BWorld 199, Charity and giving should not be legislated

* This is my column in BusinessWorld on March 22, 2018.

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

— Adam Smith, 

The Theory Of Moral Sentiments (1759),

Part I, Section I, Chapter I

Among a plethora of so many global comparative indices — competitiveness index, economic freedom index, corruption index, energy security index, happiness index and so on — there is an interesting one called the World Giving Index (WGI).

It is produced by the Charities Aid Foundation (CAF), a UK-based international NGO. WGI 2017 is based on data from Gallup’s World View World Poll research project covering 139 countries in 2016. Some 1,000 questionnaires are completed by a representative sample of individuals living across a country. Bigger countries have bigger samples collected, like 4,373 interviews in China.

Overall, more than 146,000 people were interviewed by Gallup in 2016 and samples are probability-based. Surveys are carried out by telephone or face-to-face depending on the country’s telephone coverage (see table).

The result seems plausible except that Japan’s ranking only 111th out of 139 countries might raise one’s eyebrows in disbelief. Japan’s prosperity is largely a result of its being a trustworthy nation and hence, giving-oriented. One can put big investments in time and money on something and trust that no one will confiscate, steal, or destroy that investments. Gallup and CAF may have to revisit their questionnaires or the individuals they have asked.

Nonetheless, it is worth noting that the top two world rank were secured by ASEAN countries Myanmar and Indonesia. The Philippines is 54th or within the upper half. Communist China is 2nd to the last, one notch before Yemen.

Now there is a bill in Congress known as the “Food Waste Reduction Act.” It is a lousy bill because (1) it does not believe that Filipinos have capacity for voluntary donation and thus, it wants to “make it mandatory to donate edible food surplus for charitable purposes.” And (2) it does not believe that there are already existing processes and organizations, global-regional-national, that accept and distribute food donations by companies and individuals.

One such global and regional organization is “Second Harvest Asia” also known as Food Banking in Asia. Its regional head is Charles McJilton and its Philippine representative is Bruce Hall, an American married to a Filipina academic and mainly residing in Iloilo City for two decades now.

Charles emphasized that “Companies / people donate because they trust their food will go to those in need and that they will not be harmed. Trust is a key factor. Mandating donations will not create the necessary trust that must be present.”

This bill may sound good to some but hidden in it are huge interventionist policies. It intends to cover nationwide all food manufacturers; all food establishments (restaurants, cafes, diners, fast food chains or hotels); all supermarkets with at least 500 square meters of selling space; and all culinary schools which offer culinary, baking, and pastry courses with at least 50 students.

The monitoring and inspecting agencies will be the Department of Social Welfare and Development (DSWD) in coordination with the Local Government Units (LGUs). Can one imagine the opportunities for abuse and extortion by some personnel of these agencies?

Among the troublesome provisions of the bill is “Section 9. Food related Business Waste Reduction Strategy — The owners of food-related businesses such as food manufacturers, supermarkets, restaurants, cafeterias, culinary schools and hotels are hereby required to: (a) Submit its report to DSWD and DENR containing data on the amount (in tons) of its edible and inedible food surplus, organized according to the manner of disposal, including donation, composting or discarding; (b) Enter into a contract with food banks to redistribute edible food surplus to the food insecure…”

In reaction to this, Charles asked several questions:

“1. Will companies release this type of information? Our discussion with food companies in the Philippines and Japan is that they do not want to release this information as it gives their competitors information about sale.

2. In France, they created a law requiring supermarkets to enter into a contract with food banks. What happened is that brokers started charging a finder’s fee to supermarkets to “assist” them in entering a contract with a food bank.

3. Entering into a contract does not mean the food bank can take all that is being offered or has the resources to pick up the food donations.”

Government and legislators should stay away from mandating and penalizing individuals’ and private enterprises’ voluntary giving. Government should focus its resources and manpower catching real criminals — thieves, murderers, rapists, kidnappers, land-grabbers, arsonists, terrorists, plunderers, protectors of criminals, both outside and within government itself.

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See also:
BWorld 196, Mining tax and TRAIN, March 20, 2018 
BWorld 197, Estimating electricity price hikes because of TRAIN, Part 2, March 22, 2018 
BWorld 198, Three levels of global disruption, March 24, 2018

CSOs and State 24, Mark Zuckerberg and Charity

Another civil society and volunteerism in action. Giving away one's own money, not other people's money collected by force.

"Mark Zuckerberg and his wife pledged to give away virtually all of their $46 billion in Facebook Inc. shares, setting a new philanthropic benchmark by committing their massive fortune to charitable causes while still in their early 30s.... promising to donate 99 percent of their stock in the social-networking company "during our lives."

"Mark Zuckerberg announced Tuesday that he's giving away 99% of his Facebook shares — valued at $45 billion today —during his lifetime." http://www.businessinsider.com/mark-zuckerberg-giving...

So not entirely by next year or next 5 years. He plans to increase his wealth from the current $45B to perhaps $100B or $300B, then give away 99% of it. Maybe in 20 years. It's all about volunteerism, not coercion.

"Zuckerberg and Chan have already donated more than $1.6 billion to charity in the past decade, including a $100 million gift to the Newark Public School System, a $25 million donation to the CDC to stop the spread of Ebola, and a $120 million commitment to education in the Bay Area." -- from the BI article above.

So there is record already, gave even before announcing this new initiative.

This is a new phase of global capitalism. Those super-super rich, they see that governments are getting more bureaucratic, more coercive and even more stupid, they do not like how their huge tax money is being spent by those governments. So they spend and distribute their OWN money to see more meaningful results.

Politics of envy 1: rich people don't give to charity, damn them.

rich people give to charity, directly or indirectly, still damn them.

like this article. http://says.com/.../what-no-one-is-telling-you-about-mark...

Politics of envy 2. All people, rich and middle class and poor alike, should be disempowered to do charity projects. Only the government, its politicians, legislators and officials/bureaucrats can be trusted. wow.

"It is all just a bad transfer of power from the state to billionaires. So it's not the state that determines what is good for the people, but rather the rich want to decide. That's a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?" http://www.businessinsider.com/mark-zuckerberg-skeptics...

Politics of envy 3: Only government central planners can do real charity, wow.

“I applaud their emphasis on ‘promoting equality,’ but that starts with paying one’s taxes,” said Gabriel Zucman, an economics professor at the University of California, Berkeley. “A society where rich people decide for themselves how much taxes they pay and to what public goods they are willing to contribute is not a civilized society.”

http://www.bloomberg.com/.../for-facebook-s-zuckerberg...

"by using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively." Zuckerberg said that if his intentions were to avoid tax, he could've simply set up a charity. "If we transferred our shares to a traditional foundation," he wrote, "then we would have received an immediate tax benefit, but by using an LLC we do not. And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC."

http://www.theverge.com/.../mark-zuckerberg-explains...

He posted: "This enables us to pursue our mission by funding nonprofit organisations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need.

"Any net profits from investments will also be used to advance this mission."

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See also:

CSOs and State 20, Gawad Kalinga and Housing for the Poor, June 08, 2015 

CSOs and State 21, Patient Organizations, PAPO and HealthPRx, June 09, 2015 

CSOs and State 22, CIPS' Community Schools Project in Indonesia, June 28, 2015

CSOs and State 23, Financial education and Pidro Sing, October 27, 2015

CSOs and State 8: Gawad Kalinga, Health NGOs and Taxes

There was a good article two months ago at the Inquirer on the dramatic growth of Gawad Kalinga (GK) in the Philippines. Now there are 2,300+ GK villages in 400 towns in the Philippines according to prime GK advocate. The news report also narrated how some local politicians ride on the GK bandwagon, whether for serious or opportunist reason.

http://newsinfo. inquirer. net/inquirerhead lines/nation/ view/20090719- 216139/Local- execs-into- politics- of-caring- GK-way

I am not sure if those local and national politicians that hitch with the GK bandwagon understand that there is something in GK that is not present in government service: instant accountability.

GK lives off on pure donation, voluntary contribution. Once the donations are gone, GK is gone.

Government on the other hand, lives off on taxation, mandatory and forcibly collected taxation. Such revenues can never go dry, so the bureaucracies can never fade away.

GK people are driven by pure customer satisfaction. Their "customers" are the thousands of private donors who have extra money to give away if they are assured that their donations are well spent and not stolen or wasted. If those donors sense something is wrong, there is the instant result of donation reduction or evaporation. Whereas in government, there is rigid and looongg process of finding out accountability and wrong-doing, if ever.

I know a Pinoy friend from LA, who has been helping GK for the past 6 to 10 years now. He's on the lookout how the projects that he's supporting is going. A single news that he can confirm that the money is wasted in a par ticular GK project, he stops donating to that community, rechannels his contributions to other GK communities or other humanitarian projects. He even tells his other friends who give the same donation, so the news of wrong-doing can easily spread. Although so far, instances of wasteful GK projects are very few and isolated.

It's like Rotary, Lions, Masons, other private charity and civic groups, other civil society organizations (CSOs). They live off on pure voluntary support, membership and contributions. The moment a club or a district misbehaves, the "punishment" in the form of reduced membership may not be instant but can build a momentum.

More serious politicians who strongly believe in the GK spirit should consider drastically cutting the taxes and fees (local or national) that they impose, encourage investor confidence that results in more investments, more entrepreneurship, more job creation in the local community or the country as a whole.
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Civil Society Leaders Embracing High Taxes

In relation to my earlier discussion on taxes on medicines, I posted in our CHAT googlegroups that our think tank, Minimal Government Thinkers, does not solicit or receive any government money (local, national, foreign aid). A think tank or NGO that does not receive any tax money can be a tax activist anytime.

When the WB Philippines proposed -- and reported in the newspapers -- that the excise tax on gasoline (currently around P4.50/liter) should be hiked in order to help reduce the budget deficit, I posted a commentary in this blog and sent it to my various ygroups, cc'd my friends working or used to work in WB Manila. I said that the WB is a parasite for proposing such measure to further raise gasoline prices when many sectors are already debating or fighting each other how to bring down gasoline prices, how to bring down the fares in public transpo, etc. I think the Department of Finance (DOF) also did not entertain their proposal. 

If MG Thinkers receive funding from the WB, IMF, ADB, UN, USAID, AusAid, etc., it's difficult to become a tax activist because ALL of those institutions live off on tax money. Or difficult to attack international bureaucrats because ALL of them are international bureaucracies. 

One NGO leader narrated their experience. Early this decade, they campaigned for the removal of the tax for one anti-cancer (leukemia) drug. They succeeded, but he added that it did not result in price reduction, rather the prices of such drug kept rising. So he concluded that only the pharma company, not the patients, benefited from the removal of taxes on medicines.

I narrated my other observation. One of my Filipino friends in California (Monchit Arellano) is helping the Books for the Barrios (BftB, www.booksforthebarriors.com). He, his family, some Filipino officemates and friends, solicit and collect hundreds, thousands, of books, even toys, for elementary-level students in the US, pack them in boxes, which are later loaded in shipping containers, transport to the Philippines. BftB Manila receives those containers, and here's the catch:

Those books from America were donated FREE.
Those books will be distributed to public elementary schools in rural areas of the Philippines for FREE.

But when those containers of books from the US reach the Philippine ports, BftB Manila pays for the following:
1. Customs duties around P65,000 -- yes there are taxes for donated and used books!
2. Customs broker around P60,000 -- an agency that deals everything with the Bureau of Customs (BOC).

The BftB Manila staff who narrated me that story last year, said that what's worse, donated medicines and vaccines by volunteer medical missions from abroad, many of them are parked at the Customs area and allowed to deteriorate. Why? Those medical missions and volunteers have money for the airfare of the volunteers and shipment of free drugs and vaccines. But they never expected there are high taxes and Customs brokerage to pay for those donated medicines, so they did not bring money for such. Those vaccines are on refrigerated containers that run on electricity, of course. Since they cannot pay the taxes, and the medicines require continued electricity while the papers and payment are being processed, the BOC personnel disconnect the electricity as electricity charges are being borne by the Bureau. Within hours, those useful, essential, life-saving medicines become useless as they need to be kept at a particular temperature (say 0 or 10 Celsius). When the temperature goes up or down significantly, the medicines become ineffective for their intended patients.

For the imported anti-cancer drugs that the NGO leader above was talking, I think only the import tax (5%) was waived. This tax is collected by the BOC. On top of the import tax, there is the 12% VAT, also collected by the BOC in behalf of the BIR. This bigger tax has to be paid to the BIR even if the import tax or customs duties is waived.

For the pricing of whoever is the pharma company that sold that medicine, when it is the single seller or distributor of that medicine in any country, that is tantamount to a monopoly. A monopolist would tend to abuse its position and price its product at any level it wants to, considering demand elasticity (or responsiveness of consumers to changes in prices), size of the market, and purchasing power of that market. Government is an example of a monopoly. It can set its price at any level (personal income tax at 32%, corporate income tax at 35, down to 30%, travel tax at P1,620, with or without any service to the Pinoy traveler, etc.).

The solution to a monopolistic industry structure is more competition. Allow other players and producers to come in. As I have posted before here, there are hundreds of other multinational innovator pharmas, and tens of thousands of generic pharmas, that are not in the Philippines yet. India alone has more than 22,000 pharma companies. Its biggest pharma company, Ranbaxy -- like Unilab, the biggest pharma co. in the Philippines -- is not even here when Ranbaxy can put up stiff competition to anybody here, both local or multinational pharma.

I opined that the posting by said NGO leader was not to discourage the pursuance of abolishing taxes -- both import tax and VAT -- on medicines. This government hypocrisy need to be stopped. We all want cheaper medicines, so taxes that hike medicine prices, and regulations that kill competition, should be scrapped.

The guy replied, that even if the 5 percent import tax was waived, the anti-cancer drug price did not go down by a corresponding 5 percent. So he reasoned out that if the 12 percent VAT will be removed, then the profit of the pharma company/ies will become even bigger. 

He further argued that when government tax revenues fall, it's the public who will suffer because the government will have lesser money to develop the country.

Typical statist, if not socialist, argument. This logic says that government should tax and tax as much as possible on everything. Anyway the money will be used by the government for the public.

This is actually one perspective being embraced by many civil society leaders who hate free markets and competitive capitalism, they want more government intervention, regulation and taxation. More government responsibility to assume a big Nanny role. So those civil society leaders come to the defense of the State for ever higher taxes, including high taxes on medicines even if the same NGO leaders are supposedly campaigning for "cheaper medicines".

It will not be far that these NGOs receive lots of funding from the government -- national or foreign aid. As I posted earlier in this blog, such NGOs are NOT exactly "non-government". They are more of government-funded organizations (GFOs) although the funding is not direct. Usually through an international NGO that gets foreign aid funding, then channeled to national NGOs.


* See also:
CSOs and State 4: Local Government and Civil Society, August 12, 2008
CSOs and State 5: Subsidiarity, Decentralization and Privatization, September 04, 2008
CSOs and State 6: Stichting Kapatiran and Books for the Barrios, December 07, 2008
CSOs and State 7: Public School Library with Minimal Government, BftB, June 29, 2009

CSOs and State 3: Poverty and Public Education

In the 70s to the 80s, there was a famous British rock band called “Supertramp” and one of their cool and hit songs was “The Logical Song”. A part of it goes like this:

Now watch what you say or they’ll be calling you a radical,
Liberal, fanatical, criminal.
Won’t you sign up your name, we’d like to feel you’re
Acceptable, respectable, presentable, a vegetable!

The Philippines is in a continuing grip of political instability as more cases of corruption charges are being investigated involving a number of top government officials who contracted big amount of taxpayers’ money for projects to “fight poverty” and “improve governance”. These are two seemingly “holy” goals that can justify high and multiple taxes and fees. After all, who doesn’t want to see an “end to poverty”?

But there are many shades of poverty and reasons for poverty. Among the quick ones that I can think of are:

1. Acts of nature – whole villages and farmlands wiped out by strong typhoon and landslides, or strong earthquakes and tsunami, or volcanic eruption and lava/lahar flows, etc. These are understandable causes of poverty and the victims really need some government support, assuming that they will seek it.

2. Acts of men – high and multiple taxation and corruption, thick bureaucracies that slow down if not kill entrepreneurship and job creation, robbery, killings, wars. These are often government-created inefficiencies that can lead to mass poverty..

3. Acts of personal irresponsibility – people who don't want to work; or work little and consume plenty or expensively; or work hard but also drink/gamble/spend hard; or those that get involved in frequent troubles; etc. Some of government’s welfare programs help encourage a culture of complacency and irresponsibility.

Any or all of these striking you will ensure that you will become a “logical poor” or you “logically become poor”. But if poverty is caused by personal irresponsibility, then we
should not “fight poverty” and instead, allow misery. Because it is not fair when governments, including foreign aid bureaucrats, will confiscate (or justify the confiscation of) a big portion of our income and savings to subsidize people who don't even bother look for a job or do not know how to save for the rainy days.

A friend once asked me why I could be so “cold and heartless” in saying these things. Well, it’s borne out of some personal observations. For instance, in a rice farming village that I frequently visit, I have heard and seen some farmers who died poor and miserable. These are industrious guys who work 6-7 days a week, but they also drink 6-7 nights a week. When their intestine or kidney or lung or other internal organ gave way, they have little or no savings to tide them over. If projected medical expenses are big, any support by relatives and friends will not be enough.

And I don’t know if the “poverty fighters” in governments and foreign aid institutions take into account poverty due to personal irresponsibility. If they cannot realize the tax burden of the bureaucracies that they work with and the economic distortions created by their intervention, then I doubt that said poverty fighters will really be successful in their avowed mission.
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A related note I wrote late last year,

Why Education Should be Parental Responsibility, Not Government Responsibility

November 19, 2007

When my wife was still pregnant, she and her 2 friends who were also pregnant (they all gave birth on different days of October 2006) were already discussing the kind of early training or schooling they will give their kids when their child is 2 years old, 3 years old, and so on. And in these 3 mothers’ minds, they sometimes have different preferences or plans for their respective children at a young age, much more when the kids reach college level.

Which brings us to the fact that when given the choice and resources, parents will have varying plans for their children. For instance, aside from the basic skills of reading-writing-math, some parents would want their elementary-level kids focus more on arts, music and dancing; others would want their kids to be good in European or Asian (Mandarin or Japanese or Korean) language; others would want their kids to be good in science and math; others would want their kids to be good in Catholic (or born-again, or Islamic or Protestant or Buddhist) virtues and religion; others would want their kids to be good in household care like cooking and home care; others would want their kids to be good in soccer or basketball, ballet or swimming, and so on.

Can government-sponsored public education respond to dozen-plus different needs by parents, say on a single municipality alone? I really doubt it.Government only gives uniform and general education. And when things are made uniform, what usually follows is mediocrity. Because uniformity discourages excellence, explicitly or implicitly; it just make things and people go "uniform, equalized and generalized".

The only way to cater to these varying needs and priorities by parents is to have very diverse educational system, and only private schools that cater to the needs and whims of parents can respond to this. Those schools that fail to respond to parental needs will close shop, while those schools who do will become big.

Privatization of education (ie, abolition of public education system at all levels) is a long-term vision. And this “devolution” of responsibility from the state to the parents, the individuals, should be complemented with the abolition of certain taxes and government fees, those forced confiscation of income and savings of parents, so that the latter will have more disposable income to spend for their children’s education and other household needs.

For the meantime, we can start with the privatization of all state universities and colleges including the University of the Philippines (UP), and allow the state to run public elementary and secondary education.

What about the poor? Parents who are responsible will never run out of opportunities to improve their lives and the future of their children. Parents who are irresponsible and would rather spend their time drinking and gambling, and discussing how much subsidies they expect from government, will go poor, even starve. They deserve this because they chose this. But what about their children?

Humanity is filled with endless examples of charity. Pure, voluntary charity that requires zero taxation and zero political grandstanding. Their support to fellowmen, especially poor children and the aged, the physically and mentally handicapped, the victims of natural disasters, is endless. There are hundreds of civic and service organizations, church organizations, private enterprises and foundations, even sports associations, who are more than willing to provide charitable work to their fellowmen who have the dignity of showing ambition and aspiration to improve their lives in the future.

(This article was also posted in http://www.thelobbyist.biz/column_detail.php?id_article=528&id_category=26)

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See also:

CSOs and State 1: AIDS and Perversion of Welfare, June 16, 2006

CSOs and State 2: NGOs and Government Clubs, November 09, 2006