures and new services, create more jobs in the process.

"Government... favoring some capitalists" and "state bail out of big banks, corporations" are cronyism and statism or state worship as the state picks winners and losers. The state has no business picking winners and losers, picking who should expand or go bankrupt; it's the job of market competition.

Free enterprise capitalism allows bankruptcy and expansion happening at the same time to many players. But we don't see any free capitalism society in the planet yet. Hong Kong would approximate this society somehow but China communism ultimately dictates and limits the pace of HK capitalism, not because the commies have the intellectual and entrepreneurial superiority but simply because they have the guns, bombs and huge army of soldiers and policemen who are ready-to-harass-people if they question the powers of the communist state.

Money is not the source of evil. People will need money, cash or fiat money or credit cards or alternative currencies (bitcoin, etc.) so they can feed themselves and their family better, bring them to Boracay or Bohol or HK, etc for vacation. In the process they create jobs in Boracay or Bohol or HK as they spend money there.

Money "hoarding" is bad... No. What's hoarding for some is actually savings accumulation for others. One cannot convert his small variety/"sari-sari" store into a nice, air-con convenience store unless he/she has sufficient savings accumulation plus loans from friends/family members or banks. 

The so-called "late stage capitalism" is characterized more by bigger, stronger governments who dictate prices (wage control, fare control, rent control, price control or price caps/ceilings), dictate competition or absence of it (monopolies created by Congressional franchise or agency franchise), dictate who should get subsidies and who should not (like wind and solar power firms get plenty of subsidies).

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See also:

Pol. Ideology 67, Socialism and Venezuela, June 08, 2016 

Pol. Ideology 68, On factions and diversity in society, thoughts of James Madison, October 10, 2016 

Pol Ideology 69, Math can show that small or minimal government is optimal, March 01, 2017

Inequality 31, Economics, politics and forcing equality

A number of my friends have posted in facebook in agreement with this article from The Economist, "To be relevant, economists need to take politics into account." so I will post to contradict it. This article or its title is misleading if not wrong because: 

(1) It is saying that economists writing about plain economics are not relevant, so to make them relevant, they must write about economics + politics + sociology + anthropology + history + genderology + ...?

(2) Consider a simple demand-supply price equilibrium theory. A big storm damaged crops in a major food producing region that substantially supplies food in M.Manila, so the supply goes down, the price goes up since demand remains the same. No need for politics, history, anthro, sociology, gender, etc. to inject into the analysis to make it relevant.

Now comes politics, government imposes price control on food items supplied by other regions not affected by that big storm "to protect the poor." Things become awful, formal supply goes down, turns to "black market" supply. It is politics inserted into normal economic phenomena that distort things. And people think economists should always factor in politics, history, etc. in an otherwise simple situation. Lousy.

(3) Economists who comment on political issues -- politics around the world, political ramifications of federalism and parliamentarism, revamp of the constitution, etc. -- then they must insert politics, history, etc. in their analysis.

Consider this paper, "Economics versus Politics: Pitfalls of

Policy Advice" by Daron Acemoglu and James A. Robinson, Journal of Economic Perspectives—Volume 27, Number 2—Spring 2013. http://economics.mit.edu/files/10403

"Our argument is that economic policy should not just focus on removing market failures and correcting distortions but, particularly when it will affect the distribution of income and rents in society..." (last par. of the paper)

Can people, economists "remove market failures"? Wow. Only central planners would think that way. Consider these:

1. Mr. X and his friends demand a 500 GB USB that is sold for only P1,000. Demand is there but supply is zero, so market failure.

2. Mr. Y and his friends supply a rice variety that is said to cure 10 types of common diseases and sold at P800/kilo, no one buys their rice. Supply is there but demand is zero, so market failure.

Anyone, anytime and anywhere can create a market failure, as shown by 2 examples above. Some guys like economists (and politicians, etc.) think they can stop or remove that? Wow.

On inequality, it's part of nature, it's good. Otherwise people will work only few hours a day and demand that their pay, their house, healthcare, etc should be at least 1/5 that of the privileges enjoyed by Bill Gates and Henry Sy or John Gokongwei, etc. to have equality in society. The world has progressed because of respecting inequality, not forcing equality like socialist countries.

Now consider this drama by Oxfam and many other groups, institutions like the UN. https://www.oxfam.org/.../just-8-men-own-same-wealth-half...

Ok, the incomes and wealth of Bill Gates, Zuckerberg, etc. have expanded up to the troposphere, did they make people's lives, our lives, poorer and lousier? Do we have lousy and despicable lives because Zuckerberg got richer each year because of facebook?

No. On the contrary, we enjoy more comfortable, more convenient lives because of the inventions of these super rich people. If people think that Zuckerberg et al are creating a more despicable world because of their inventions and companies, they better opt out of fb, youtube, google, iphone, etc because everytime they use those things, they contribute to further enrichment of these super super rich people.

The world enjoys more comfort, more welfare because of the innovations made by these super-efficient, super-ambitious and super-rich people. Soon people will be working only 4 or 3 days a week and still get high pay because of rising productivity (and rising inequality) introduced by those super-efficient people. We should support the expansion of more super rich people instead of demonizing them. The politics of envy is only for the envious, like Oxfam and the UN :-)

The only way to stop rising inequality is via dictatorship. Put a gun on people's heads and tell them to stop being too innovative, too inventive, too revolutionary in business, to stop and limit excellence.

Central planners would clap this scenario. They get huge pay and various political perks doing all types of social engineering to force equality in the world.
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See also:

Inequality 28, IBON and sensational analysis, November 19, 2015

Inequality 29, More on Oxfam, squatters and a lamborghini

Inequality 30, Filipinos in Forbes' world billionaires, March 04, 2016

BWorld 42, World inequality, Oxfam and bad mathematics, February 11, 2016 

EFN Asia 59, Conference 2014 in Hong Kong, part 4

Continuation of notes made by Karthik Chandra during Conference 2014. The full 25-pages notes are posted in http://efnasia.org/wp-content/uploads/2015/10/EFN-Asia-2014-Conference-Report.pdf

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Day 2: November 7, 2014

Session 5: ‘The most radical form of egalitarianism is equality before the law’

Dr. Tom Palmer

Executive Vice-President for International Programmes

Atlas Economic Research Foundation, USA

• Introduction about the Occupy Wall Street – background and the demands behind this movement – started by a group of disgruntled students mostly from privileged backgrounds and having incoherent demands and philosophy. In particular, their demands were based on the concept of ‘99% and the 1%’, which proved to be a very popular meme and this entire Occupy Wall Street movement quickly caught popular imagination.

• Focus on the meme ‘99% vs. 1%’ - originally started by the students who were essentially anti-globalization. The irony of it is that it quickly became popular across the globe as the rallying cry of the Occupy Wall Street.

• The global inequality has consistently reduced over the past 20 years and is still falling. But, within countries, the inequality is increasing/at elevated levels.

• Impact of immigration on inequality within countries should be carefully understood and decoded: for instance, the US allows lot of immigrants (from poor Latin American countries and especially those with poor education and hailing from very poor economic backgrounds) and therefore the income inequality within USA is much higher (i.e. Gini coefficient is much higher for USA). In contrast, the European countries (eg. France, Germany, etc.) have much lower immigrations (due to comparatively more restrictive immigration policies vis-à-vis the USA) and also have lower inequality i.e. lower Gini coefficients. The lesson from this is that we can have (a lower equilibrium) equality by making others lives worse.

• But, the current debate on inequality (Eg: Thomas Piketty’s Capital) never focuses on global inequality but mostly on inequality within countries. Tom Palmer pointed out the conceptual faults and defects in his book’s thesis.

• Made a strong case of why people like Piketty are less egalitarian than someone like himself who is a ‘hardcore capitalist’. In essence, the question is why does inequality in possessions still amount to more egalitarianism?

• The reason he says is that those who advocate equality usually are advocates of unequal political power. “egalitarian societies” (socialist/communist) survive on unequal political power (eg: communist Soviet Union’s ‘blat system’ or communist China ’guanxi’ system) : putative equal allocation of resources in such systems is not through free market pricing but through exercise of unequal political power. Paradoxically, this results in final unequal allocation of resources and all consequential harmful outcomes. This is true of all totalitarian systems whether they are rightwing or leftwing.

• Usually, the state’s interventionist policies in the name of egalitarianism (Eg: subsidies to special interest groups) serve to transfer wealth from the unorganized majority to the organized minority. This is nothing but predatory and rent-seeking behavior by the organized minority. That is why capturing political power assumes so much importance, especially in heterogeneous societies; the powerful few control the levers of redistribution to favored groups.

• On the other hand, and paradoxically, the so called unequal/capitalist societies actually give a greater opportunity to achieve equality/egalitarianism in outcomes by allowing a freer, more open allocation of resources based on market prices.

• At the heart of creating a more just and egalitarian society is the concept of equality before the law – where we have ‘rule of law’ and not ‘rule of men’. Only such a system would allow the less privileged to get a chance to move ahead in life.

• Therefore, aspirational claims to equality would be realized only with market-based provisioning of equality of opportunities. Eg: The rise of Dalit entrepreneurs in India. Prior to 1991, they had notional, paper based equality rooted in Indian Constitution and the law. But only after free markets expanded are they having a real shot at prosperity.

• Equality of opportunity, equality to access, equality to power, equality before law…this is the real equality that we should aspire for and not mere notional equality that attempts not just redistribution/reallocation of resources: ostensibly, from rich to the poor, but actually by tearing down the rich – and not lifting the poor.

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Session 6: Special Session

‘The ASEAN Economic Community (AEC): Opportunities and Challenges for SMEs’

Organized by SEANET (Southeast Asia Network for Development)

‘Why SEANET is needed?’

MC: Wan Saiful Wan Jan

• The AEC is coming up in 2015. But, there are growing calls for protectionism and also not much demand for pro-market policies and concerted effort by forces. Most pro-trade  organizations are focused on local and national issues. But anti trade organizations are well organized. SEANET hopes to fill this gap and meet this requirement.

Yam Tunku Zain Al Abidin ibni Tuanku Muhriz

President, IDEAS, Malaysia

• IDEAS organisation is committed to promoting free market policies and pro growth approaches in the ASEAN region.

• Overview of the history and background of the ASEAN group.

• Among these countries, fears among SMEs and labour group exist that big corporations would dominate the AEC region. However, they actually would greatly benefit from greater opening of the markets in various countries. Eg. SMEs would benefit from greater access to institutional finance, greater ease of doing business and accessing larger markets thanks to lesser regulations and hurdles and better property rights.

Dr. Kriengsak Chaeronwongsak

President, Institute of Future Studies for Development, Thailand,

Senior Fellow, Harvard University

• The benefits of AEC are multiple and spread across various sectors: (1) unified, single, huge market and production base, (2) coherent and integrated external policy.

• The benefits of AEC for entrepreneurs are clear. The most to gain from AEC are the large, established businesses. However, SMEs too would need to be ensured better opportunities; for this, several steps must be taken (none of which are protectionist and anti-markets and therefore lack fidelity to principles of liberalism and free market economics). It is important that the potential benefits to SMEs are articulated effectively.

• In general, among the SMEs, after the AEC is formed, the small and the large enterprises would survive; but it is difficult to foresee how medium enterprises would survive in this new, changed world. Small-scale enterprises can leverage their competitive advantage of mobility, nimbleness and flexibility (i.e. lack of inertia) in this new system and then be better prepared than medium enterprises to face the changed market.

• On the opposite spectrum, large companies would have deeper pockets and greater access to capital. But the medium enterprises are neither fast-and-nimble nor have access to huge capital. Hence the threat to medium enterprises in the new AEC dispensation: they should either scale up or scale down to survive.

• At the same time, there should be a concerted effort to ensure that SMEs and small players do not “lose out” in the new, liberalized market dispensation. They justifiably need hand-holding and capacity building so that they are prepared for the new, upcoming market scenario.

• One key aspect is access to institutional finance by the SMEs: we need to ensure that banks are free from political interference and nepotism/favouritism so that they are not forced to end up with the burden of non-performing loans after lending to undeserving candidates. 

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See also: 
EFN Asia 44: Day 2 of Conference 2014, November 10, 2015 
EFN Asia 45: Growth, Inequality and the Philippines, November 14, 2015 
EFN Asia 56, Conference 2014 in Hong Kong, part 1, March 28, 2016 
EFN Asia 57, Conference 2014 in Hong Kong, part 2, March 29, 2016 
EFN Asia 58, Conference 2014 in Hong Kong, part 3, March 30, 2016

EFN Asia 58, Conference 2014 in Hong Kong, part 3

Continuation of notes made by Karthik Chandra during Conference 2014. The full 25-pages notes are posted in http://efnasia.org/wp-content/uploads/2015/10/EFN-Asia-2014-Conference-Report.pdf

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Day 1, November 6, 2014

(Photo, from left: Ken Scholand, moderator; Andrew Work, Barun Mitra, Thitinan Pongsudhirak)

Case Study of Hong Kong in IPRI

Michael Wong & Andrew Work

Lion Rock Institute (LRI)

• Hong Kong enjoys a special status and unique advantages. HK has legacy property rights regime rooted in the British colonial system and adds to it the economic dynamism from the Chinese.

• HK was a member of the British Commonwealth till 1997 and many HK laws are rooted in British laws. HK copyright law is one of the first in the world. After becoming the SAR under China, HK has a new IPR regime.

• HK has a mini-Constitution, which mandates that HK has to separately protect property rights in HK. This regime means that property rights recognized in HK are not automatically protected in mainland China.

• HK is also a signatory to various (international?) regimes/understandings. A comparison of HK with other countries in the IPRI rankings (and its individual subcomponents’ ranking) shows that HK is favourably ranked against several other countries like Singapore.

• One of the few countries HK is not exporting IP to is mainland China. This is because of the unfavourable IPR regime. Current developments related to new laws, etc. to PR laws – “secondary creations” issue? Issue of property rights protection versus right to freedom of speech. If done well, these IPR regime reforms can help bring in more foreign investments into HK, in the field of intellectual property.

• We also have to take note of the current developments, the “Occupy HK” Movement. This is taking place in the backdrop of certain inherent advantages and opportunities in HK. There are also definite and large threats and risks for HK – if China is not happy with the HK Movement’s demands they might deny easy access to Chinese markets.

China & Property Rights

Prof. Michael Feng, Institute for Public Affairs, China

• The Chinese Property Rights issue:

* There are certain misconceptions about the ‘Chinese Miracle’ especially that it is based on no human rights or poor human rights (for workers/labourers). But this is simply not true: the Chinese growth story includes in itself a major improvement in working conditions for the workers/labourers themselves.

* At the same time we have to take note of the other side of this story. For instance, the former World Bank Vice-President who happens to be from China had said that there is no need for property rights in China. The justification being that ownership is separate from management and good or successful companies now have different owners and managers. But this is a false argument as it does not realize that even in the example given (i.e. about well-run successful companies), the ownership is completely clear and well defined. Hence the benefits to owners too are well defined.

• The current Prime Minister Le Keqiang is an economist and has taken a six-fronted approach to economics:

* No stimulus (later modified to micro stimulus)

* No bail out, Structural reforms

* Opening up, Development economics

* (…sixth approach??)

EFN Asia 57, Conference 2014 in Hong Kong, part 2

Continuation of notes made by Karthik Chandra during Conference 2014. The full 25-pages notes are posted in http://efnasia.org/wp-content/uploads/2015/10/EFN-Asia-2014-Conference-Report.pdf

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Day 1, November 6, 2014

Opening Key Note Address: “Economic Growth and Income Inequality”

Dr. Razeen Sally

The National University of Singapore (NUS)

• As liberals, we always face this rather fundamental issue of why at all should we bother to address the issue of income inequality.

• Such inequality has two facets: inequality of outcomes (a “collectivist approach” of typical socialists, communists, or do-gooders) and the inequality of procedures/treatment (eg. rule of law, equality, etc.). We need to clearly distinguish between the two.

• There is also a need to go back to the basics (abstract approach) of Schumpeterian capitalism:

 * Capitalism is always dynamic. Schumpeter said that ‘capitalism is a perennial gale of creative destruction’. Enormous progress takes place due to this creative destruction. This is not just an economic cycle but the story of our civilization itself.

 * At the heart of this powerful engine of capitalism is the entrepreneur, who is not necessarily a rational, objective person. Several impulses and incentives guide him. This engine thrives on inequality.

• Capitalism and Asia & the Global Financial Crisis (GFC):

 * Originally, economic freedom and capitalism was primarily a European idea. Subsequently, it became an Atlantic idea. Later, Asia too has witnessed greater economic freedom and increase in prosperity.

 * However, after the GFC, we saw assaults on economic freedoms and increase in restrictions. Capitalism is currently under assault and therefore pessimism is back. GFC saw a shift in policies and approaches: now there is much greater state intervention in both macroeconomic policy (debt, interest rates, deficits, etc.) and microeconomic policies (in the form of governments intervening in the smaller

details of markets like car standards, energy, pollution, etc).

 * Note: we need to understand the contrasting takes of Schumpeter and Keynes on capitalism.

 * More importantly, what unites such macroeconomic and microeconomic anti-capitalist intervention is the ‘social engineering’ mindset among a small group of high-minded, smart people who think that they can intervene in the micro- and macro-economic and the institutions.

 * But such interventions are inevitably counterproductive and harmful because the assumption that these individuals are fully knowledgeable is incorrect because 100% of information is never at their fingertips (much of the real information is tacit and non-formal).

* Rarely are the individuals themselves disinterested in the outcomes. Such interventions (even if beneficial) are deeply offensive to the very concept of freedoms and individuals.

• Given the above, the classical liberal take on inequality runs somewhat like this:

 * Globalization has improved incomes but also has driven inequality upwards. Yes, there is currently greater income inequality.

 * New technologies (3D printing, automated data storage, management and analysis systems, etc.) are destroying jobs – not just the blue collar ones - but also middle class white collar jobs (accountants, analysts, etc.)

 * And, what about the solutions to inequality? The classic interventionists (typically, social democrats) talk about greater taxation, etc. to “fix this problem of greater inequality”

• However, we need to look at the issue of inequality from a different perspective:

 * Usually, when we talk about inequality, we usually talk about income inequality within a country and not between countries. While economic liberalization has increased inequality within a country (E.g.: China, city states like HK, Singapore, etc.) it has actually reduced global income inequality (see Surjit Bhalla’s article saying that global inequality is at its lowest since 1850) i.e. between countries.

 * Increase in consumption, arising from greater liberalization of economies, has depressed incomes in some areas/countries but has greatly reduced overall inequality both within a country and between countries.

 * Education (see S. Bhalla’s article/ppt) actually is a great improver of averages.

 * However, a major challenge is the lack of big innovation. Yes, innovation is taking place at a big level but in narrow sectors and benefitting a narrower group of people. The IT sector serves as a good example where companies are getting easy money from globalized markets, and are getting great profits, and therefore are not seeing incentives to invest in innovation in other sectors. For instance,

Apple spends more on lawyers than on innovation of new products. At the same time, even though some people say that innovation results in job destruction, in the long run, innovation actually creates new and better jobs.

• In summary, the current state of affairs, post GFC is as follows:

 * at a macroeconomic policy level:

 Greater state intervention

 Redistributive approach (taxes)

 Debt/deficit financing with the threat of inflation always hanging over the head

 Central banks interfering in fiscal policies

 * Similar state of affairs at a micro-economic policy level also.

 * But, such interventionist approach is wrong on a more fundamental, constitutional basis and is based on several false assumptions, etc.

• Therefore, the unfinished business and important pending items to be done to liberalize product and factor markets: Making systems inclusive. (See reformulation by Daren Acemoglu and team on inclusive vs. exclusive systems.) In exclusive systems, esp. in Asian countries, the political and economic freedoms are closely intertwined. One cannot happen without other. Even the city states of HK and Singapore are lacking in innovations. This is because their systems are still bureaucrat-dominated.

• Finally, there is good news and bad news:

 * Compared to the past century (1914 to 2014), we have a more prosperous world: we are enjoying greater incomes, better health and better lifestyle overall. While today’s interest groups are still a problem they certainly are not as big a problem as interventionists of World War I.

 * But in the short run, post GFC, the pendulum has swung in the wrong direction i.e. towards greater state intervention. However, we should have greater liberalism and lesser state interventions in both micro and macroeconomic policies.

EFN Asia 56, Conference 2014 in Hong Kong, part 1

The following are minutes and proceedings during the Economic Freedom Network (EFN) Asia Conference 2014, Hong Kong, on the theme, “Liberalism: Promoting Growth, Reducing Inequality”, November 2014. Major sponsors were the Friedrich Naumann Foundation for Freedom (FNF), a liberal political foundation based in Germany, and the Lion Rock Institute (LRI), a free market think tank in Hong  Kong.

These notes were made by Karthik Chandra of the Foundation for Democratic Reforms, INDIA. The 25-pages notes are posted in

http://efnasia.org/wp-content/uploads/2015/10/EFN-Asia-2014-Conference-Report.pdf

I am reposting them by major segments and  installments, plus my brief personal notes on each segment. Here’s the 1^st installment.

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Day 1: November 6, 2014

Introduction to the EFN 2014 Conference by MC, Wan Saiful Wan Jan

Chief Executive, Institute for Democracy and Economic Affairs (IDEAS), Malaysia

Welcoming Remarks

Bill Stacey, Chairman, LRI

• Welcome to Hong Kong! Given the recent developments (citizens’ demands and mobilization) in Hong Kong (HK) serving as the backdrop, this certainly is a good and clearly an interesting time for all the participants to assemble in Hong Kong, especially to discuss about inequality, liberty and freedom.

• There is an image of HK in some quarters of the media that capitalism here is of the crony variety and that there is no true economic freedom or liberty for its citizens. But the reality is that for a city of 7 million population, there is a lot of economic freedom and enterprise.

• At the heart of the current political developments seems to be a vigorous debate about two freedoms – economic and political. But, there is no conflict between the two. Those institutions that ensure economic freedoms in the form of greater equality, growth, prosperity and overall economic freedom also underpin the political freedoms. A few such institutions are free flow of information and rule of law.

• ‘Liberalism’ as understood in the traditional sense should not be viewed as an end in itself. There is a difference between treating people equally and keeping/ensuring that they remain equal.

Siegfried Herzog

Regional Director, FNF, Southeast and East Asia

• Welcome to Hong Kong EFN Conference. EFN Asia Conference has become a long established tradition, this event being the sixteenth one; this is my first one as a Regional Director. Thanks to the LRI and the Frasier Institute for being our partners. LRI is also celebrating its 10th anniversary; congratulations to them.

• Events such as the EFN 2014 greatly help institutionalize the ideas, research, debates and international experiences help them become a part of the political and academic discourse on economic freedoms.

• This event is being held in the background of the furious debate over political and economic freedoms of HK vis-a-vis China. HK has long served as the global leader of economic freedom. Now, the debate is about its political freedoms; about ensuring the rule of law and independence from political interference in HK.

• Currently, there is also a great debate on economic inequality. The idea of ‘economic equality’ retains a lot of appeal despite the fact that communism and socialism have repeatedly failed to ensure the same, based on our experiences in several countries.

• At the same time, this debate also touches upon the issue of social mobility and how crony capitalists and well-connected gamers have managed to subvert economic institutions and thereby gain undue benefits.

• This conference therefore is a valuable contribution towards helping settle the above debate because it provides a platform for sharing of knowledge and bringing new ideas into an area that has been traditionally dominated by left-leaning thinkers or misguided activists.

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Me: Right, the (classical) liberal definition of equality is equality before the law, equal  application of the law to unequal people, equality in access to opportunities with no exception or people giving exemptions. And inequality of outcome, of income and assets ownership, is the natural result because people have different attitudes in life. 

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See also:
EFN Asia 43: Day 1 of Conference 2014, November 06, 2014
EFN Asia 53, Successful Conference 2015 has ended, November 25, 2015 
EFN Asia 54, On Hong Kong and China, free trade and CEPA, January 27, 2016 
EFN Asia 55, Presentation by Tom Palmer in Bhutan 2015, February 03, 2016

Inequality 30, Filipinos in Forbes' world billionaires

Forbes released the world's top billionaires, and 11 of them are Filipinos. Reported in BusinessWorld yesterday:

1. Henry Sy -- the lone Filipino to crash Forbes’ top 100 richest -- placed 71st in the global rankings, up from 73rd last year, but his net worth dropped to $12.9 billion from $14.2 billion. His SM group owns SM Prime Holdings, Inc., BDO Unibank, Inc. and SM Retail, Inc., all dominant players in their respective industries.

2. John L. Gokongwei, Jr. Second at 270th place globally -- down from 254th last year -- is., chairman emeritus of JG Summit Holdings, Inc., whose businesses include the country’s biggest low-cost airline Cebu Pacific, Universal Robina Corp., Robinsons Land Corp. and Robinsons Retail Holdings, Inc. The wealth of Mr. Gokongwei, 88, slid to $5 billion from $5.8 billion.

3. Lucio C. Tan of LT Group, Inc. slipped to 380th from 369th, but he surpassed two others who placed ahead of him last year. His net worth declined to $4 billion from $4.4 billion. He has interests in PMFTC, Inc.; Asia Brewery, Inc.; Tanduay Distillers, Inc.; Philippine National Bank, Eton Properties Philippines, Inc. And PAL.

4. George S.K. Ty of GT Capital Holdings, Inc. slid to 421st from 369th, as his net worth fell to $3.7 billion from $4.4 billion. His businesses span the power, banking, property and automotive sectors.

5-7. Tied at 569th place are David M. Consunji of DMCI Holdings, Inc.; Andrew L. Tan, Jr., chairman of Alliance Global Group, Inc. and Tony Tan Caktiong of Jollibee Foods Corp.

Last year, Mr. Consunji ranked 405th, Mr. Tan placed 330th and Mr. Tan Caktiong ranked 690th.

Mr. Consunji saw has family’s net worth drop to $3 billion this year from $4.1 billion in 2015. DMCI has interests in power generation, mining, water distribution and real estate.

The wealth of Mr. Andrew Tan similarly went down to $3 billion from $4.8 billion last year. Mr. Tan is the man behind Emperador Distillers, Inc.; Megaworld Corp.; Travellers International Hotel Group, Inc. and Golden Arches Development Corp.

Mr. Tan Caktiong was the only Filipino billionaire who saw an increase in fortune to $3 billion from $2.7 billion in 2015. Dubbed by Forbes as the “fastest-growing Asian restaurant chain in the world,” Jollibee Foods forayed into the mainstream burger market with the purchase of a 40% stake in American food chain Smashburger in October last year.

Other Filipinos in the world’s billionaires circle were:

• Enrique K. Razon, Jr. of International Container Terminal Services, Inc. (ICTSI) with net worth of $2.4 billion from $5.2 billion, placing him 722nd from 291st;

• Lucio and Susan Co of Puregold Price Club, Inc. with $1.6 billion from $2.3 billion, placing 1,121st from 810th;

• Robert G. Coyiuto, Jr. of National Grid Corp. of the Philippines and PGA Automobile, Inc. with $1.6 billion from $1.8 billion, 1,121st from 1,054th;

• Manuel B. Villar, Jr. of Vista Land & Lifescapes, Inc. with $1.3 billion from $1.6 billion, placing him 1,367th from 1,190th in 2015.

Also, 27-year-old Filipino-American Bobby Murphy, co-founder of photo and video messaging app Snapchat, was the sixth youngest billionaire with a $1.8-billion net worth.

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I anticipate the complaints and  whining of the left-leaning groups and individuals, that Mr. Sy and family can accumulate almost $13 billion which is 5% of GDP, from one family alone. Of course, the result is bad because their math is bad. Mr. Sy and family accumulated  that amount after 30 or 40+ years of hard work, savings, investments and re-investments, while the denominator, GDP, is the figure for only one year.

Not that I'm a fan of any or all of these 11 super-rich people and families in the Philippines, but I think this country will be worse off if any or all of them did not exist and did not invest big time in the PH. What makes an economy become dynamic and prosper is through the effort and risk-taking by the private entrepreneurs, not government over-taxation and business bureaucratism. Now if government will shift its attention by over-regulating and over-bureaucratizing the real criminals in the country -- those thieves, carnappers, land grabbers, murderers, rapists, plunderers, etc. -- it will significantly make the small and medium entrepreneurs move forward fast.

Meanwhile, Mr. Ayala is not in the billionaire's club anymore?
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See also:

Inequality 27, ADR Institute forum on poverty and growth, August 18, 2015

Inequality 28, IBON and sensational analysis, November 19, 2015

BWorld 42, World inequality, Oxfam and bad mathematics, February 11, 2016 

Inequality 29, More on Oxfam, squatters and a lamborghini, February 14, 2016

Inequality 29, More on Oxfam, squatters and a lamborghini

A friend commented on my critique of the Oxfam paper and said that it is not only Oxfam that questions rising inequality, there are also some reference to the  Credit Suisse report, the last Davos conference saying that inequality as "deepening", and Piketty says the same thing.

My main issue here is against bad math. The numerator, world's top billionaires (numbers from Forbes) is cumulative wealth of the top 80, or top 100, etc. rich individuals, accumulated after 4, 5, 7 decades. But denominator is wealth of a country for 1 year. Numerator will be bloated while denominator is relatively understated, that is why people get quotients like 40% or 60% of GDP, etc. 

To compare apples to apples, it should be:

[wealth of top 10 (or top 80, or top 100, etc.) accumulated over 40 years] / [national wealth (or GDP size) accumulated over 40 years].

What Oxfam and others lousily did is:

[wealth of top 10 (or top 80, or top 100, etc.) accumulated over X years] / [national wealth (or GDP size) of only 1 year]

That is why the numerator is bloated, the denominator is controlled. Lousy math.

Here's an analogy. People take the cumulative wealth of the CEO of a company with 200 employees, the value of his houses, cars, investments, other properties, things that he acquired over the past 40 years as an ordinary employee, then a junior officer until he became a CEO of that same company. That's the numerator, it's big because it's accumulated wealth over 40 years.

Then people get that company's gross sales for one year. This method of bloated numerator over denominator = "scandalous inequality" is simply lousy math.

The gross debt/GDP ratio can be comparable because a responsible government would aspire to pay back or retire some debts in period of no economic and financial turmoil or crisis, so the ratio should flatline or even decline after sometime. But most or majority of governments are outright irresponsible, spend-spend-spend, borrow-tax-borrow is their endless motto, thus the ratio keeps rising.

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See photo 1 below. Many people say having those tall and flashy skyscrapers in Makati is scandalous or even criminal because there are so many squatters left behind. Are they correct in saying this?

No. Why? 

1. In the first place, there should be no squatters in this part of the river, Pasig river. That area should have no structures because that is a river bank, prone to flooding and the people living on those structures contribute to more solid wastes directly dumped to the river.

2. Assuming that all laws (on private property, public property, environmental protection, etc.) are waived and the squatters are justified to live in that river bank. Those structures will greatly improve as the residents there have property rights to the area, there is no threat of being demolished, so they will aspire to build more stable structures.

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See photo 2 below. Some people say that society should demonize this, that government should tax ostentatious goods 500%, 2,000% or more as an "equating factor". Are they correct in saying this?

No. That is another politics of envy, the thinking that no one in this country should drive a lambo, a ferrari, etc. because there are "so many" poor people. Better if everyone is riding a motorcycle or tricycle, there will be equality? Equally poor?

In a country of 102 M people, only a few dozen of Lambo and Ferrari? There should be hundreds. There should be more rich and super rich people here.

A position in government is often a trap. Rational people become irrational, easily infected by a welfarist, populist, and even socialist thinking. Inequality is wrong so there should be forced equality. Pull down the rich and efficient and subsidize the lazy or irresponsible. Like people who do not want to work, or they work 6 days a week but also drink and party 6 nights a week and have zero savings.

"Trickle down" philosophy is actually from a statist or "worship the state" philosophy. The biggest entity in society is the state and its national and local agencies and bureaucracies. From the state, subsidies and welfare and the moon and the stars will trickle down to the masses.

A friend commented that "To improve I believe we all need to be Smart. Being able to get by with just a "job" is not enough. People don't realize that in a few years computers will replace us. I struggle to figure out which job a computer won't do better in the future."

Right, and many jobs that are done by less skilled workers -- laundry, street sweeping, kitchen dish washing, rice planting and harvesting, cashiers in MRT stations, etc. -- will be done by machines. And many anti-rich, anti-capitalism, anti-globalization, anti-many things will cry out loud in the streets to further raise the government-dictated minimum wage. And this will result in an unintended consequent of more unskilled people who will no longer be hired because the mandatory wages + mandatory social contributions have become higher while those skills are replaceable by machines.

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See also:

Inequality 25: On High CEOs Pay and Legislated Minimum Wages, April 30, 2015 

Inequality 26, Pew survey result on support for free market, July 27, 2015 

Inequality 27, ADR Institute forum on poverty and growth, August 18, 2015

Inequality 28, IBON and sensational analysis, November 19, 2015

BWorld 42, World inequality, Oxfam and bad mathematics, February 11, 2016