BWorld 9, Poitical populism vs. tax realism

* This is my article in BWorld last July 2.

Political populism vs. tax realism

THE 2016 general elections are just 10 months away. It is natural that people are discussing who should lead this country of 103 million people by that time. And more often than not, political and economic ideologies determine, whether explicitly or implicitly, people’s criteria in choosing and supporting their candidate/s.

The Philippines has a personality-oriented politics, not philosophy- or ideology-oriented. This is also true of other countries, to be sure. Political parties have come and gone, and others are moribund, depending on whether the key party figure remains visible and influential. Either way, candidates are easily swayed by the populist aspirations and welfarist demands of many voters.

During the two-party system that dominated Philippine politics until the Marcos dictatorship beginning in the 1970s, an ideological line, in hindsight, was supposed to distinguish the Nacionalista Party (NP) and the breakaway Liberal Party (LP). The Nacionalistas were supposed to be nationalists and trade protectionists, more state-oriented; and the Liberals were supposed to be globalists and free traders, more market-oriented. Yet both parties were ruled by the same elite, and the line that was supposed to distinguish them was blurred further by turncoatism. Two Liberals among the roster of presidents in the postwar Third Republic ran under the rival banner of the Nacionalistas and went on to uphold the supposed ideology of the Liberals. And then as now, as the presidency had always demonstrated, Philippine politics was and remains personality-driven.

Post-Marcos politics gave way to the multiparty system in effect until today, with other parties, other advocacies, giving voice to past attempts in the two-party system to present an alternative politics. Yet all these parties must accord with the practicalities of political survival by forming coalitions -- including the ruling coalition led by the LP and including its odd ally, the NP.

The foremost consideration for survival is the pulse of the electorate, and thus the mentality and behavior of politicians may generally be deemed a reflection of the mentality and behavior of the voters, as influenced further by the mainstream media and various advocacy groups. If voters think politicians are opportunistic and corrupt, politicians too -- without articulating it, of course -- think voters are just as opportunistic and corrupt. Many politicians feel there is high pressure from the voters for an entitlement and welfarist set of policies. These voters and pressure groups (including non-voters like those below 18 years old) feel that they are entitled to be given free healthcare, free education, free or highly-subsidized housing, credit, tractors, burial, etc.

It is always easy and populist to blame politicians who, in turn, take advantage of populism and the entitlement mentality by supporting high and multiple taxes, or pushing for a further increase in those taxes, so they will have additional revenues to fund various types of subsidies, including corporate welfare for crony firms.

Such political populism and welfarism coupled with corruption are costly to the taxpayers. While the politicians and governments of other countries, our neighboring countries, in particular, have their own brand of populism, their taxes are not as high as those in the Philippines.

In the 10 countries who make up the ASEAN, for instance, the Philippines has the highest corporate income tax rate, the highest withholding tax for resident aliens, and the highest VAT. It has the second highest personal income tax rate in the region.

Notice that Vietnam is rather aggressive in cutting its tax rates, coupled with liberalizing their economy to more investors, local and multinational. That is a good formula to broaden the tax base and possibly realize even bigger tax revenues.

If Philippine politicians and presidentiables cannot escape following political populism, then this should be complemented by tax realism -- people and businesses dislike high and multiple taxes, so the tax base becomes narrow, the temptation/incidence of tax avoidance rises, and overall tax collection becomes smaller than its potential.

Consider also that after almost one-third of people’s monthly incomes has been taken by the government, there are other mandatory and forced contributions to government-owned social security agencies (SSS, GSIS, PhilHealth, Pag-IBIG, etc.). And from the take-home pay (net of personal income tax and mandatory contributions), government further collects many other taxes and fees -- VAT for almost everything on consumer items, vehicle registration tax for cars, franchise tax for businesses, real-property tax, etc.

And that is one criticism of the ruling LP, that it is not acting liberal enough. Many of its adopted and implemented policies are far from liberal and closer to the populist and welfarist philosophy, while eschewing tax realism too.

Another example that the LP diverges from (classical) liberal philosophy of more freedom for the citizens and limited government is the proposed Cavite-Laguna Expressway (CALAX) -- about which Dr. Raul Fabella noted in an article that “the bid parameter should have been the lowest toll charge rather than highest premium payment to the government.”

Thus, future CALAX users should pay lower toll fees (more savings in their pockets) and not pay more because of the higher payment to the current government.

Tax competition among ASEAN member-countries is happening and winners, very often, are those who offer low tax rates and carry out tax regulations that are easy to remember and manage.

Presidentiables and political parties should consider campaigning and advocating for drastic cuts in both corporate and personal income tax, withholding tax, VAT, and other types of taxes.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Manila-based think tank that advocates classical liberal ideas, and a fellow of the South East Asia Network for Development (SEANET), a regional center that advocates economic freedom in the region.

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See also: 

BWorld 5, Transportation Bureaucracy and Uber, June 16, 2015 

BWorld 6, Biotechnology, Innovation and the Philippines, June 19, 2015 

BWorld 7, Free Trade vs.Protectionism via Non-Tariff Measures, June 26, 2015  

BWorld 8, Manila's Traffic and Transport Woes, June 27, 215

AEC 14, SEANET-ABAC Meeting, IDEAS-OBG Partnership, June 24, 2015

Fiscal Irresponsibility 28: Greece's Public Debt and Populism

The most indebted, most fiscally irresponsible government in Europe, Greece has been hugging international news recently because of its huge public debt, and the huge bail out money given by many governments to  it. This useful chart was sent by a friend, Luz. I think she got this from The Economist, am not sure.

Three years ago, Greece's debt/GDP ratio was already above 150 percent. No sensible economy would dare touch that zone unless the bulk of such debt are domestic, like Japan's.

source: Intl. Business Times,February 25, 2014

Regional economic community (EC) and blocs like the ASEAN EC (AEC) can learn lessons from the case of Greece and the European EC (EEC) so that such mistakes should not be imitated and repeated. Subsidizing a spend-spend-spend, borrow-borrow-borrow economy to protect the regional currency and stability of the whole bloc creates huge moral hazards (dependency, entitlement mentality, related) problems.

source: http://www.bloomberg.com/news/articles/2015-02-02/greece-seeks-third-debt-restructuring-who-s-on-the-hook

(Note: I copied that link and chart this morning. When I checked it tonight, it says "404.Page not found", so Bloomberg took  it down, for some reason/s)

Why is Greece in this deep trouble"

An article from BBC has a good explanation:

Greece was living beyond its means even before it joined the euro. After it adopted the single currency, public spending soared. Public sector wages, for example, rose 50% between 1999 and 2007 - far faster than in most other eurozone countries. The government also ran up big debts paying for the 2004 Athens Olympics.

And while money flowed out of the government's coffers, its income was hit by widespread tax evasion. So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control.

source: BBC, Eurozone crisis explained, November 27, 2012

A populist, anti-austerity, socialist-leaning government won last month led by new PM Alexis Tsipras. He talked tough, suggesting that he would call for huge discounts in paying the public debt. But the Finance Ministers of Germany, France, other huge EU lenders countered, "Greece must pay."

With some twist, PM Tsipras agrees to honoring its debt and some spending cuts like "trimming ministerial benefits like cars and selling one of the prime minister's aircraft." Good move then, 

The main problem here and in many other countries is government over-spending, living beyond its means, over-subsidies, over-welfarism and populism. For decades. 

Huge debt is nothing but accumulated wastes and profligacy. If previous spending financed by debt was productive, then the economy should be able to have a balance if not fiscal surplus, and pay back old debt.  

The big question of how to pay that mountain of debt is not so  much addressed to the  new Greek leadership, but the Greek people themselves. Is it too much to ask for huge public spending cuts, especially in  subsidies and  pension, if their government does not have the resources to sustain funding them? If they say Yes, then are they prepared to pay more taxes, more regulatory fees, more mandatory contributions, more fines and penalties?

Most likely people will  say No, or "Yes but tax only the super rich". But the very rich have many ways to adopt. Like negotiating  their way out as they have access to the  best law firms, accounting and  PR firms. Or they can  simply leave the country with their wealth. This already happened in France, when PM  Hollande imposed the 75 percent income tax on people who earn 1 million  Euro a year or more. Many super rich French businessmen surrendered their French passports and  acquired new  ones in Switzerland, Belgium, UK, Russia, etc.

A highly welfarist and  populist government invites lots of corruption. First, in corrupting the people's values, the culture of state dependency and entitlement thinking. Second. in corrupting politicians, legislators and the bureaucracy's values, that over-taxing other people  is ok, it  is  fine,  in  the name of fighting inequality and pampering the culture of envy.

Governments should shrink, spending, taxation and bureaucracies. The public must reclaim their bigger role in  running their own  lives, and the finances to sustain their own lives, their households and communities.
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See also: 
Fiscal irresponsibility 12: More on US debt default, July 28, 2011

Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011 

Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF, June 27, 2011 

Fiscal Irresponsibility 27: PH's P2.6 Trillion 2015 Budget, June 10, 2014

Pork Barrel 10: Bloated Budget, Wasteful Government, June 02, 2014

Pork Barrel 12: Why DAP is Wrong, July 29, 2014

Welfarism 30: Big Government and Corruption of People's Values

Last Thursday, I went to De La Salle University (DLSU) main campus in  Manila to speak at a class on Development Studies, handled by my wife.

I put here the IPN logo because looking back, IPN  has greatly helped our think tank in guiding us to some policy discussions and advocacies, plus giving us some modest donations. Recognizing their support to us.

Welfarism in my presentation is defined as the political and social belief that individual and parental responsibility should be subsumed or substituted by more government responsibility in improving people’s welfare. So, from education to healthcare, from unemployment allowance to  food stamps, from housing to train fare, from seeds to agri credit, an endless program of subsidies, all financed via high taxes/fees/fines/penalties and endless borrowings.

Welfarism therefore, is giving more powers to governments and their  officials,  elected and appointed. Giving them more spending power and taxation power. Below, an illustration.

Some data, taken from the IMF, World Economic Outlook (September 2014) Database.

Some data on the Philippine government's public debt was also shown. Another illustration below.

Shrinking government -- huge spending on welfarism, taxation, bureauccratism, etc. -- can actually lead to more citizens welfare.

The full 17-slides presentation is available in slideshare. My concluding notes, plus some photos taken by Lee, one of the students who introduced me to the class. Thanks Lee.

1. Welfarism and populism is wrong. Individual and parental/ guardian responsibility should not be subsumed by more government responsibility.

2. Welfarism results in corruption of the people’s values, creates more state dependency and sense of entitlement. The income and investments of hard working people are not entirely theirs, other people are “entitled” to  get a big portion  of it.

3. Governments around the world remain big, or keep expanding. Local, national and international/multilateral government agencies. This means their appetite for more taxes, fees, fines and penalties keep expanding.

4. Existing taxes, fees, fines are no longer sufficient to sustain huge spending by governments. Endless borrowing is  the norm.

5. Almost all governments around the world are indebted, they vary only in the extent of indebtedness. The more welfarist and populist the government, the more  indebted it is.

6. Being indebted is not bad per se. In  cases of  emergencies  and natural  calamities (ex. Big earthquake in 1990, Mt. Pinatubo eruption in 1991), borrow.

7. But  when there are no clear emergencies, governments should have balance budget at least, fiscal surplus if possible and pay back some debt. This is not happening, in most governments worldwide.

8. Fiscal responsibility, governments should learn to live within their means, do not engage in endless borrowings, do not mortgage the future of the next generations.

9. But we must not renege those debt payment, pay them all. The hugeness of the debt and its interest payment is a constant reminder to the current and future administrations that endless borrowing is wrong.

10. Reduce taxes especially personal and corporate income tax, leading to zero income tax. Governments have many other taxes and fees to collect, have many assets to privatize.

11. The promise and hypothesis of “expanding government leads to expanded  welfare” is hardly happening. In most cases, the opposite happens, backward-bending case of diswelfare as government  size keeps expanding.

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See also:

Welfarism 26: John Mangun on Economic Decline of the West, July 31, 2013

Welfarism 27: On Support for Single Mothers and HIV Patients, November 29, 2013

Welfarism 28: Nanny State Cares Too Much for its Citizens, UK Style, May 27, 2014 

Welfarism 29: Is Poverty Government Corruption-Created or Self-Inflicted?, October 05, 2014

Pol. Ideology 58: Democracy, Coercion and Civil Society

Democracy has many definitions and people can reveal their philosophical and ideological leaning based on how they define the word. The most common or even generic definition of democracy perhaps is “power by the people, for the people.” This connotes or implies that  the people have similar if not monolithic interests and goals in society, which very often is not the case.

Another common definition is that democracy is  “rule and will of the majority/people” in society and such majority rule should prevail over the minority. Critics of this definition call this as “mob rule” where the mob act in behalf of the majority, whether real or imaginary majority.

And still another definition is that democracy means “equal participation” by the people either through direct involvement or elected/representative democracy.

A lesser-known definition is that democracy means “respect and tolerance of minority opinions” so that such minority opinion can be heard and discussed without feat of persecution and harassment by the State or other armed groups.

One indicator if people hate democracy is that they want all things to be legislated and forcibly enforced nationwide. Or if a local legislation, those things should be forcibly enforced province-wide or city-wide. Choice is zero as things have been legislated already, with fines, penalties and even imprisonment for violation.

Most legislations and coercion are done to favor one sector and deny the same favor to other sectors as if they are not citizens or taxpayers of the same country. For example, if a new state college or university is created in one province, only students and faculty, officials of that new university will get taxpayers' subsidy while students, faculty, officials of private universities in the same province or big city do not get the same subsidy, as if they and their parents are non-taxpayers of the country.

Or when a legislation or Executive Order was made to subsidize MRT/LRT passengers in Metro Manila, passengers in Ilocos, Cagayan Valley, Bicol, Visayas, Mindanao are not given the same fare subsidy as if they are not taxpayers of the country. That is why legislation that favor one sector but exclude other sectors should be avoided whenever possible. Such practices are actually undemocratic as a big portion of the country's population are excluded from certain favoritism by the state.

Most majority decisions are done outside of government and legislation. For instance, if people want cheaper clothes, cheaper shoes, toys, food, etc., they do not go to the streets to rally and demand that government through DTI or LGUs or Congress should impose price control on clothes, shoes, toys, food, etc. of SM, Robinsons, Rustans, Ayala malls, etc. Instead, many people go to Divisoria, Baclaran, tiangge-tiangge, etc. where cheap goods and services are available with zero politics and government horse-trading involved.

My good Indian friend, Barun Mitra, is correct in saying that for government "democracy has to be minimal, so that it does not offend or alienate too many people."

This implies that the more vibrant the democracy is, the smaller the government should be, where smaller social actors (the smallest actor is the individual, not a clan or trade union, etc.) are supposed to be empowered at the expense of the government. 

Civil society or self-government can be considered as democratic governance. When a Rotary club or Lions club or Jaycees etc. conduct medical and dental mission and give away free healthcare, free medicines even for one day, it already has high impact on the people of a community that received such civil society action. More self-government means less institutional, taxpayers-funded government. They are all part of real democracy.

Barun wrote correctly, 

"Democracy is not about majority rule, but about recognition of and respect for minority opinions. So that the minority view of today, may enjoy the freedom to peacefully persuade others, and could become a majority opinion of tomorrow."

A friend asked, “Can a state be truly democratic? Or democracy exists as its tenacious opposition?”

I suggested that unhampered democracy can lead to socialism and totalitarianism. If the majority will decide that they should eat, have free or subsidized housing, etc. even if they donot work or work very little, then a law will be passed to reflect the will of the majority. Socialism and forced equality is the ultimate result, and since the middle class and upper class will resist, then totalitarianism and strong arm dictatorship will evolve.

The limit to democracy is rule of law. The law applies equally to unequal people. If people want to eat even if they do not work, then all other people should be allowed to not work also, the socialist government can collapse. It can stay afloat by endless borrowing, and/or selling its land and other resources so it will have money to feed people who do not want to work. That is one proof why socialism will never be successful, but many intellectuals and masa want socialism. They want to be the new dictators.

An unfettered or limitless democracy will ultimately result in socialism and totalitarianism and hence, a negation of democracy. Democracy tempered by rule of law -- the law against stealing and destruction of property, law against murder and harming other people, law against abduction and repression of individual liberty -- is ideal. Socialism and totalitarianism can never prosper in that condition.

Can unfettered democracy be the button of self-destruction to all types of states, or the button for further/endless expansion of states and governments? 

Notice that almost all democratic governments around the world, from N. America to Europe to Asia have an expanding public sector, not only at the national or federal level but also at the local (state, province, city, village/barangay) levels. Before, a lazy or irresponsible person will have no money, now he can get cash monthly from the government on top of free education for the kids, free healthcare. Before, it is relatively easy to put up a shop; now one needs to get dozens of permits and pay lots of taxes and fees to officially start a business.

To conclude, unlimited or unchecked democracy can lead to populism, welfarism and socialism. From books and education for the poor, medicines and healthcare for the poor, housing and relocation for the poor, tractors and credit for the poor, electric tricycles and MRT fare subsidy for the poor, cash transfer and condoms for the poor, all of which are existing and implemented, an iPad for the poor, 2nd-hand cars for the poor will not be far behind in the near future. All in the name of democracy, unfettered, populism and welfarism will expand.

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See also:

Pol. Ideology 54: On the Multiple "Death" of Capitalism, March 11, 2014

Pol. Ideology 55: Jules Maaten's Lecture on Liberalism, May 11, 2014

Pol. Ideology 56: Democracy and the Devils, June 11, 2014

Pol. Ideology 57: Radicalism, Islamic Militance and Terrorism, October 03, 2014

Welfarism 25: Centenarians and Populist Legislators

Being populist and highly welfarist to get high public and voters' support is a scourge of many legislators and politicians. They propose more public spending, or more anti-business policies just to say they have authored or co-authored a pro-poor bill or law.

One such law is the mandatory discount of 20 percent + 12 percent VAT-free credit for a 32 percent effective mandatory discount, for senior citizens (60 years or older) in their purchase of medicines, hospitalization and healthcare bill, plane fare, restaurants bill, and so on. The law does not distinguish rich and poor senior citizens. So that even the richest senior citizens in the country can get nearly one-third price off from various private enterprises and businesses, even if they can afford those prices without any discount, and even if certain drugstores, restaurants, bus lines or airlines, other business entities are struggling financially just to survive.

And I read yesterday stories like this (headline stories by the Inquirer and BusinessWorld, upper and lower photos, respectively.

The  Inquirer story said,

About 7,000 Filipinos aged 100 years old and above will have to hang on a little bit longer before they get additional benefits after President Aquino vetoed the proposed Centenarian Act that would have earned them each a P100,000 bonus, plus discounts on purchases. 

 Aquino vetoed the measure for being “excessive (and) unreasonable” and for being “patently oppressive.” 

 What caught the attention of the President was a provision in the bill proposing a whopping 75-percent discount on goods and services for the centenarians. 

 The 75-percent discount would not be tax deductible for business owners and the President said this “exceeds the usual mark-up rate of most businesses and will obliterate profit margins and result in capital loss.”...

Albay Rep. Edcel Lagman, the bill’s main author, was quick to assign the blame on the Senate version principally authored by Sen. Francis Pangilinan that jacked up the discount to 75 percent from the 50 percent in the House version… 

 Aquino spelled out his reasons for thumbing down the bill in his veto message to Congress dated May 15. 

 “The 75-percent discount exceeds the usual mark-up of most businesses and will obliterate profit margins and result in capital loss. The provision granting the exorbitant discount may thus be subjected to a constitutional challenge from both retailers and service providers,” Aquino said. 

 “Furthermore, the 75-percent discount is patently oppressive as it will force retailers and service providers to exclusively bear the income loss as the proposed measure does not provide for a tax deduction to recover the said discount.”

The BusinessWorld story said,

A BILL granting additional benefits to centenarians has been vetoed by President Benigno S. C. Aquino III as the proposed discounts will be a burden to establishments, a Palace aide said yesterday. Under the centenarian bill, Filipinos who reach 100 years old will receive a cash gift of ₱100,000 and value-added tax (VAT) exemption of 75% on the sale of certain goods and services. 

Deputy Presidential Spokesperson Abigail F. Valte said the Bureau of Internal Revenue (BIR) has been clear on the government’s position that the VAT exemption "may be too heavy without a tax deduction on the part of the establishment." …

Mandatory, forced and coercive price discounts by law of any amount, whether 10 or 30 or 75 percent or higher, is wrong and confiscatory. Here are some reasons why.

One, those welfarist and populist policies make government even more powerful and bigger. Government does not own private enterprises but it can dictate how owners and managers of those establishments should price their products and services. And assuming that these establishments can survive after being oppressed with forced discounts, government comes in to impose various taxes and fees.

Two, those proposals and laws only impose the full burden to the private enterprises and entrepreneurs, government is spared from burden sharing as they do not allow tax credit for those forced discounts.

Three, those proposals do not make any distinction between rich and poor people. One reason why some people become centenarians is because they or their children, grandchildren, relatives and friends are very rich, they can afford various life-extending healthcare services. This cannot be said of certain establishments that may be struggling just to survive, much less make a modest and sustainable profit to remain in business.

Four, one "law" that keeps coming up even if it is not legislated by Congress or any other government body, is the "law of unintended consequences." If there are too many privileges and price discounts given to certain sectors, some businesses will simply stop selling or producing those goods and services often demanded by those sectors. So "cheap but not available" is the new problem.

Welfarism and populism via government intervention and legislation is wrong. They invite more stupidity in government and society as a whole.
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See also:

Welfarism 21: Is Malaysia a Welfare State? July 18, 2012
Welfarism 22: CCT, 4Ps and Central Planning, October 14, 2012

Welfarism 23: Letter to Sens. Cayetano and Pangilinan on Solo Parents Welfare, October 23, 2012 
Welfarism 24: Comments on the Kasambahay, Solo Parents Bills, December 03, 2012

EFN Asia 15: Distortions of Welfare Populism

* (This is my article today in thelobbyist.)

As more countries around the world have abandoned socialism and economic central and embraced the market economy, their economies have progressed significantly and poverty has been drastically reduced. This is particularly true in socialist China and Vietnam, and the former Soviet republics and Eastern Europe.

One result of the free market economy and economic freedom though, is more inequality among the people. But this is not mainly due to “the poor being exploited and downtrodden” but rather the efficient and ambitious were without limit in economic mobility and prosperity. Consider these two situations.

Under socialism, if the average per capita income of the very poor was  $1 per day and that of communist party officials and their cronies was $100 per day, then that’s a 1:100 income gap between the two extreme income groups.

Under a free market economy, if the average per capita income of the very poor was $5 per day but that of the very efficient and lucky was $50,000 a day, then that’s a 1:10,000 income gap between the two extreme income groups.

Inequality is worse under the latter but the overall condition of the poor is better than under a socialist economy. If this is not true, those countries that abandoned socialism two to three decades ago should have gone back to economic central planning and state ownership of all businesses, land and other means of production.

Nonetheless, social morality and even the politics of envy has taken the upper hand in most public policies around the world recently. The result is the expansion of welfare populism worldwide, from the developed Europe and North America to the middle income and poorer countries mostly in the south.

By giving more power to government to intervene almost arbitrarily in many aspects of entrepreneurship and ordinary lives of the people, welfare populism has resulted in economic and social distortions.

During the Economic Freedom Network (EFN) Asia Conference held in Hong Kong last November 6-7, 2012 attended by this writer, welfare populism was extensively discussed with some country case studies. The event was jointly sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and the Lion Rock Institute, a free market think tank in Hong Kong.

Among the country experiences discussed were that of Thailand, South Korea, China, Europe and Latin America. Below is a summary of presentation for these countries and continents.

1. Thailand: by Dr. Deunden Nikomborirak, Thailand Development Research Institute (TDRI), “Welfare populism in Thailand”.

Among the prominent welfarist policies were the rice pledging scheme, first car, free computer tablets for first graders , minimum salary for bachelor degree holders, and senior citizen financial support.

The economic and social distortions were not good. In the case of the  rice pledging scheme, the price tag was a hefty $35 billion benefitting three million not-so-poor farmers, it increased the public debt significantly, high corruption was suspected, many farmers did not care much about rice quality and productivity, and smaller rice traders were edged out.

For the first car program, the price tag was $1 billion and resulted in more traffic congestion as the number of new cars on the roads increased from 78,000 to 100,000 a month, the average road speed in Bangkok is only 16.7 km/hour and is declining by 1 km/hour a year. And Bangkok residents with asthma has increased from 5 percent to 10-15 percent.

The free tablets for first graders resulted in addiction to computer games by the young students, worsened by insufficient or no broadband access, and inability to write of these students.

2. South Korea: by Dr. Choi Byung-Il, Korea Economic Research Institute (KERI), “Welfare populism in Korea”.

The prominent populist policies were income support, public pension and insurance for all (health, employment, industrial accident insurance, etc.), minimum wage, free child care, universal school meal. All political parties, administration or in the opposition, promise a more welfare state if they are in power.

The results were indeed distortionary as the projected cost of these additional spending is estimated at $520 billion on top of existing welfare programs. This will require tax hike or public debt hike in the near future. These programs will spike welfare spending to reach 45 percent of GDP and public debt will reach 216 percent of GDP. Without welfare reform, Korea’s future will be similar to Greece and Argentina.

3. China: Dr. Mao Shoulong, Academy of Public Policy, Renmin University, “Welfare populism in China”.

The more recent populist programs or demands are school free lunch, free school bus, anti-chemical p-xylene. Dr. Mao discussed the policy priorities of the different China leadership.

During Mao Tse Tung period, continue global revolution and liberate other people around the world, but China degraded to poverty.

During Deng Xiaoping and Jiang Zemin period, cope with poverty, economic development through market economy.

During Hu Jintao period, from overcoming poverty to addressing inequality, from anti-poverty first to GDP first plus anti-inequality and stability.

4. Europe and Latin America: by Dr. Francisco Luis Perez Exposito, Tamkang University, Taiwan, “The surge of Neo-populism in Latin America and Europe in the XXI Century”.

Such neo-populism is characterized by being left leaning, anti-capitalist, rejection of austerity and welfare cuts, more welfare rights.

In Europe populism, they are allied with nationalism philosophy, anti-EU, anti-Islam, anti-foreign workers and anti-regional integration.

In Latin America, they are leaning towards nationalism and socialism, anti-capitalism, anti-imperialism and foreign interests, and anti-neoliberalism. These neo-populist groups in both continents have  prospered by blaming others (foreign and locals alike), looking for scapegoats and virtual vengeance.

The economic distortion of welfare populism is clear in the ever-rising public debt of many developed welfare states, below.

 

High welfare programs even financed by heavy borrowings are supposed to increase the productivity of the people so they can later repay those debts plus interest. Unfortunately, the law of unintended consequences kicked in once again. What resulted was increased dependency of the people to the state and the corruption of individual values, relegated more personal responsibility to the background and pushed more  government responsibility in many aspects of the people’s lives.

There is a need for many governments to stick to their primary function: to promulgate the rule of law and protect the citizens’ right to life, liberty and private property. Forcing social equality and promoting a culture of dependency and entitlement is not the way to encourage the people, poor and non-poor alike, to strive more to improve their own lives and that of their communities.

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See also:
EFN Asia 11: Populism vs. Economic Freedom, the HK Conference, September 11, 2012

EFN Asia 12: Day 1 of Conference 2012, November 07, 2012

EFN Asia 13: Welfare Populism and Poverty, November 13, 2012

EFN Asia 14: Conference 2012 Resolution on Populism, November 21, 2012

EFN Asia 14: Conference 2012 Resolution on Populism

It is an annual tradition that at the end of each Economic Freedom Network (EFN) Asia Annual Conferences, participants produce a conference resolution -- short, one page, clear and direct -- that summarizes and concludes the two-days activity. I am posting the conference resolutions last year (theme: Competition: Engine for Prosperity, October 11-12, 2011, Kuala Lumpur) and this year (theme: How Welfare Populism Destroys Prosperity, November 6-7, 2012, Hong Kong).

EFN Conference 2011 

Statement on Competition and Prosperity

Preamble

Competition is an essential engine for prosperity. To prosper, all nations should encourage and nurture competition. Competition encourages innovation and creativity.

It motivates producers to make the best offers to consumers, therefore creating lower prices, higher quality products and better services.

The Role of Government

The primary role of the government is to enforce the rule of law, provide impartial judiciary, protect property rights and individual freedom.

Competition is the best regulator; therefore, the government should foster competition rather than restrict it.

Competition in Public Service Delivery

The people will benefit more if the government does not monopolize the delivery of public services.

Competition can be introduced and fostered in the major public services such as education, healthcare, transport, communications, and utilities by diversifying the providers through various form of private participation.

Competition, Economic Freedom and Prosperity

Free market economy is necessary for progress. Empirical evidence shows that open economies are more prosperous.

Competition is a key element in a free market economy.
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EFN Conference 2012 

Statement on Liberal Views on Populism

We the liberals believe that populism is the promise of state-mandated, unsustainable benefits to the broader population without consideration of the long-term costs and benefits. It relies on highly emotive statements. In fact, populism is counterproductive to general well-being and progress, as illustrated by the economic decline of the many countries that have pursued populist agendas.

We are concerned that governments in Asia are turning away from the policies which have been demonstrated to promote prosperity in many parts of the world.

We are confident that people will reject populist policies once they understand the true costs associated with them. 

Those costs include an increasing dependency on the state, weakening the rule of law, propertyrights and individual freedom. Populism also reduces the ability of individuals and local communities to make their own decisions, and undermines the competitiveness of businesses.

Recent moves in Asia to subsidise food and fuel, and to transfer cash are all examples of populist policies that have done more harm than good.

We are confident that if Asia commits itself to liberal values such as property rights and the rule of law, the region will prosper.

We commit to:

* Provide alternative liberal solutions to the real problems that give rise to populism, and educate about the benefits of liberal policies, using positive language and examples.

* Provide public support to politicians, political parties, business groups and other stakeholders that support liberal solutions.

* Expose the high costs in terms of money and disastrous end results of such policies

* Educate politicians and students

* Engage with the media to educate the public more widely

* Engage and create strategic alliances with civil society

* Meet on a regular basis to strengthen our network. 

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More photos during the HK conference.

EFN Asia 13: Welfare Populism and Poverty

* This is my article yesterday in the online magazine,
http://thelobbyist.biz/index.php/perspectives/less-government/item/122-welfare-populism-and-poverty
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State-mandated welfare populism or universal welfare, is creating more dependency and mendicancy rather than independence and self reliance. It is encouraging more corruption rather than curing it, expanding the spend-tax-borrow policy, bloating the public debt and the economic uncertainty that comes with it. Therefore, politicians and the public should avoid welfarism trap and steer government to focus on promulgating the rule of law, protecting property rights, making social and economic rules apply equally to all and not making favoritism and cronyism.

This is the main message in the two-days Economic Freedom Network (EFN) Asia 2012 conference last November 6-7, 2012, here at Crowne Plaza East Kowloon, Hong Kong. The event that attracted more than a hundred international and local participants was sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and co-sponsored by the Lion Rock Institute (LRI), Hong Kong’s first and only free market institute. 

Among the speakers in the two-days conference were Wolf Dieter Zumpfort, Deputy Chairman of the FNF Board of Directors in Germany;  Abhisit Vejjajiva, former Thai Prime Minister, Rainer Adam, Regional Director of the FNF Southeast and East Asia, Bill Stacey, Chairman of LRI, and John Tsang, Finance Secretary of Hong Kong.

The various speakers have reiterated the importance of setting markets free – rich and poor, men and women, young and old, to have access to various employers and consumers of their skills and talent, products and services, in a competitive and non-monopolistic or non-oligopolistic environment. The role of government is to protect the property rights of the people, that the fruits of their hard work and efficiency, are protected and not forcibly taken away from them by bullies and cheats. This necessitates upholding the rule of law, that regulatons apply to all, exempts no one and no one can grant exemption from the limitations made by the law.

Thus, the law against killing, stealing, kidnapping, land grabbing, extortion and other criminal activities should apply and be strictly implemented. This equality before the law will act as the main incentive for people to become more industrious, responsible and self reliant.

Forcing equality in society via populist and welfarist policies – like high food subsidy, fuel subsidy, housing subsidy, healthcare subsidy, cash transfers – would tend to encourage dependency and mendicancy. Forcing equality of social outcome among the people regardless of their work and efficiency or lack of them, will distort markets, wreak havoc on the fiscal condition of governments, as what is happening now in many welfare states in Europe like Greece, Spain, Portugal and Italy.

Even in Hong Kong, according to local speakers, the government is treading slowly on more welfarist policies that were absent when this free trade economy was developing and has attained a highly developed economic status.

The European speakers in the conference also recognized that Hong Kong's generally free market and globalized economy coupled with the rule of law, is mainly responsible for its economic prosperity while Germany and many European economies are struggling with welfarism trap, massive unemployment, and the need to cut the expensive, huge debt generator welfare programs to help stabilize their economy.

Welfarism is being introduced more liberally in many Asian governments and economies recently. In Thailand for instance, they have rice subsidy, free computer tablets for first graders, and subsidy for first time car buyers. The latter alone cost the government $1 billion and the traffic has worsened further.
In Indonesia, fuel subsidy has further bloated the public debt. In China, there are calls for school free lunch, free school bus.

In S. Korea, there are free child care and universal school meal policy. If these and other new welfare programs are adopted, public spending will rise by around $520 billion more, which will need either new taxes and/or more borrowings. Existing welfare programs alone is projected to contribute to government spending of 45 percent of GDP and the public debt is projected to reach 216 percent of GDP.

In the Philippines, there are various welfare programs supposedly to help “fight poverty”. These include education and books for the poor, healthcare and medicines for the poor, housing and relocation for the poor, credit and tractors for the poor, and many of these do not seem to work as high poverty still persists, so they invented new welfare programs like cash transfer for the poor, and soon, pills and condoms for the poor.

In his keynote address, HK’s Finance Secretary John Tsang said that they are conscious of observing fiscal prudence for three reasons: it is in their constitution, they are aware of the huge public debt problem of many welfare economies, and it is part of their value system of not spending more than one’s income.

Wall Street Journal editor for Asia business, Joseph Sternberg, observed that Mr. Tsang has several new taxes on residential real estate transactions, like a 15 percent tax on foreigners real estate buyers, an increase in “special stamp duty”, and the possibility of the HK government imposing a capital gains tax on property soon.

All new taxes or hike in the rates of existing taxes are meant to expand government revenue to finance in part new welfare spending or expand coverage of existing welfare programs. Politicians, legislators and other policymakers cannot bind themselves and their successors. The itch to intervene, to subsidize and over-spend, is there, resulting in distortion in many sectors of the economy, high public indebtedness that results in high interest payment and siphons resources away from otherwise productive spending.

Rule of law is undermined when government mixes with businesses. Cronyism and nepotism is not far off when government becomes the regulator and industry player at the same time, even in the guise of protecting the poor from “market manipulation by private enterprises” demagoguery.

There were many other important points discussed during the conference. As the Philippine elections is coming closer, just six months away, reminding both the politicians and the voters that welfare populism is a costly policy that can create more dependency rather than independence, is an important task for concerned individuals and civil society leaders.

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Meanwhile, here are  more photos during the conference.
Below, the two guys whom I would consider as the "pillars" of the EFN Asia conference, Dr. Rainer Adam (left) and Dr. Wolf Dieter Zumpfort (right). Without their commitment to hold an annual EFN Asia conference, the network could have been more loose and have no regular regional and international networking.

Then my two photos from Xingyuan Feng's camera. Xingyuan has been a friend since 2004 and I see him every year in various regional and international conferences. Another friend in the picture is Shoulong Mao, another Chinese academic and free marketer, President of the Cathay Institute for Public Affairs (CIPA).

EFN Asia 12: Day 1 of Conference 2012

Day 1 yesterday of the 2012 Economic Freedom Network (EFN) Asia conference here at Crowne Plaza East Kowloon. It is sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and co-sponsored by the Lion Rock Institute (LRI), Hong Kong’s first and only free market institute. 

There were 100+ participants, mostly international (Asia, US, Canada, Germany, Spain...). Many locals too, mostly friends of LRI.

Key speakers yesterday morning, from left: Wolf Zumpfort, Deputy Chairman, FNF Board of Directors, Germany;  Abhisit Vejjajiva, former Thai Prime Minister, Rainer Adam, Regional Director, FNF Southeast and East Asia, and Andrew Work, LRI co-founder. He took the place of  Bill Stacey, Chairman of LRI, who came late by a few minutes.

In his opening message, Bill reiterated the importance of free market, rule of law and property rights, in countering the mass appeal of populism which has long term negative impact on the economy. He said that the HK government is treading slowly on more welfarism.

Wolf cited HK's generally free market and globalized economy for its economic prosperity while Germany and many European economies are struggling with welfarism trap, massive unemployment, and the need to cut the expensive, huge debt generator welfare programs to help stabilize their economy.

Rainer reiterated a number of points made by Bill, and praised former Thai PM Abhisit for not bowing to heavy populism in Thailand during his term, that he cut certain subsidies and instill fiscal restraint and responsibility, only to be reversed by the succeeding populist administration in Thailand.

Abhisit discussed many points in his keynote speech. Among them:
* Populism has made the poor become even more dependent on the government.
* Populism breeds high opportunity for corruption, like the rice subsidy corruption.
* It can lead to more social conflict as a result of those continuing corruption.
* Decline of democracy as populism very often leads to authoritarianism and totalitarianism.
* Foreign intervention becomes inevitable later, like the heavily indebted welfarist economies who must be bailed out by other countries and the multilaterals.
* Decline in competitiveness and possible collapse of the economy as free market competition is often shelved.
* But free market has problem with social and economic distribution, thus the need for government to provide some safety nets to those highly vulnerable sectors and households.
* Politicians should be responsible, balance populism with proper education of the voters, avoid quick fixes and welfarism trap.

3. Keynote Address, former Thailand PM , “How Welfare Populism Destroys Prosperity”

The next round of speakers were Sec. Neric Acosta, the Presidential Adviser for Environmental Protection, Philippines, and Sec.Gen. of the Council of Asian Liberals and Democrats (CALD), and Bibek Debroy from India. Bibek was the sudden replacement of Parth Shah, President of the Center for Civil Society (CCS), India, who failed to come due to  problem with his flight from Delhi. Below is part of Neric's presentation.

Neric emphasized the importance of the rule of law, avoid populism despite its temptation to politicians. Bibek said that contrary to many people's belief, politicians in general are not myopic as they balance populist demand by the voters and managing public expenditures.